Released January 11, 2022 | SUGAR LAND
en
Researched by Industrial Info Resources (Sugar Land, Texas)--Respondents to a survey from the Federal Reserve Bank of Kansas City said they were somewhat optimistic about the future for oil and gas, even as the economy accelerates on the energy transition pathway.
Upstream businesses are tacitly embracing the energy transition, with even the American Petroleum Institute boasting about the lower environmental footprint in U.S. shale. Respondents to the latest Fed survey, however, noted that fossil fuels still will be necessary even in a low-carbon future. That said, with pressure to return capital to shareholders and the perceived need to focus more on renewables, the energy transition may be difficult.
"There is not enough investment for replacement barrels [of oil]," one respondent said. "Supply may shrink and demand will stay similar or even grow."
That mismatch suggests a prolonged period of relatively high commodity prices. Federal data show that the price for all consumer goods increased by about 6% over the 12-month period ending in November, but more than 50% for energy-related items. Those higher prices, however, could be an incentive to drill more.
Respondents to the Kansas City Fed said they needed oil priced at around $73 per barrel and natural gas at around $4.27 per million British thermal units (Btu) to drill more. As of Monday, West Texas Intermediate was trading near $79 per barrel and Henry Hub, the U.S. benchmark for the price of natural gas, was around $4.19 per million Btu.
Respondents said they felt the current high-price environment for oil would hold too, with WTI expected to be above $75 per barrel for the next five years. The Henry Hub marker, the survey showed, could stay less than the $4 mark for the foreseeable future, however.
On capital plans, only 6% of those surveyed by the Kansas City Fed said that spending would decline. About half said capital spending would increase slightly this year, while 20% said they planned for significant increases.
"Several firms reported that inflation has driven higher capital spending costs from services and materials," the Fed's report stated. "Other contacts reported increased capital spending plans to expand drilling and production."
A recent survey of executives at upstream firms from the Federal Reserve Bank of Dallas, meanwhile, found most anticipated higher spending and higher production in 2022. Of the 130 or so executives interviewed by the Dallas Fed, 49% said their primary goal for 2022 would be to increase production, with just 13% saying they would focus on debt reduction.
The Kansas City Fed district includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming and parts of Missouri and New Mexico. The Dallas Fed covers Texas, northern Louisiana and parts of New Mexico. Combined, they include some of the richest shale oil and natural gas deposits in the nation.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
Upstream businesses are tacitly embracing the energy transition, with even the American Petroleum Institute boasting about the lower environmental footprint in U.S. shale. Respondents to the latest Fed survey, however, noted that fossil fuels still will be necessary even in a low-carbon future. That said, with pressure to return capital to shareholders and the perceived need to focus more on renewables, the energy transition may be difficult.
"There is not enough investment for replacement barrels [of oil]," one respondent said. "Supply may shrink and demand will stay similar or even grow."
That mismatch suggests a prolonged period of relatively high commodity prices. Federal data show that the price for all consumer goods increased by about 6% over the 12-month period ending in November, but more than 50% for energy-related items. Those higher prices, however, could be an incentive to drill more.
Respondents to the Kansas City Fed said they needed oil priced at around $73 per barrel and natural gas at around $4.27 per million British thermal units (Btu) to drill more. As of Monday, West Texas Intermediate was trading near $79 per barrel and Henry Hub, the U.S. benchmark for the price of natural gas, was around $4.19 per million Btu.
Respondents said they felt the current high-price environment for oil would hold too, with WTI expected to be above $75 per barrel for the next five years. The Henry Hub marker, the survey showed, could stay less than the $4 mark for the foreseeable future, however.
On capital plans, only 6% of those surveyed by the Kansas City Fed said that spending would decline. About half said capital spending would increase slightly this year, while 20% said they planned for significant increases.
"Several firms reported that inflation has driven higher capital spending costs from services and materials," the Fed's report stated. "Other contacts reported increased capital spending plans to expand drilling and production."
A recent survey of executives at upstream firms from the Federal Reserve Bank of Dallas, meanwhile, found most anticipated higher spending and higher production in 2022. Of the 130 or so executives interviewed by the Dallas Fed, 49% said their primary goal for 2022 would be to increase production, with just 13% saying they would focus on debt reduction.
The Kansas City Fed district includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming and parts of Missouri and New Mexico. The Dallas Fed covers Texas, northern Louisiana and parts of New Mexico. Combined, they include some of the richest shale oil and natural gas deposits in the nation.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
