Demand for hydraulic fracturing equipment is quickly outpacing supply, executives said this week, setting the stage for a new obstacle to U.S. oil and gas production growth.
Oil companies have been under pressure from the Biden administration to lift production to curb high energy prices. Some companies, particularly private firms, also want to boost output to capitalize on oil's surge to $100 a barrel. However, in order to boost output, equipment and crews are needed.
"Availability of frac fleets is one of main bottlenecks impeding oil and natural as production growth for the next 18 months," Robert Drummond, CEO of fracking firm NexTier Oilfield Solutions said on July 27.
U.S. crude production is expected to average 11.9 MMbbl/d in 2022, below the pre-pandemic record of 12.3 MMbbl/d in 2019, according to the U.S. Energy Information Administration.
Drummond warned that capital constraints and supply chain snarls will make it difficult to add equipment and said it could take several years to correct the imbalance in the market.
NexTier will not deploy any additional fracking capacity this year, he added.
"We definitely see frac crew bottlenecks as a significant headwind for U.S. producers headed into 2023," said Matt Hagerty, a senior analyst at BTU Analytics, a Factset Company, citing a "perfect storm" of frac sand and labor shortages, inflation, and limited inventory of fleets that can be reactivated after going idle in 2020.
Rivals Halliburton and Liberty Oilfield Services have warned that the market was near full utilization. Liberty estimated that roughly 250 fleets are running, with about 25 to be added this year. Consultancy Primary Vision Network puts the number higher, at 290 currently operating.
Liberty said pricing in the market had recovered enough to support re-activating some fleets it acquired from Schlumberger , as well as adding two electric fleets in the first quarter of next year.
However Halliburton last week warned that "supply chain bottlenecks, even for diesel fleets, make it almost impossible to add incremental capacity this year" and that experienced crews are in high demand.
2022-09-26 - With the slowdown in economic activity, the growth in oil demand is waning and there is more downside risk than upside risk, according to Stratas Advisors in the firm’s latest oil price forecast.
2022-08-12 - Both Brent, WTI fall 0.3% in early trading, though weekly increase recoup part of last week’s oil price declines.
2022-08-15 - Stratas Advisors anticipates continued oil price volatility due to macroeconomic and geopolitical uncertainties, as well as supply/demand fundamental fragility.
2022-09-13 - “Oil demand in 2023 is expected to be supported by a still-solid economic performance in major consuming countries, as well as potential improvements in COVID-19 restrictions and reduced geopolitical uncertainties,” OPEC said in the Sept. 13 report.
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