Good morning; here's what the Oilman has for you today:

• Inflation Haunts U.S. Oil Patch

• New LNG Projects Face Uncertain Future

• Tweet of the Day

Inflation Haunts U.S. Oil Patch

The latest Dallas Fed Energy Survey is out, and what it says is not good.

The survey revealed costs rose for the ninth quarter in a row in January-March.

Optimism is not the prevailing sentiment.

Remember when inflation was supposed to be transitory?

Well, it turns out it wasn’t.

The oil patch has been struggling with rising costs of everything, and on top of that, it has been plagued by supply chain bottlenecks.

The bottlenecks seem to be letting up, as the Dallas Fed survey respondents reported shorter delivery times for materials and equipment.

However, costs are still climbing higher. The breakeven price for a barrel of oil is now $37 per barrel across the States. That’s up from $34 per barrel last year.

There’s still some good news: most producers can afford to cover their operating expenses at current oil prices.

But more bad news may be around the corner

Drillers are not exactly in a rush to start “turning to the right” due to the higher costs. This means no new production. And that may be a trend rather than a hiccup.

Earlier this month, Pioneer’s CEO said that the U.S. will never again reach the record production rate set in 2019 at 12.3 million bpd.

It’s not the first time Scott Sheffield has warned about this, either. He—and other oil execs—keep talking about producers running out of low-cost drilling inventory and, eventually, all inventory.

The latest Dallas Fed industry pulse-taking plays right into these warnings.

It won’t happen tomorrow or next week, but it’s happening.

Today's Edition is Brought to You By Energy Builders Podcast

Recently, Mike Umbro and Adam Oxsen discussed “Why most Californians want local oil production.”

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New LNG Projects Face Uncertain Future

Gulf Coast LNG projects that were ready to go a couple of months ago now face the risk of never seeing the light of day.

Why?

Tightening finance. Higher rates. The fear of a banking meltdown. And lack of long-term purchase deals.

Got a couple of billion dollars to spare?

Liquefaction plants and related infrastructure are expensive to build.

To put money in them, investors need really strong assurances that they’ll see some legit returns.

But it’s getting harder to guarantee these.

• First, cost inflation is hammering the energy industry

• Second, loan finance has become more expensive

• Third, the difference between U.S. and global natural prices is shrinking

As a result, two of four LNG projects that were almost sure to get a FID (that’s a financial investment decision) this year have been delayed once again. The two that are going forward are going forward for one reason: long-term purchase commitments.

Sorry, Europe, no time for spot market junkies

Venture Global and Sempra Energy managed to secure long-term deals for 90% of their LNG capacity, but NextDecade and Energy Transfer have been less lucky in that department.

And with global gas prices down considerably from last year, buyers’ appetite for long-term commitments is also on the decline.

You’d think after last year, everyone would be eager to sign long-term deals with suppliers, but this is definitely not the case.

This is especially true for Europe, where the transition rhetoric is only getting louder.

The irony is that this aversion to long-term commitments will result in fewer LNG terminals and, eventually, another price spike.

Go figure what passes for logic in the largest buyers of American LNG.

Around the Global Patch

🇺🇸 U.S. Democrats & Republicans join to block China from buying rural land.
🇵🇭 Philippines & China discuss developing oil & gas resources.
🇫🇮 Finland to join NATO…doesn’t make Russia happy.

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