Unless you’ve lived under a rock, you are probably well aware that oil and gas prices are skyrocketing in the United States and around the world. As the global economy rebounds from the novel coronavirus pandemic and demand for goods and services recovers to something like pre-pandemic levels, supply chains and production nodes have been unable to keep up. to follow. Supply bottlenecks, shipping restrictions and labor shortages have resulted in high costs for all kinds of economic sectors, but few have been hit as hard or as quickly as industry. Energy.
In Europe, an energy crisis is in danger the European Union’s economy and energy security as well as the continent’s ability to meet its own emissions targets. This crisis is only expected to intensify as temperatures drop through the winter months, and just as representatives from around the world flock to Glasgow for the known 26th United Nations Framework Convention on Climate Change (UNFCCC). under the name of COP26, which will start later. this month. In China, supply shortages along with energy price caps are leading energy companies to choose between bankruptcy or shutting down production altogether, as Beijing urges coal-fired power plants to produce as much as possible, to hell with climate promises. India, too, faces severe supply shortages and runs the risk of running out of coal entirely (which accounts for 70% of the sub-continent’s energy mix).
In the United States, the energy crisis has not reached the crisis levels currently experienced by the European Union and Asia, but the economy has proven to be far from immune to these market pressures. global. Oil is currently trading at seven-year highs and the West Texas Intermediate Crude benchmark is above $ 80 a barrel. And all of that inflation is expected to continue to rise as oil becomes more and more expensive to produce. Rystad Energy predicts that the cost of generation in the Permian Basin will increase by 10-15% over the coming year. While the whole economy is experiencing inflation, it is causing global inflation rates to explode.
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Meanwhile, the oil service companies bearing the brunt of the cost increases have made it clear they will blame producers. Oil service companies suffered greatly from the contraction of the oil market in 2020 when the pandemic pushed oil prices to historic lows. With limited resources and a shrinking workforce at a time when hiring seems impossible, companies like Halliburton won’t foot the bill for the higher operational costs.
While operating costs will rise dramatically for U.S. shale companies, oil prices are so high that they will continue to make a net profit. According to information from the Financial Times, costs will likely drop from $ 50 a barrel to around $ 55 a barrel. At $ 80 a piece, it’s certainly still worth the oil and gas companies. Ultimately, it will be American buyers and consumers who bear the burden of the higher production costs.
Rising fuel and energy costs, which will only continue to rise during the winter as demand increases and pressure intensifies, threatens the post-Covid economic recovery of national economies and global. As consumers are forced to pay more to utilities and more to gas pumps, they will have less money to allocate to other economic sectors.
And the potential damage from the energy crisis is far from being limited to the economic rebound. As noted above, it also poses a major threat to the emerging green energy transition around the world. As nations struggle to maintain their energy security, climate commitments and emissions targets take a back seat to keep the lights on.
By Haley Zaremba for Oil Octobers
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