As energy prices soar, supply chain snags threaten U.S. oil output gains

By Liz Hampton

DENVER (Reuters) – U.S. oil producers are struggling to find enough crews, vehicles and equipment to take advantage of rising global demand and a seven-year high in crude prices, say executives at oilfield service firms.

The problems are preventing the world’s top oil producer and consumer, the United States, from responding to higher prices and could mean it takes longer for global output to match demand recovering from the coronavirus pandemic. That would result in oil firms draining inventories and in turn contribute to higher prices.

Higher energy prices are fueling consumer inflation, which last month hit 6.2%, the highest in 30 years. The Biden administration has urged oil producers to pump more oil, signaling it might release U.S. emergency stockpiles if prices keep rising.

The drillers and service firms that bring new oil and gas to market are confronting shortages and delays in everything from trucks, electronics, pumps and skilled workers. Workarounds so far have kept a crunch at bay, but shortages are hitting oilfield service results and could short-circuit U.S. production gains early next year, they said.

Logistics snags have cut access to specialized steel, submersible pumps that boost well pressures, and pickups that ferry workers and equipment. U.S. oil production figures show output remains 1.8 million barrels per day (bpd) below the peak reached nearly two years ago while global demand is forecast to exceed pre-pandemic levels by June.

Nearly two-thirds of Texas business executives polled by the Dallas Federal Reserve Bank recently disclosed difficulties getting needed supplies, with nearly half saying problems have become worse. It could take seven to 12 months to ease, said roughly half, with 18% expecting shortages to last more than a year.

‘GETTING WORSE’

“We’ll come to a point where we can’t handle additional work with existing inventory,” said Brad James, chief executive of driller Enterprise Offshore Drilling. “The problems we’re seeing are going to get worse,” he predicted.

Pressure on supplies is not as bad as it might have been because many shale oil producers have pledged to restrain new spending for output and instead use cash generated by high prices to pay dividends and reduce debt.

Oil services firms are struggling, however, even though many producers are standing pat. Requests for some orders to supply oil companies have gone unanswered, said James, and lead-times for certain drilling equipment are so far out that Enterprise has resorted to cannibalizing rigs idled off the Louisiana coast to keep existing rigs running.

“Without significant additional investment, land contract drillers are at their limit with the rigs they can deploy to satisfy the requirements of today’s multiple-well, very long-lateral drilling,” said Richard Spears, vice president of oilfield consultancy Spears & Associates.

Equipment shortages and lengthy delays are driving up prices for what is available. Denver, Colorado-based oil service firm Liberty Oilfield Services took a $12 million hit to third quarter earnings because costs rose faster than it was able to raised prices, its CEO said.

SIX MONTHS FOR A TRUCK

Fredrick Klaveness, CEO of NLB Water LLC, which developed a membrane-driven technology to treat and recycle wastewater from oil and gas production, has been waiting since June for $200,000 worth of orders that have not shipped because suppliers are also waiting on certain components.

“One small piece of the puzzle stops everything,” said Klaveness. If the ordered membrane modules are not received in time, NLB may lose an important contract. “Parts probably worth less than $5,000 are holding up the entire order. Those parts are not microchips or something fancy, but basic components made out of materials like stainless steel and titanium.”

A heavy duty Dodge Ram pickup he ordered in June took five months to arrive, Klaveness said. His workarounds to keep business flowing include buying supplies from Canada and at one point, picking up galvanized steel from several Home Depot stores in Colorado and hauling it to West Texas where it was not available.

RIPPLE EFFECT

The electronic components shortage hurting the auto and computer industry is troubling renewable energy as well as oil and gas. That is affecting companies digitalizing operations and adding renewable power to lower greenhouse gas emissions.

Firms that convert pipeline compressor stations to run on electric motors instead of natural gas are finding parts in short supply, said energy consultant Spears.

Ru Schaefferkoetter, CEO of solar pump firm Trido Solutions, said basic materials such as steel and aluminum can be hard to find. She worries that supplies could get tighter as the Biden administration incentivizes solar development.

President Joe Biden’s Infrastructure Bill, which could be signed into law on Monday, includes funding to upgrade power infrastructure and expand renewable energy through a new Grid Authority.

“There are a growing number of people laid off on solar projects because there are no panels,” said John Berger, CEO of Sunnova, at a recent Kansas City Federal Reserve Conference. An “extreme shortage of electricians,” is another concern, he said.

(Reporting by Liz Hampton in Denver; Editing by Marguerita Choy)

U.S. forces seen near Turkish border for patrol in northeast Syria: witness, SDF source

U.S. forces seen near Turkish border for patrol in northeast Syria: witness, SDF source
BEIRUT (Reuters) – U.S. forces in armored vehicles were seen on Thursday near the Syria-Turkey border in a part of northeastern Syria where they had not been observed since the United States announced a decision to withdraw from the area, a witness said.

A military source from the Kurdish-led Syrian Democratic Forces (SDF) described the movement as a patrol running between the towns of Rmeilan to Qahtaniyah, 20 km (12 miles) to the west. The source said it would “not be a one-time” event.

The head of the SDF’s media office could not immediately be reached for comment. The witness saw the vehicles outside the town of Qahtaniyah, roughly 6 km (4 miles) south of the border.

President Donald Trump announced this month that U.S. forces would withdraw from northeastern Syria, where the United States had allied with the SDF to oust Islamic State forces.

In response to a question about the reported troop movement, Colonel Myles Caggins, a spokesman for the U.S.-led coalition, said, “All Coalition military operations are de-conflicted with other forces operating in the region”.

“We have begun repositioning Coalition troops to the Deir al-Zor region, in coordination with our SDF partners, to increase security (and) continue our mission to defeat (Islamic State) remnants,” Caggins added.

The U.S. military said last week it was reinforcing its position in Syria with additional assets, including mechanized forces, to prevent oil fields from being taken over by remnants of the Islamic State militant group or others.

Trump said last week a small number of U.S. troops would remain in the area of Syria “where they have the oil”. Syria’s oil wells are principally located in Deir al-Zor province, well south of the Turkish-Syrian border.

(Reporting by Rodi Said in northeast Syria; Writing by Eric Knecht; Editing by Tom Perry and Will Dunham)

Deadly political calculations: Why India isn’t fixing its toxic smog problem

A boy rides a bullock cart as smoke billows from paddy waste stubble as it burns in a field near Jewar, in the northern state of Uttar Pradesh, India November 6, 2018. REUTERS/Altaf Hussain

By Neha Dasgupta and Mayank Bhardwaj

NEW DELHI (Reuters) – As pollution levels surged to “severe” and “hazardous” levels in New Delhi, India this week, there was little sign that residents of India’s teeming capital were doing much to protect themselves.

The smog, which is expected to worsen in the next few days, exposed people to as much as 24 times the recommended limits for dangerous particles on Monday. But unlike in many Chinese cities, where face masks are a common sight when smog levels spike, it is still rare to see locals taking measures to reduce their exposure.

Toddlers stand at school bus stops in crisply ironed uniforms, while security guards, street sweepers, and rickshaw drivers spend many hours outside breathing in filthy air – all without any attempt at protection.

Ask middle-class residents whether they have air purifiers in their homes and the answer is invariably no.

This is despite the extensive coverage of the capital’s pollution crisis by local media, including numerous warnings from doctors about massive health hazards, especially for children, the sick and the elderly.

The apparent lack of concern about the toxic air – whether through ignorance, apathy or the blinding impact of poverty -gives federal and local politicians the cover they need for failing to vigorously address the problem, said pollution activists, social scientists, and political experts.

Neither the governing party at federal level nor the main opposition are in power in the capital, giving them little incentive to cooperate with the city authorities.

And while Delhi may have a population of more than 20 million, its importance at voting time – a national election is due by May next year – is insignificant in comparison with states such as neighboring Uttar Pradesh, which has 220 million.

“The tragedy is that there is no political will at all either on the part of the federal government or the state government of Delhi and, as a result, we can see both blaming each other for the crisis that we are in,” said Yogendra Yadav, a political polling expert. “Whatever little government action you get to see is because of the pressure that environmental activists and the Supreme Court get to exert.”

COCKTAIL OF FUMES

India’s problems with smog extend far beyond Delhi – the nation of 1.3 billion has 14 out of the 15 most polluted cities in the world, according to the World Health Organisation.

But in the capital, at least, this was the year the problem was supposed to be addressed.

After a cocktail of toxic fumes enveloped the area in October and November last year, the Delhi city government declared it a public health emergency and its Chief Minister Arvind Kejriwal described the Indian capital as a “gas chamber”. Officials of the federal government said Prime Minister Narendra Modi’s office had asked them to ensure that it did not happen again.

But steps taken so far have failed to make much difference, and now there is finger-pointing between Modi’s administration, the Delhi city government, and the governments of states around the capital.

As this year’s crisis has worsened, environment ministers from Punjab and Haryana – whose farmers’ stubble-burning is a major contributor to the haze – failed to turn up for a meeting called by the federal environment ministry last week, sending their civil servants instead.

The farmers have been torching their fields as they get ready for new plantings, despite being offered government subsidies on machinery that would allow them to mulch the material into the ground without lighting fires.

Farmers say the subsidies were not enough to cover the price of the machinery, the cost of running it, and the additional labor needed, especially given higher fuel prices.

India had planned to reduce crop burning by up to 70 percent this year but only a 30 percent drop has been visible so far, according to a government statement last Thursday.

Blaming that as the main reason behind New Delhi’s poisonous air, a spokesman for the city government said: “We can’t take steps in isolation in Delhi; we can’t build a wall.”

The federal government, meanwhile, has attacked the city for doing little to control pollution from dust, vehicles, and industries.

Certainly, there has been little done to reduce the number of heavily polluting vehicles on the roads in and around Delhi despite threats that have been made but not followed through, including one from the Supreme Court-appointed Environmental Pollution Control Authority (EPCA) to ban all private vehicles from the city.

And while the nation’s top court has issued a ruling trying to restrict the use of fireworks on the night of the Hindu festival Diwali, which is on Wednesday, few expect it to be enforced. For one thing, the court’s edict that only “green”, less-polluting firecrackers can be let off between the hours of 8 p.m. and 10 p.m. is likely to be ignored because there are no “green” fireworks for sale in the city.

People pass by an installation of an artificial model of lungs to illustrate the effect of air pollution outside a hospital in New Delhi, India, November 5, 2018. Picture taken November 5, 2018. REUTERS/Anushree Fadnavis

People pass by an installation of an artificial model of lungs to illustrate the effect of air pollution outside a hospital in New Delhi, India, November 5, 2018. Picture taken November 5, 2018. REUTERS/Anushree Fadnavis

WAKE-UP CALL?

Most officials expect to wake up to even worse pollution on Nov. 8, as smoke from the festivities mixes with the smog from other sources to create a deadly cocktail. Light seasonal winds and a lack of rain at this time of year means pollution can linger for weeks, as it did last year.

But Modi’s ruling Hindu nationalist Bharatiya Janata Party (BJP) is more concerned about the impact of weak farm incomes, high fuel prices, and whether job creation has been adequate as issues at the polls.

“A holistic approach in the current climate is difficult to envisage as political divisiveness means that politicians are not looking for enduring solutions,” said Pavan K Varma, an official from a regional party in the state of Bihar and former diplomat who lives in Delhi.

Neither is it in the BJP’s interests, or in the interest of the main opposition Congress party, to help Kejriwal’s New Delhi government. In 2015, Kejriwal’s anti-establishment Aam Aadmi (Common Man) Party, campaigning on an anti-corruption platform, crushed the BJP and Congress to take control of the city.

For Delhi’s doctors it is a nightmare.

This year, the number of patients with severe lung problems has already gone up by up by 25 percent and is expected to increase further after Diwali, said Doctor Desh Deepak, a chest physician at government-run Ram Manohar Lohia Hospital.

“It’s tragic that children are suffering and we’ll destroy a whole generation if we don’t take cognizance of the fact that pollution needs to be tackled on a war footing,” said Dr Neeraj Jain, head of chest medicine at Sir Ganga Ram Hospital in Delhi.

A woman waits to receive treatment for respiratory issues at Ram Manohar Lohia hospital in New Delhi, India, November 5, 2018. REUTERS/Anushree Fadnavis

A woman waits to receive treatment for respiratory issues at Ram Manohar Lohia hospital in New Delhi, India, November 5, 2018. REUTERS/Anushree Fadnavis

Dipankar Gupta, a leading sociologist who has written books on Indian society, said only heavy state intervention was likely to solve the problem. He pointed to an improvement in the pollution levels in Beijing last year because of strict government measures to curb polluting industries near the Chinese capital.

But that state crackdown still seems a long way from happening in India. The EPCA has announced a variety of steps between Nov. 1-10 as part of an emergency package, including the use of water sprinklers and a complete ban on construction.

But most environmental experts say it is far too little, too late, and is not addressing the biggest pollution sources.

Modi has not publicly addressed the health crisis that has engulfed the capital.

The grim prognosis means that foreign organizations, including embassies in Delhi, are finding it difficult to get top talent to come to the city.

“Staff with young children are increasingly choosing not to come which wasn’t the case a few years ago,” a Western diplomat told Reuters on condition of anonymity.

Most of the city’s residents are poor, however, and more worried about making enough money to buy food than pollution.

“The daily grind … leaves no room to think about the haze and smog,” said Vimla Devi, who works as a maid in the suburbs of Delhi.

(Additional reporting by David Stanway in BEIJING; Edited by Martin Howell and Alex Richardson)