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Prices for both oil and natural gas prices have been on the steady rise for the past 15 months. The rise in prices have only been exasperated with Russia’s recent invasion of Ukraine.

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            NOTE – One interesting fact is that Ukraine holds the second largest natural gas reserves in Europe behind Norway.  Russia is the largest supplier of Europe’s natural gas.  I many times wonder why wars are fought.  Most of the time it is about energy.

 

The answers to the current price rise questions are quite simple to answer. Vigorous energy and production practices by the oil and gas industry for over a decade brought us (the United States) energy independence and relatively low consumer energy prices. Then came the Covid pandemic. Demand decreased dramatically around the world for over a year (March 2020 to summer 2021) as economy’s slowed down and locked down. Subsequently, E & P slowed down to a mere crawl around the world. Remember a day in May 2020 when we saw a negative trading price for crude oil.  In September the active drilling rig count in Oklahoma got down to four (4) in September 2020. That number was historically low for a state that routinely, over the past many decades, saw an active rig count almost always over 100.

 

That is only one example of change we saw for an energy industry that has experienced numerous boom and bust cycles over its 100 plus year history. Just in my driving lifetime, I have seen prices fluctuate from 29 cents for a gallon of gasoline to over the $4.00 per gallon we are seeing today.

 

Historically, when we have seen prices go up, drilling also increases. Thus, the simple economic function of supply and demand in a free market system fundamentally works to dictate the prices consumers pay. Oil is traded, bought and sold on a world market scale, while natural gas is produced and sold on a more regional basis for obvious transportation reasons.

 

This time around things appear to be a little different, or possibly just much slower to react to the post-pandemic exploding demand we have witnessed beginning last summer. Now, people want to know why the retail price of gasoline and the cost of very much consumed natural gas for electric generation and home heating has been rapidly climbing, even as we approach typically the lower consumption summer months. In fact, as of the middle of March, US natural gas storage gas is down by about 21% going into the summer months when storage gas is usually replaced. That probably will not happen this summer due to the lack of drilling the past five years.

 

I can go on and on about the importance of energy independence, government policy and ultimately product prices to answer the question posed in the first sentence of this report. However, I think we already or have heard about the reasons why we are where we are at this time.

 

So, here is something I want to add that I personally witnessed over the past 41 plus years of working in the industry, that most people probably don’t know.

 

We hear the cry, “we need to just produce more oil and gas.” Of course, that perfectly fits the well-used term, “easier said than done.”  We have also heard it’s just not as easy as, “just turning on a spicket and producing more.” And it is really not.

 

Common sense tells us that is not even close to being realistic.  So, that is the point I am trying to make. A lot of time, effort, work and money (financial investment), and the importance, not to mention the geo-science-based knowledge it takes to make for a successful exploration, drilling and production program is all necessary.

 

It would take many classes to cover everything and the time factor for success is lengthy regardless of if the ensuing company is a small independent, large independent or major oil company.

 

I can give personal examples of how it takes a small independent typically 5 to 6 months to do a small multi-well (say 2-3 new wells), to drill complete and equip with infrastructure before the first sales of product. For large independent and majors doing much larger prospects, that time period is even much greater. Sometimes many, many years go into a single project.

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These facts cannot be ignored. Combine those with more recent stringent government regulation, along with the green push to eliminate fossil fuels all together as an energy source, the deck has been severely stacked against the industry leading to the reluctance for future investment.

 

            With all that said, I believe we are at a critical crossroads for achievable, affordable and therefore acceptable (again the 3A’s) sources of energy. And until the correct policies and direction can be worked out compromised and implemented, I believe we will continue with what we are now seeing and what we are calling “The New Normal” as to what we can expect to pay for energy in the next few years and perhaps longer going forward.