The US's energy independence is being made worse by the boom in gas prices.
For the past decade, the US energy sector has been helped by the practice of frack. The next boomtowns for energy commodities were in New Mexico, North Dakota, and Texas. The US became the world's biggest producer of crude oil and natural gas in a few years. According to the Energy Information Administration, total domestic production of crude oil hit a record 13 million barrels at the end of the year.
The industry's biggest boon has become a huge problem. Russia's invasion of Ukraine in late February caused energy prices to go up around the world. In March, the prices of Russian energy companies were lifted.
The US, which exports its oil and gas to other countries, is under more pressure to increase production. That did not happen.
Relief measures, including emergency releases, hurt the rally a bit through April, but with Americans' demand holding strong, prices quickly rebounded. On Wednesday, the average price per gallon of gasoline in the US hit a new high. California is forced to pay an average of $6.39 a gallon for gas.
The prices have fallen throughout the past decade. For the majority of the 2010s, energy prices were lower due to the US boom. The production surge was the first sign of a slowing down. Throw the swine flu, cratered demand, and market dynamics into the mix, and you have a recipe for disaster.
The previous decade's boom turned into a sprint as companies prioritized growth over profitability. Companies began to show signs of a decline at the end of the year. The industry giants told investors that they were considering cutting production. The shareholders wanted companies to focus on profits over growth.
The CEO of Pioneer Natural Resources told investors in November that drilling in the oil-rich Permian Basin will slow down.
He said that the firm will be more cautious through 2025.
Before the Pandemic hit, that all happened. Americans cut back on driving and travel in the early 2020s, causing energy demand to plummet. The price of oil turned negative in April 2020 and traders paid others to take the barrels off their hands. Suddenly, producers were in a shutdown.
It has been difficult to turn on the lights. Consumer spending and travel increased in the spring of 2021. The supply has not responded quickly. In March, crude production was down more than one million barrels from the peak.
Producers have been cautious not to repeat the growth of the 2010s as the uptrend has been bumpy. Firms need to pay down debts from the prior boom in order to keep profit protection, according to investors. It's a sign that the industry is leaving cash on the table and needs to accelerate investment.
There are supply-chain issues that are holding the sector back. Prices have nearly tripled from where they were a year ago due to a shortage of unique sand. That's made it harder for the industry to match supply with demand.
Michael Oestmann, the CEO of Tall City Exploration, said in February that the company couldn't get enough sand. We've run out of sand every day so we're not running as much as we could.
The Biden administration tried to put more pressure on producers, but it hasn't made much difference. In late March, the White House called on Congress to pass use-it-or-lose-it fees for oil firms' unused wells. Each party has been content to push the blame for high gas prices onto the other side of the aisle.
A quick solution isn't likely to happen. The energy sector is dominated by its shareholders and investors have learned from the past. After the growth sprint of 2010, they are in marathon mode. Consumers are in dire need of more production as summer travel ramps up and pump remains below pre-pandemic levels.
All Rights Reserved © 2024
