Blue Tiger Advisors Independent Board Member Deborah Byers assesses the forecasts for gas prices, the sentiment from oil drilling companies, European fracking, and concerns surrounding Russian President Putin's power plays in energy markets.
- Private oil drillers are hitting their limits as small producers in the Permian Basin start to pull back production. For more on what this means for oil production nationwide and prices, we want to bring in Deborah Byers, a Blue Tiger Advisors independent board member. Deborah, it's great to see you. So these private oil companies run about half of the drilling rigs in this region. How big of a deal is this for oil production here in the US?
DEBORAH BYERS: Well, I think you're definitely going to see a slowdown. But the thing to keep in mind is you're going to see some consolidation, which you've already started to see happen here in the last couple of weeks. And the majors are going to have to really step in. And I notice that there's been an uptick in stock performance. And I think that's showing some investor confidence that they have the balance sheet and ability to come back and put supply back in the market.
We've been in a period where capital is very scarce. And that's what you're seeing with the private drillers so capital scarce for everybody, but in particular for the oil and gas industry, pressures around ESG, wanting to move money away from carbon-intensive industries, and just the environment we have right now with quantitative tightening by the Fed. I mean, those all plus inflation. We talk a lot about inflation for consumers. But it's really hitting the industry players, especially oil and gas, on the service side. Costs are just rising tremendously. So that is going to put a lot of pressure on the private players.
But the larger independents, the larger international oil companies certainly have the balance sheet. And maybe this is a time for them to shift from 100% capital discipline, looking at yield, returning cash back to shareholders to really starting to look at growth. If you look at in the horizon, you know, whether we're in a recession or we're going to enter a recession, there's going to be a rebound. And when that happens, you're definitely going to see consumer demand coming back for travel and all the things that really drive demand.
And prices will stay-- I think the forward price, people are confident it will stay high. That's the time to maybe shift and think about investing for growth. So a little negative now. But I think if you're looking out two or three years, this may be the time to invest.
- So what are your expectations? You mentioned consolidation there. How much of a contraction could we see in terms of the number of private drillers that are out there?
DEBORAH BYERS: Well, look, I mean, some really smart management teams have put some good money to work. Some of what you're seeing is also the best plays may have played out. And so you're going to need better technology, a deeper balance sheet to go after some of the other assets that are out there. So I think you're going to see a pretty significant slowdown. But I do think that this is a great opportunity for some of those private investors and private companies that have been keeping the rigs working to really do an exit and sell to some of the majors.
- No matter what things are like here, far worse overseas. Let's go to Europe where you've got a fracking ban now has been lifted in Britain. They've also frozen energy prices for the winter around half what they would have been otherwise. Germany nationalizing one energy company. How bad, if you can put it in perspective, will that winter be? And how much does Vladimir Putin hold the cards there with a potential escalation in Ukraine?
DEBORAH BYERS: Well, those are big questions. I wish I had all the answers. The price support for the consumers is wonderful. And one of my favorite energy analyst on Twitter and Substack, Doomberg, he says you can't print molecules. You cannot print electrons. And so depending on how severe the winter is, we all know winter is going to be at least two or three months. And it's going to be-- whether it's a harsh winter or whether it's just a normal winter, they're going to need heating fuel. They're going to need to be able to keep the lights on. So it is a very, very difficult situation there.
They filled supply as much as they could. But you look at some of the eye-popping costs, the cost of filling storage is just astronomical. Lifting the fracking ban, that's going to take a long time to play out. I know that the UK is trying to take some what I'll call pragmatic steps. But these things don't happen overnight. You know that you need one to two year lead times. And so that's not a short-term solution for this winter.
- Well, Deborah, so it'll take one to two years then to restart some of these operations, you think? So it wouldn't really provide any relief here, at least it sounds like for two years?
DEBORAH BYERS: Yeah. Absolutely. And you've heard a lot about the Great Berlin gas. Lift I mean, I think it's really a heroic phase. But the only supply that can really bring that-- and they've already made huge efforts-- is going to be LNG. And so you saw the US LNG pivot from Asia to Europe to try to backstop the loss of supply from Russia.
But there are limits to that. And then, frankly, they're done in terms of what can be locked up and what can be provided. So that 2022, that's going to play out how however it's going to play out. And there could be a lot of pain I think what we have to look to is, what do we do to really get 2023 to where it's not going to be a replay of 2022?
- And so that when you look at ESG investing, and people are like, look, we need we need heat for this winter, what is this doing to the investment landscape for ESG?
DEBORAH BYERS: Well, there's a lot of really sort of negative discussion around this topic and the feeling that if you're making investments in oil and gas, somehow that detracts from the needed investments to accelerate the energy transition into renewables. And we have to keep in mind that in the last 10 years, the US alone has invested $2.5 trillion in solar and renewables. Germany will by 2025 I think is going to be investing close to half a trillion dollars. So that investment will continue.
And so we need to be more positive. These things cannot happen overnight. I'd say these operating systems are hardware. It's not like a software operating system we're going to push a button and all of a sudden tomorrow you've got a new system. It's going to take decades of investment.
And we need to be mindful that you can't simply turn the switch to going from all fossil fuels where we're reliant 80%-plus on oil and gas to provide the very substance of our modern economy to relying on new technologies or even more mature technologies like renewables at 100%. So this is where you've got to look at the timeline and you've got to be kind of practical and make sure that we can keep the lights on for everybody and we can continue to have iPhones and smartphones and computers.