Several oil and gas executives see the federal government as an existential threat to energy production and expressed concerns over the new methane tax in the Inflation Reduction Act (IRA), according to a September survey by the Federal Reserve Bank of Dallas.
“The administration is trying their best to destroy our energy economy,” one E&P executive told the quarterly Dallas Fed Energy Survey.
Executives complained that the government needs to improve permitting and infrastructure, argued that the EPA is overreaching and said the White House is “weaponizing” the U.S. Bureau of Land Management leasing and Gulf Coast licensing. The survey of 153 oil and gas firm executives conducted Sept. 14–22 also showed animus toward the IRA, a climate and health care law signed by President Joe Biden on Aug. 16.
About 68% of E&Ps leaders surveyed see the IRA legislation as slightly or significantly negative for their businesses. Service companies, felt less strongly, although most executives—51%—saw the bill as deleterious.
“The biggest issue we have in our industry is the federal government, which advocates for our extinction,” one E&P respondent told the Dallas Fed. “This has affected our ability to hire new, young talent from colleges because they’ve been brainwashed into believing that our industry is bad and that our industry is disappearing, with no future for them.
“This will be an issue in our industry and the public will pay with higher commodity costs,” the executive continued. “The capital being chased out of our industry is leading to less supply, and that always leads to higher prices.”
One service company executive said the EPA is being used as a “tool to constrain the domestic supply of critical hydrocarbon production as we are promising politically to stand by our allies’ quest to choke off the supply of Russian hydrocarbon imports.
“It is very difficult to square up.”
Despite such sentiments, the survey saw some general optimism regarding the market, with 79% of E&P and service executives expecting at least “some investors” to return to the sector.
The survey reported that activity in the oil and gas sector expanded at a strong pace in the third quarter, though at a reduced pace from the record-breaking second quarter. Supple chain snaggles, cost pressures and labor shortages remain consistent impediments to the industry.
“The cost of supplies and wait times for delivery have increased substantially,” an E&P executive said.
A service firm executive complained of problems with obtaining specialty parts such as emissions components that have up to 12-week delays. “Without these components, equipment is idle,” the executive said. “The purchase of high-horsepower diesel engines (800–1200 horsepower) is very difficult, if not impossible, to source.”
The same executive said lead times for large construction equipment remain delayed by up to 10 months and labor for trucking and skilled construction positions are difficult to source.
A considerable majority of respondents expect a tightening oil market by the end of 2024 as the result of the underinvestment in exploration. They also see rising natural gas prices as LNG exports to Europe expand.
The survey found that most executives—69%—expect the “age of inexpensive U.S. natural gas” to end by 2025.
An E&P executive said shale core exhaustion and inventory concerns are mainstream and well-documented and U.S. production will be down 20% to 30% rapidly. “When it does—this feels like watching the steam roller scene in Austin Powers. Oil prices in the late 2020s will be something to behold.”
Another respondent said natural gas price increases are solely due to the reduction of Russian supply.
“The price we have received the past several years has been below replacement cost since the market was flooded with new supply from ‘growth’ companies. I would assume the price will drop very quickly if the Russia‒Ukraine situation is ever resolved.” The executive added that the methane tax is a “bureaucratic nightmare to smaller oil and gas companies.”
“The tax will not be as much of a burden as the compliance issues,” the executive said. “More regulation results in less productivity.”
Another executive said the term inexpensive is subjective regarding natural gas prices and noted that in the past five years, natural gas commodity pricing has materially impacted U.S. supply much more than demand.
“This has resulted in abnormally low natural gas pricing over this period,” the executive said. “As liquefied natural gas exports grow and natural gas volume growth in the U.S. moderates, natural gas pricing has increased, and a new higher-floor pricing has emerged. While this pricing is higher in the U.S. relative to nearly all other areas around the world, U.S. gas consumers [individual and commercial] still enjoy the benefit of lower fuel cost inputs than others.”
Respondents were the most divided in their responses when asked about the profitability of proposed carbon capture, utilization and storage projects and a related increase in the 45Q tax credit in the 2022 Inflation Reduction Act.
Just over half—54%—of executives expect that most projects won’t be profitable despite the increase in the tax credit. Meanwhile, 42% of the executives expect some proposed projects to be profitable.