October 2022 - 1keystone.com

Managing the Conflict Between “Going Green” and Preventing Disastrous Energy Shortages – Revisited

October 27, 2022 Article by Jeffrey Price

Previously, back in the summer, we griped about the lackluster response of mainstream O&G producers in terms of their efforts to ramp up domestic energy volumes (July 19 blog post). On October 24^th, the conservative-leaning Wall Street Journal reported on this same topic (see article here) pointing out that the priorities of the companies are primarily directed at maximizing shareholder payouts and carping about federal regulations. What patriots these folks are! Those regulations they moan about have not radically constricted this industry since the Biden Administration took the reins. In fact, there are plenty of drillable well sites permitted and ready-to-go in the Permian Basin. It’s a cop-out excuse! Indeed, a cynic would wonder whether industry leaders are quietly working to undermine a laudable national strategic goal.

And, the next question is: Are shareholders served by this behavior? The WSJ article points out that industry leaders generally believe that prices are headed upwards, which would be a pretty positive factor in the equation about whether or not production ought to be ramped up. That certainly would have been the upshot a half-dozen years ago – and the fundamentals are way better nowadays.

What about ESG considerations? Well, let’s think about that for a moment. Should the United States be expanding fossil fuel production when supposedly it is leaning toward reducing greenhouse gas emissions. The answer to that dilemma h as to be considered in an overall environment where an existential war is being fought in Eastern Europe. And, if a powerful coalition is to be held together, then the US must step up big-time to help overcome the shortfalls resulting from embargos imposed on the USSR (oooops! I meant the Russian Empire). Where are our flag-waiving oil industry chieftans!?

First Keystone continues to be part of the solution by building state-of-the-art infrastructure – such as industrial buildings for lease – that is supporting companies that enable the development of oil & gas in Reeves County (Texas’ #1 for NG production).

The opinions expressed above reflect only those of the author and do not represent those of the First Keystone Pecos Industrial Park organization. First Keystone welcomes responsible fact-based discourses on these topics.

Does $70 Oil Make Sense???

October 6, 2022 Article by Jeffrey Price

Much to our utter surprise, the price of oil dipped into the $70s in late September leaving us scratching our heads as to what are these energy traders thinking!? The precipitous decline in the price of oil as dramatically depicted in this graph doesn’t make any sense to those who follow global affairs.

Let’s take a look at some basic facts:

OPEC+ has shown remarkable self-discipline by keeping its quotas tight. Thus, the raw fundamentals of supply and demand – real consumers and real producers – point towards a tightening market.
Since March, the Biden Administration has been peeling off oil out of the Strategic Petroleum Reserve (SPR) for more than a half-year as a way to bolster domestic supply and, thus, tamp down domestic gasoline prices that were spiraling into a politically unacceptable level. It’s still going on. (We will leave until another day a commentary on the appropriateness of meddling with the SPR to deal with domestic inflation matters.)
Despite record profits, most US-based oil companies have not appreciably increased their rig counts year-over-year. Some notables (Pioneer) are flat YoY.
The embargo on Russian energy is working in terms of BOPDs not exported. (We’ll leave to another commentary the nuances of the silver lining that the Ruskies have been enjoying.) The US et.al. is not stepping-up-to-the-plate sufficiently to replace it. Moreover, transportation infrastructures have to undergo major modifications to facilitate new patterns of suppliers and consumers.
$70 oil seems to discount the impacts of a purported worldwide recession. But, it is nowhere to be seen.

So, the price of oil has abruptly taken off early in October as have many sectors of commodity and financial markets – our question is this: What new news emerged in the last 3 business days that justifies a major rally in oil prices? Our view is that maybe those smarty-pants oil traders had time over the past weekend to review market fundamentals and have opted to reverse their bearish positions.

Indeed, the pendulum on prices could swing violently upward. Take a look at this New York Times article about that SPR. Among the many interesting points made in there, it raises the issue of what happens to the pricing of crude oil once the Biden Administration gets around to replenishing the SPR inventory. And, since then, OPEC+ announced an unexpected roll-back in quotas.

In sum, we at First Keystone view the fundamentals of producing and selling oil and natural gas as favorable in the short-term as well as fundamentally sound in the intermediate term. Certainly, the worldwide market for natural gas is undergoing radical changes. We are doing our bit to aid in that process by leasing industrial buildings in Pecos (TX) to serve the oil industry’s needs.