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David Blackmon

David Blackmon

David Blackmon is an independent energy analyst/consultant based in Mansfield, TX. David has enjoyed a 38-year career in the oil and gas industry, the last…

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Supply Shortages Are Wreaking Havoc On The Energy Industry

  • The energy sector is facing shortages on all sides, with commodity prices soaring around the world and very little hope that it will be solved in the near term.
  • Frac sand is the latest vital material that the energy industry can’t get enough of, a shortage that will hinder the ability of U.S. shale producers to increase production and bring down oil prices.
  • This global energy shortage of everything is a result of years of bad planning and underinvestment, and consumers could suffer the consequences for years to come.

Energy-related news has been filled lately with reports about shortages of, well, everything. Oil prices have spiked into the mid-$90s per barrel as explosive demand outstrips supply. Global supplies of diesel are shrinking as the refining industry lacks the capacity to keep up with demand. 

The price for natural gas in the U.S. is up 25% over the past week, largely as a result of Europe’s thirst for the commodity now creating shortages in Asia and other parts of the world. We see daily reports of supply shortages impacting key minerals like copper, lithium, as well as commodities like steel and aluminum, all of which are critical elements for facilitating supplies of fossil fuels and renewables.

The situation has become so dire that it prompted Jeff Currie, global head of commodities research at Goldman Sachs, to warn on Monday that “I’ve been doing this 30 years and I’ve never seen markets like this...This is a molecule crisis. We’re out of everything, I don’t care if it’s oil, gas, coal, copper, aluminum, you name it we’re out of it.” In January, Currie warned that oil prices could rise above $100 per barrel by summer due to the tight market. With prices already approaching that level in mid-February, it now seems he was being overly optimistic. 

On top of all these mineral shortages, it seems the domestic U.S. oil and gas industry can now add frac sand to its list of materials in low supply. Reuters reported Tuesday that drillers in the Permian Basin and elsewhere are experiencing difficulties in obtaining enough of the stuff to keep their fracking programs moving ahead according to plan. 

"We can't get enough sand,” the story quotes Michael Oestmann, CEO of Permian operator Tall City Exploration as saying, “We're running less than the number of (fracking) stages we could pump in a day because we've run out of sand every day. Ultimately it will slow everyone down if it doesn't resolve itself."

Rystad Energy said that spot prices for quality frac sand are now between $50 and $70 a ton, 2 to 3 times the price drillers were paying in 2021.  Rystad Researcher Artem Abramov speculated that tight supplies will probably push sand prices higher in the coming weeks and months.

Rising oil prices have led many, including the U.S. Energy Information Administration (EIA), to predict that the U.S. industry will be able to grow domestic oil production by as much as 1 million barrels per day during 2021. But a shortage of frac sand, if it lingers, would likely put a damper on such speculation. The U.S. is, along with Saudi Arabia and the United Arab Emirates, one of a handful of big oil-producing nations with current capacity to significantly grow production in the face of exploding oil demand. If its future growth were to be limited by a shortage of frac sand, among other limiters like ESG investors and the Biden administration’s efforts, it would have global consequences. 

The growing shortages of all these commodities, whether they be fossil fuels or key minerals needed to facilitate the expansion of renewables and electric vehicles, threaten to interrupt the advance of the global agenda surrounding the “energy transition.” The simple reality is that the production of wind towers, solar panels, and EVs consumes a vast amount of energy generated by coal and natural gas. The world today cannot produce adequate supplies of one without having plentiful and affordable supplies of the other. Unfortunately, it is a reality that proponents of the transition have failed to adequately consider as they have worked so hard to constrain those fossil fuel industries in recent years. That failure to properly plan is one of the main reasons why the world has suffered such a staggering rise in energy costs over the past year. 

These higher, increasingly punitive costs for energy took years to form, and they will take years to resolve if indeed any such resolution is to be had. In the meantime, consumers will pay the price for all the ill-considered decisions their policymakers have made on their behalf.

By David Blackmon for Oilprice.com

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  • Mamdouh Salameh on February 18 2022 said:
    Shortages of commodities particularly oil and gas have been long time coming because of underestimation of the robustness of the global economy and underinvestment since 2019.

    The incessant pressure on the oil industry to divest of its oil and gas assets and on banks not to extend investment loans to the oil industry abetted by the IEA’s discredited net-zero emissions 2050 roadmap calling for the immediate halting of any new investments in oil and gas and the EUs hasty policies to accelerate energy transition at the expense of fossil fuels have all translated into a shrinking global oil production capacity, an accelerating decline in global oil inventories and tighter markets all leading to the current surge in crude oil prices and commodities as a whole.

    Any wonder then about supply shortages wreaking havoc on the energy industry. If this situation continues unabated, a damaging global energy crisis could be in the offing.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • independence01776 d on February 21 2022 said:
    One would think with prices near $100 per barrel the spigots from big oil would be opening up.
    Yet supply is being constrained. The explanation has been obvious for sometime.

    Supply constraints for oil are a result of OPEC and US shale keeping a lid on production. OPEC just wants to ensure higher prices and unless forced by US shale growth for market share, they will continue to keep a lid on supply. In the US shale, constraint on supply is driven by investor restraint. Who wants to invest in wells when demand is waning despite rapid economic growth and when OPEC can easily force prices to drop overnight. In particular after the 10's of billions in bankruptcies from US shale in 2018 and 2019 when oil prices were nearer $60 a barrel.

    With BEV sales doubling last year to near 10% of new car sales, and likely doubling again over the next 12 to 18 months, and in few years passing 50% of new car sales, with ICE vehicle sales in rapid decline (peaked in 2017) peak oil is now behind us and high cost will continue as investment is restrained due to politics and risk management of investors in a declining industry.

    The industry is excited about high prices, but it's simply a strategy to milk as much profit as possible over the next few years as the world is get very wealthy on cheap energy not related to oil and coal, nor controlled by a few nations. Higher prices and political risk just mean it will happen even faster than anyone expects. The political and social upheaval in the nations that rely on oil is just getting started and brings risk to all nations in the world.

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