As the Russian invasion of Ukraine continues, the global energy map is being shifted. Putin presently appears to be in scorched earth mode to gain his concessions, knowing the West doesn’t want to engage head on. Putin’s attempted gains are mounting as losses for the Russian people, and absolutely devastating losses for the Ukrainians in the short term.
As written over the last days, both before the day of invasion and after, the U.S. oil and gas industry has an inherent flexibility, owing to our laissez faire structure. While it’s true, the Saudis can singlehandedly influence oil production output decisions via OPEC, they have chosen to maintain their steady production position for various reasons.
Both Pioneer Natural Resources CEO Sheffield and Devon CEO Rick Muncrief have been vocal about the White House calling on OPEC to increase production of late, rather than calling on Houston, notes Seeking Alpha editors. In a recent S&P Global interview of March 2nd, Sheffield suggested the shale patch could grow oil production approximately 10% for three years, providing close to 1mb/d to the market annually. In the recent past, 5% growth rates were the sweet spot for the industry as it navigates ESG concerns and returns cash back to investors after years of sub-par performance. This is a significant and powerful gesture.
In the early innings of the U.S. shale oil revolution, circa early- to mid-2010s, it became apparent that the additional millions of barrels of U.S. oil to global supply was moderating oil prices. When supply shocks occurred in the past, oil prices would swing higher. That dynamic was tempered somewhat. After the middle 2010s, when OPEC decided to re-take market share, some of the dynamic was lost, to say the least. Market forces are market forces and OPEC is a cartel, that also expanded to included Russia as OPEC-plus.
The thing about market forces, however, is a belief factor that underpins organizations, industries in this case. Here in Texas, where laissez faire is perhaps a bit more amplified, let’s say, the oil and gas industry is having a unified voice in support of helping “manage” global markets or at least soften the effects of this tragedy in the making.
What I have learned from the many interactions with the industry is that they are peers with one another, though they compete. Many of the leaders are long-time friends; some share office buildings, socialize together, share best practices with each other. Is it unique in comparison to other industries? Possibly, probably. It could be the specific generation of leaders. It’s an important lesson about the power of communications—of being together, coming together.
Oil and gas markets are perhaps the most global and sophisticated. They are an amalgamation of geology, science, history, economics, geopolitics, trade and business. As a pragmatist, while I believe strongly in sustainable development, the vilifying of the industry by particular groups should be re-thought: Tear down that wall.” They are likely the ones who will partly, possibly significantly, advance and capitalize the energy transition. They’ll surely rise to the occasion of this crisis. That’s leadership with real impact and conscience.