State of the State Mid-2022: Energy investments rise, prices to fall in 2023

The energy industry is growing amid high prices and strong demand, but oil and gas prices are projected to moderate next year, from 2022 levels, according to the U.S. Energy Information Administration (EIA).

Gifford Briggs, Gulf Coast region director for American Petroleum Institute, said the industry has been making investments and increasing output to meet the rising energy demand in the United States and globally as the world starts to emerge from the COVID-19 pandemic.

“While there have been some regulatory and other hurdles placed in the way, we are doing what we can to meet the world’s energy needs,” said Briggs, adding that “the biggest challenge that we’ve got right now is we have an administration that on one hand is telling the industry that we need to produce more oil and natural gas and on the other side is delaying and holding off on the five-year plan in the Gulf of Mexico in issuing lease sales and saying we need to move away from fossil fuels.”

API recently released the 10 in 2022 plan that shows the steps the administration and Congress can take “to restore American energy leadership, which is necessary to bring supply and demand back into balance, to ease the pressure of rising energy prices and inflation,” Briggs said. “We have shared that with the White House and all the members of Congress and anywhere and everywhere to make sure the people know there are actionable things that can be done that unfortunately those steps aren’t being taken right now.”

Following are some steps: Authorize critical infrastructure projects; Accelerate and streamline permitting; Eliminate investment constraints; Rescind steel tariffs; and Lift development restrictions on federal lands and waters.

Briggs said for the first time since the start of the federal offshore leasing program, a five-year plan is not in place for offshore leasing. A federal offshore lease sale has yet to be completed since the new administration came into office in 2021, he said.

However, the energy industry has not moved to drill on leases it already holds. According to the U.S. Department of Interior, around 75% of offshore leases to energy companies have not been used. That represents roughly 8 million acres where wells could be drilled but have not been.

U.S. refinery capacity is operating at about 95%, inventory levels are low and hurricane season is coming, he said. An above-average hurricane season has been predicted by the National Oceanic and Atmospheric Administration, and he said any additional disruption to supply or refining capacity because of a hurricane could have a significant impact on energy prices.

Also, a cold winter could put pressure on the already low natural gas inventories, said Briggs, noting that the shuttering of Russian natural gas pipeline Nord Stream 1 limited supply in Europe.

EIA OUTLOOK
Joe DeCarolis, administrator of the EIA, expects more natural gas to remain in the United States because of lower than projected exports of liquefied natural gas (LNG). Lower LNG exports are expected because of an outage at the Freeport LNG facility, which accounts for 17% of U.S. LNG export capacity. The outage is expected to last until late 2022.

“With less LNG being exported in the second half of the year, more natural gas is likely to stay in the domestic market,” DeCarolis said. “We expect lower U.S. natural gas prices for the rest of 2022 than we had previously forecast, but lower prices in 2022 led us to reduce our expectations for natural gas production.”

According to EIA’s July Short-Term Energy Outlook, the natural gas spot price at Henry Hub is expected to fall to an average of $4.76 per million British thermal units in 2023, from $5.97 this year. By the end of October, U.S. natural gas inventories are projected to be 6% below the 2017-21 average and down 5% from the same month in 2021.

The EIA outlook also shows the spot price of international benchmark Brent crude oil is expected to fall to an average of $94 a barrel in 2023, from an average of $104 this year. The U.S. retail price for regular gasoline is expected to decrease to an average of $3.57 a gallon in 2023, from $4.05 this year. Over the same period, U.S. diesel prices are expected to decline to an average of $4.07 per gallon, from $4.73.

ALTERNATIVE PROJECTS
Lauren Waldrip, executive director of the Arkansas Advanced Energy Association, said the businesses and organizations in the industry, including renewable energy companies and energy efficiency services providers, continue to grow, add employees and begin new projects.

For example, Ireland-based energy services company Johnson Controls recently started work on energy efficiency projects for Arkansas Northeastern College in Blytheville and North Arkansas College in Harrison. The previous project includes upgrades to HVAC, lighting and weatherization infrastructure, and is guaranteed to save the college almost $2 million in utility savings over the next 20 years. The latter will include various infrastructure upgrades, resulting in projected savings of $309,000 over the next 20 years.

Also, Mayflower School District recently approved Johnson Controls to complete an energy services project expected to save the district a total of $1.88 million, including utility savings and operations and maintenance savings. Waldrip noted similar agreements that Seattle-based energy services company McKinstry has with rural Arkansas cities, including Nashville and Lonoke, and that Little Rock-based Entegrity has with Farmington Public Schools.

“It addresses critical needs while also generating six figures of additional cash flow that they will utilize for teacher retention strategies. That saves them almost $300,000 annually in energy and operational costs,” said Waldrip, adding that the savings also can be used to pay for increased security measures for schools.

Highlighting other energy-related projects, Waldrip said through the Bipartisan Infrastructure Law the state is set to receive about $54 million to build a network of electric vehicle chargers. She expects this to spur electric vehicle purchases and to help rural communities that need the infrastructure for the network.

Editor’s note: Link here to connect to the State of the State section.