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    Oil and Gas Prices May Stay High as Investors Chase Clean Energy

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    Even as more costly fuel poses political risks for President Biden, oil companies and OPEC are not eager to produce more because they worry prices will drop.HOUSTON — Americans are spending a dollar more for a gallon of gasoline than they were a year ago. Natural gas prices have shot up more than 150 percent over the same time, threatening to raise prices of food, chemicals, plastic goods and heat this winter.The energy system is suddenly in crisis around the world as the cost of oil, natural gas and coal has climbed rapidly in recent months. In China, Britain and elsewhere, fuel shortages and panic buying have led to blackouts and long lines at filling stations.The situation in the United States is not quite as dire, but oil and gasoline prices are high enough that President Biden has been calling on foreign producers to crank up supply. He is doing so as he simultaneously pushes Congress to address climate change by moving the country away from fossil fuels toward renewable energy and electric cars.U.S. energy executives and the Wall Street bankers and investors who finance them are not doing anything to bolster production to levels that could bring down prices. The main U.S. oil price jumped nearly 3 percent on Monday, to about $78 a barrel, a seven-year high, after OPEC and its allies on Monday declined to significantly increase supply.Producers are still chafing at memories of the price crash early in the pandemic. Wall Street is even less enthusiastic. Not only have banks and investors lost money in the boom-bust cycles that whipsawed the sector over the past decade, but many also say they are prepared to pare their exposure to fossil fuels to meet the commitments they have made to fight climate change.“Everyone is very wary since it was just 15 or 16 months ago we had negative-$30-a-barrel oil prices,” said Kirk Edwards, president of Latigo Petroleum, which has interests in 2,000 oil and natural gas wells in Texas and Oklahoma. He was recalling a time of so little demand and storage capacity that some traders paid buyers to take oil off their hands.If the drillers don’t increase production, fuel prices could stay high and even rise. That would present a political problem for Mr. Biden. Many Americans, especially lower-income families, are vulnerable to big swings in oil and gas prices. And while use of renewable energy and electric cars is growing, it remains too small to meaningfully offset the pain of higher gasoline and natural gas prices.Goldman Sachs analysts say energy supplies could further tighten, potentially raising oil prices by $10 before the end of the year.That helps explain why the Biden administration has been pressing the Organization of the Petroleum Exporting Countries to produce more oil. “We continue to speak to international partners, including OPEC, on the importance of competitive markets and setting prices and doing more to support the recovery,” Jen Psaki, Mr. Biden’s press secretary, said last week.But OPEC and its allies on Monday merely reconfirmed existing plans for a modest rise in November. They are reluctant to produce more for the same reasons that many U.S. oil and gas companies are unwilling to do so.Oil executives contend that while prices may seem high, there is no guarantee that they will stay elevated, especially if the global economy weakens because coronavirus cases begin to increase again. Since the pandemic began, the oil industry has laid off tens of thousands of workers, and dozens of companies have gone bankrupt or loaded up on debt.Oil prices may seem high relative to 2020, but they are not stratospheric, executives said. Prices were in the same territory in the middle of 2018 and are still some ways from the $100-a-barrel level they topped as recently as 2014.Largely because of the industry’s caution, the nationwide count of rigs producing oil is 528, roughly half its 2019 peak. Still, aside from recent interruptions in Gulf of Mexico production from Hurricane Ida, U.S. oil output has nearly recovered to prepandemic days as companies pull crude out of wells they drilled years ago.Another reason for the pullback from drilling is that banks and investors are reluctant to put more money into the oil and gas business. The flow of capital from Wall Street has slowed to a trickle after a decade in which investors poured over $1.4 trillion into North American oil and gas producers through stock and bond issues and loans, according to the research firm Dealogic.“The banks have pulled away from financing,” said Scott Sheffield, chief executive of Pioneer Natural Resources, a major Texas oil and gas producer. The flow of money supplied by banks and other investors had slowed even before the pandemic because shale wells often produced a lot of oil and gas at first but were quickly depleted. Many oil producers generated little if any profit, which led to bankruptcies whenever energy prices fell.Companies constantly sold stock or borrowed money to drill new wells. Pioneer, for example, did not generate cash as a business between 2008 and 2020. Instead, it used up $3.8 billion running its operations and making capital investments, according to the company’s financial statements.Industry executives have come to preach financial conservatism and tell shareholders they’re going to raise dividends and buy back more stock, not borrow for big expansions. Mr. Sheffield said Pioneer now intended to return 80 percent of its free cash flow, a measure of money generated from operations, to shareholders. “The model has totally changed,” he said.Among oil executives, there are still vivid memories of the collapse in energy prices last year, as the pandemic curtailed commuting and travel.Tamir Kalifa for The New York TimesOil company shares, after years of declines, have soared this year. Still, investors remain reluctant to finance a big expansion in production.With oil and gas exploration and production businesses taking a cautious approach and returning money to shareholders, the first company “that deviates from that strategy will be vilified by public investors,” said Ben Dell, managing director of Kimmeridge, an energy-focused private equity firm. “No one is going down that path soon.”This aversion to expanding oil and gas production is driven in part by investors’ growing enthusiasm for renewable energy. Stock funds focusing on investments like wind and solar energy manage $1.3 trillion in assets, a 40 percent increase this year, according to RBC Capital.And the biggest investment firms are demanding that companies cut emissions from their operations and products, which is much harder for oil and gas companies than for technology companies or other service-sector businesses.BlackRock, the world’s largest asset manager, wants the businesses it invests in to eventually remove as much carbon dioxide from the environment as they emit, reaching what is known as net-zero emissions. The New York State Common Retirement Fund, which manages the pension funds of state and local government workers, has said it will stop investing in companies that aren’t taking sufficient steps to reduce carbon emissions.But even some investors pushing for emissions reductions express concern that the transition from fossil fuels could drive up energy prices too much too quickly.Mr. Dell said limited supply of oil and natural gas and the cost of investing in renewable energy — and battery storage for when the sun is not shining and the wind is not blowing — could raise energy prices for the foreseeable future. “I am a believer that you’re going to see a period of inflating energy prices this decade,” he said.Laurence D. Fink, chairman and chief executive of BlackRock, said this could undermine political support for moving away from fossil fuels.“We risk a supply crisis that drives up costs for consumers — especially those who can least afford it — and risks making the transition politically untenable,” he said in a speech in July.There are already signs of stress around the world. Europe and Asia are running low on natural gas, causing prices to rise even before the first winter chill. Russia, a major gas supplier to both regions, has provided less gas than its customers expected, making it hard for some countries to replace nuclear and coal power plants with ones running on gas.OPEC, Russia and others have been careful not to raise oil production for fear that prices could fall if they flood the market. Saudi Arabia, the United Arab Emirates, Russia and a few other producers have roughly eight million barrels of spare capacity.“The market is not structurally short on oil supply,” said Bjornar Tonhaugen, head of oil markets for Rystad Energy, a Norwegian energy consulting firm.Helima Croft, head of global commodity strategy at RBC Capital Markets, said she expected that OPEC and Russia would be willing to raise production if they saw the balance between supply and demand “tighten from here.”If OPEC raises production, U.S. producers like Mr. Edwards of Latigo Petroleum will be even more reluctant to drill. So far, he has stuck to the investment plans he made at the beginning of the year to drill just eight new wells over the last eight months.“Just because prices have jumped for a month or two doesn’t mean there will be a stampede of drilling rigs,” he said. “The industry always goes up and down.”Clifford Krauss reported from Houston, and Peter Eavis from New York. More

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    High Natural Gas Prices Strain Europeans, Weighing on Recovery

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    Crimped supplies and increased demand have pushed energy prices to their highest in years, raising concerns about the winter.LONDON — As the world struggles to recover from the pandemic, soaring natural gas prices threaten to become a drag on the economies of Europe and elsewhere. Wholesale prices for the fuel are at their highest in years — nearly five times where they were at this time in 2019, before people started falling ill with the virus.The high costs feed into electric power prices and have begun showing up in utility bills, weighing on consumers whose personal finances have already been strained by the pandemic. The price jumps are unusual because demand is typically relatively low in the warmer summer months, raising alarms about the prospects for further increases when demand jumps in the winter.Spanish households are paying roughly 40 percent more than what they paid for electricity a year ago as the wholesale price has more than doubled, prompting angry protests against utility companies. “The electricity price hike has created a lot of indignation, and this is of course moving onto the streets,” said María Campuzano, spokeswoman for the Alliance against Energy Poverty, a Spanish association that helps people struggling to pay energy bills.The pain is being felt across Europe, where gas is used for home heating and cooking as well as electric power generation. Citing record natural gas prices, Britain’s energy regulatory agency, Ofgem, recently gave utilities a green light to increase the ceiling on energy bills for millions of households paying standard rates by about 12 percent, to 1,277 pounds, or $1,763, a year.Several trends are to blame for soaring prices, including a resurgence of global demand after pandemic lockdowns, led by China, and a European cold snap in the latter part of winter this year that drained storage levels. The higher-than-expected demand and crimped supply are “a perfect storm,” said Marco Alverà, chief executive of Snam, the large gas company in Milan.The worry is that if Europe has a cold winter, prices could climb further, possibly forcing some factories to temporarily shut down.“If it is cold, then we’re in trouble,” Mr. Alverà said.A Gazprom facility in Siberia. Russia, Europe’s largest gas supplier, and Algeria have substantially increased their exports but not enough to ease market concerns. Maxim Shemetov/ReutersThe jump has prompted some to call for an acceleration of the shift from fossil fuels to clean domestic energy sources like wind and solar power to free consumers from being at the mercy of global commodity markets.“The reality is we need to switch to renewables faster,” said Greg Jackson, chief executive of Octopus Energy, a British utility.On the other hand, the turbulence in prices may also be a harbinger of volatility if energy companies begin to give up on fossil fuel production before renewable sources are ready to pick up the slack, analysts say. In addition, the closure of coal-fired generating plants in Britain and other countries has reduced flexibility in the system, Mr. Alverà said.Gas prices in the United States have risen as well, but they are only around a quarter of those being paid in Europe. The United States has a big price advantage over Europe because of its large domestic supply of relatively cheap gas from shale drilling and other activities, while Europe must import most of its gas. The immediate worry for markets in Europe is that suppliers have not followed their usual practice and used the summer months to fill storage chambers with cheap gas that will be used during the winter, when cold weather more than doubles the consumption of gas in countries like Britain and Germany.Instead, suppliers responded to the cold weather late last winter by draining gas storage facilities. Subsequently, they have been reluctant to top them up with high-priced gas. As a result, European storage facilities are at the depleted levels usual in winter rather than the peaks of fall.“The market is very nervous as we move into the winter season,” said Laura Page, an analyst at Kpler, a research firm. “We have very low storage levels for the time of year.”Europe imports around 60 percent of its gas, with supplies coming by pipeline from Russia and to a lesser extent Algeria and Libya.Liquefied natural gas, arriving by ship from the United States, Qatar and elsewhere, usually helps balance the market. This year, though, L.N.G. carriers have been drawn to higher prices in China, South Korea and Brazil, where a drought has caused a drop in power generated by dams.As a result, Italy, Spain and northwest Europe have seen a sharp decline in liquefied natural gas infusions, according to data from Wood Mackenzie, a market research firm.The dispatching center for Snam, an Italian gas company. Its chief executive said “a perfect storm” of high demand and limited supply had pushed gas prices higher. Gianni Cipriano for The New York TimesAdding to the tight situation in Europe, Groningen, the giant gas field in the Netherlands that long served as a safety valve for both its home country and western Germany, is being gradually shut down because of earthquakes. Over the last year European gas prices have risen from around $4 per million British thermal units to about $18.Russia, the largest gas supplier to Europe, and Algeria have substantially increased their exports but not enough to ease market concerns. Some analysts question whether Gazprom, Russia’s gas company, is pursuing a high-price strategy or trying to persuade the West to allow the completion of its Nord Stream 2 pipeline project, which will deliver gas from Russia to Germany. “On the face of it, it looks as though some sort of game is being played here,” said Graham Freedman, an analyst at Wood Mackenzie. On the other hand, Mr. Freedman said, it could be that Gazprom doesn’t have any more gas to export.A spokeswoman for Gazprom said: “Our mission is to fulfill contractual obligations to our clients, not to ‘reduce the concerns’ of an abstract market.” She added that Gazprom had increased supplies to near-record levels this year.Construction of the 746-mile pipeline, which runs under the Baltic Sea, was halted last year just short of completion off Germany’s shores by the threat of sanctions from the United States. But in a deal with Germany in July, the Biden administration agreed to drop its threat to stop the pipeline. On Monday, the management company for the project said it aimed to have the pipeline operating this year.Stanley Reed reported from London, and Raphael Minder from Madrid. More

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    Winter Storm Disrupts Automakers, Retailers and Delivery Services

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    #masthead-section-label, #masthead-bar-one { display: none }Winter StormsliveLatest UpdatesMapping the Storm’s ImpactMillions Without PowerDisruptions to BusinessesPhotosAdvertisementContinue reading the main storySupported byContinue reading the main storyWinter Storm Disrupts Wide Swath of American BusinessPower outages, natural gas shortages and icy conditions made it hard for automakers, retailers and delivery carriers to operate across much of the South and Midwest.A UPS worker made deliveries in Chicago on Tuesday after an overnight storm dumped more than a foot of snow on the area.Credit…Charles Rex Arbogast/Associated PressPeter Eavis and Feb. 16, 2021, 6:05 p.m. ETThe winter storm that barreled across much of the United States over the holiday weekend severely disrupted businesses including large car factories, retail chains and the delivery services that people are deeply reliant on for basic necessities.General Motors, Ford Motor, Toyota, Nissan and other automakers suspended or shut down production at plants from Texas to Indiana as rolling blackouts, natural gas shortages and icy conditions made it difficult to keep assembly lines running.Walmart was forced to close as many as 500 stores across the South and Midwest, according to a map that was being updated in real time on its website. Pharmacy chains also shut stores, potentially making it harder for customers to collect prescriptions and also delaying vaccinations against the coronavirus, which had begun at many pharmacies at the end of last week.Publix, a grocery and pharmacy chain that operates across the South, said on Tuesday that it had to delay vaccinations in Florida because vaccine shipments were delayed by the storm. CVS said it had closed about 775 stores. Walgreens said around 200 stores in Texas were closed because of power disruptions.The storm dealt a blow to huge economic hubs that are accustomed to hurricanes and tornadoes but not extreme winter weather that strains power grids and sends temperatures well below averages for this time of year.“I was born in Fort Worth in 1956, and I’ve never seen weather this bad for this long,” said George Westhoff, president of Midland Manufacturing, a Fort Worth company with 40 employees that makes well cylinders and other metal products. “I’m not sure how much of my equipment would start up under these cold conditions,” he said, noting that he was the only person at his plant on Tuesday.Because millions of people have been working from home during the coronavirus pandemic, winter storms may not have quite the economic cost they once did. But the loss of power can sever the internet connections that people need to do their jobs. PowerOutage.us, a site that tracks electricity disruptions, said that, of the 12.5 million customers it tracks in Texas, 3.2 million were without power on Tuesday.Managers of the electricity grid in Texas and elsewhere have had to order rolling blackouts after many power plants were forced offline because of icy conditions and some could not get sufficient supplies of natural gas. Some wind turbines also shut down. At the same time, demand for electricity and natural gas has shot up because of the cold weather.“What’s complicating things is that huge swaths of Texas have lost power,” said Michael Trevino, a vice president at the Dallas Regional Chamber.Group 1 Automotive, a big chain of car dealerships based in Houston, has closed many of its franchises in Texas and Oklahoma.“Our office doesn’t have power. Dallas is snowed in. Oklahoma is snowed in. Houston is icy,” said Pete Delongchamps, a senior vice president at the company. He is hunkering down at home, where both power and water are out. “It’s blankets and water jugs.”Some companies kept operating. Raytheon Technologies, a large aerospace and military contractor, said Tuesday that its facility in McKinney, Texas, was open. And Home Depot and Costco stores in Southlake, a suburb of Dallas and Fort Worth, were open Tuesday.Christina Cornell, a Home Depot spokeswoman, said over 100 stores in Texas and elsewhere were closed or operated with reduced hours on Monday but the majority of them reopened Tuesday. She added that all Home Depot stores in the United States have backup generators that allow them to operate basic services during blackouts.The storm has caused extensive delays across the vast package delivery networks that many people now rely on as shopping has shifted online.FedEx said winter weather had caused “substantial disruptions” at its Memphis hub, which is the company’s largest center, occupying 800 acres, and is normally capable of sorting nearly half a million documents and packages an hour. FedEx added that delays were possible across the United States for Tuesday deliveries.UPS said weather could cause delays in areas not directly hit by the storms. Packages may take longer to get from one place to another, and many delivery services move goods through big sorting hubs in the middle of the country to serve both the East and West Coasts. UPS’s main air hub is in Louisville, Ky., and it also has a hub in Dallas, for example.The winter storm prompted the United States Postal Service to close post offices, processing hubs and other facilities in Texas, Alabama and Mississippi, according to its website.The storm has also affected Amazon, which operates its own large logistics network that includes planes, hubs and delivery vans operated by contractors.“The health and safety of our employees, customers and the drivers who deliver packages is our top priority,” Maria Boschetti, a spokeswoman, said in a statement. “Out of an abundance of caution and to ensure everyone’s safety, we have closed some of our sites in Arkansas, Illinois, Oklahoma, Missouri, Tennessee, Texas, Indiana and Kentucky.”Some automakers said they shut down operations in an effort to limit their energy use. Ford closed a plant in Claycomo, Mo., near Kansas City, Mo., this week “to ensure we minimize our use of natural gas that is critical to people’s homes,” a company spokeswoman said.The plant produces the F-150 pickup truck, one of the industry’s best-selling vehicles. Ford doesn’t plan to resume normal operations at its shuttered plant until Monday. The factory employs about 7,300 people. Union workers will be paid 75 percent of their gross pay for the week.Nissan closed its four U.S. plants on Monday and canceled the morning and afternoon shifts on Tuesday, a spokeswoman said. Two of the plants, in Canton, Miss., and Smyrna, Tenn., make cars and the other two, both in Decherd, Tenn., make engines. The company is monitoring the situation to see if it can resume production Tuesday night.General Motors said Tuesday that it was not affected by the natural gas shortage but that it was still suspending the first shift at four plants in Tennessee, Indiana, Kentucky and Texas because of “the significant winter weather conditions.”Trucks stuck in traffic on Monday because of the storm in Austin, Texas.Credit…Montinique Monroe/Getty ImagesToyota Motor canceled the first and second shifts at five factories, including its largest U.S. plant in Georgetown, Ky., and a pickup truck plant in San Antonio, because of the winter storm and energy disruptions it caused. The other three plants are in Kentucky, Indiana and Mississippi.Honda canceled or suspended late shifts on Monday and early shifts on Tuesday at plants in Alabama, Georgia, Ohio and Indiana. The company is planning to resume production Tuesday night at all but its Alabama car plant, where Tuesday evening’s shift has also been canceled.The shutdowns add to troubles for Ford, G.M. and other automakers that have separately had to idle plants because of a global semiconductor shortage. The chip shortage is expected to reduce the profit of automakers by billions of dollars this year.Some companies are looking forward to a surge of business after the bad weather passes.Mr. Delongchamps, the Group 1 Automotive executive, said, “We will probably see a pickup in body shop business and repairs, from people whose cars got banged up or frozen.”AdvertisementContinue reading the main story More