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U.S. Energy Producers Warn European Buyers: No Bailout Is Coming

  • Wil VanLoh, head of private equity group Quantum Energy Partners: “there’s no bailout coming”, U.S. producers cannot pump a lot more.
  • U.S. shale executives aren’t expecting major production increases in 2023.
  • Well output in the U.S’ largest shale basins is falling.

The threat of power rationing across Europe persists even after EU officials held an emergency meeting last week to starve off the impending winter energy crisis. EU countries have increasingly relied on US energy imports, though shale bosses warned the ability to boost oil and gas supplies would be challenging.

"It's not like the US can pump a bunch more. Our production is what it is," Wil VanLoh, head of private equity group Quantum Energy Partners, one of the shale's most prominent investors, told Financial Times

"There's no bailout coming," VanLoh added. 

"Not on the oil side, not on the gas side.

Europe can thank the Democrats and the Biden administration for their war against crushing the US energy industry that led to massive divestments across the sector, which crippled oil production growth and refining capacity, and pressured/shamed the world into withdrawing any capital allocations to fossil fuels.

Ben Dell, chief executive of private equity group Kimmeridge Energy, said the shale industry’s investors on Wall Street would not give their blessing to a big production increase, preferring a low-production, high-profit model.

“Investors generally don’t want shale companies to pursue a growth model,” he said.

“The capital availability is extremely limited.”

Rig counts in the US have started to fall and production has flatlined well below pre-pandemic levels...

On top of the Democrat-led crippling of the US energy industry, EU leaders have been on an ESG-crazed mission to decarbonize their power grids with renewable (now finding out -- not so reliable) energy and are frantically bringing back crude oil, coal, and natural gas power generators ahead of the cold season. Some EU countries are even extending the life of nuclear power plants. 

The problems don't end there -- in 80 days, or on Dec. 5, the EU will embark on another suicide mission of banning seaborne imports of Russian crude. Then on Feb. 5, 2023, a ban on Russian petroleum product imports kicks in. These sanctions were enacted over the summer. However, piped imports of Russian crude and petroleum products will be exempt in some EU member countries, like Hungary, Slovakia, and the Czech Republic. 

Back to the US shale patch where Scott Sheffield, CEO of Pioneer Natural Resources, explained significant production increases aren't coming online: 

"We're not adding [drilling] rigs and I don't see anyone else adding rigs," said Sheffield, who runs one of the biggest oil producers in the US. He added that crude prices could rise above $120 a barrel this winter as supplies tighten.

Shale's inability to rapidly increase crude production is no surprise, regarding Halliburton Co.'s CEO Jeff Miller and Exxon Mobile's Darren Woods's warnings over the summer that markets will remain tight for years due to a lack of production growth. 

A perfect storm of factors plagues Europe: the inability of US shale to ramp up production (because of Democrat's war on oil), Russia reducing energy exports, grid decarbonization, and EU's Russian oil embargos.

... and why could crude prices have bottomed earlier this week? Well, maybe Bloomberg's report that Biden administration officials plan to refill the SPR when crude falls around $80 a barrel. Also, SPR draws end in October, which means less crude on the market and possibly higher prices. Even as demand in China slumps, cities are reopening from Covid lockdowns, a sign demand could soon rise in Asia.

By Zerohedge.com

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  • Mamdouh Salameh on September 18 2022 said:
    The United States has caused the EU’s disastrous energy crisis to worsen by pressurizing it to impose sanctions on Russia and now US oil and gas producers are warning the EU that no bailout could be expected. In a nutshell.

    And despite measures to be taken by the EU under its energy emergency plan, Europe will neither be able to stave off an impending winter energy crisis nor the threat of power rationing.

    Not only is the United States milking its European allies by charging them the highest price for the LNG it supplies to them but the maximum volumes of LNG it can supply this winter doesn’t exceed 15-20 billion cubic metres (bcm) or 7%-9% of annual Russian gas supplies in normal circumstances. This is mostly due to rising domestic demand and also because the bulk of US LNG exports are locked in long term supply arrangements with customers in China and the Asia-Pacific region.

    The situation with US oil supplies to the EU isn’t better either. US shale oil is a spent force. Failure of shale drillers to raise production has far less to do with capital discipline or a reduction in the number of oil rigs and virtually everything to do with the fact that the sweet and most lucrative spots in the shale plays have already been exhausted forcing drillers to move to poorer and more costly spots thus causing costs of production to rise and production to decline. My estimate of US oil production including shale oil doesn’t exceed 9.5-10.0 million barrels a day (mbd).

    Moreover, the EU isn’t helping itself either by banning seaborne imports of Russian crude by 5 December to be followed on Feb. 5, 2023 by a ban on Russian petroleum product imports. However, the bulk of banned Russian petroleum products will continue to reach the European market as Russian crude bought and refined by India and then shipped to the EU.

    A perfect storm awaits the EU this winter with Brent crude oil price possibly hitting $120 a barrel as supplies tighten.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert
  • George Doolittle on September 18 2022 said:
    Hess oil having made a fortune in Guyana has also said it remains committed to Bakken Shale and all that that entails 100%.

    Plus the US refinery Industry is still running flat out so there is certainly no lack of product availability from the USA for export. The problem appears to me to be anyways that Europe plus Great Britain is flat friggin broke at every level...as is Russia now too and Turkey in point of fact.

    And Israel as well.

    Good luck posting up against Japan Incorporated in the USA as such! Plus the USA pure BEV transportation revolution has only now just gotten underway. The USA doesn't really have much demand for even Cars at the moment let alone gasoline. Really not much demand for anything as the US Housing Market implodes and unemployment soars.

    Long Cleveland, Ohio strong buy same true of Toledo, Ohio.
  • Carlos Everett on September 18 2022 said:
    The bailout that is coming that every politician and oil exec's are forgetting about is the massive mothballed equipment that sits in 60-80% of manufacturing plants not only in the USA which I am knowledgeable about, but also these mothballed equipment that also sit in plants the world over.

    Before the drive to switch to nat gas as a feedstock or energy source most of theses plants were burning anything from heating oil to asphaltic blends to run plants years ago. Now that it is to expensive to utilize nat gas more than half of these plants are bringing these plants back and preparing to switch to oil vs nat gas. The various news agencies are just now picking up on this, but the estimate is this will cause 2.0 million b/d of oil/refinery sourced feedstock to run while the equivalent about of nat gas will not be used.

    This is going to have a tremendous impact on refinery margins as the refinery worst priced product is going to be in demand which will strengthen already strong crack spreads for every refinery, plus we have a shortage of refinery products-really surprised this was not thought about especially on the sell off of refinery stock prices in the latest 3 days.

    This will have dramatic effect in the 3rd and 4th quarter bottom line for Refinery's.

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