Wars heighten Basin's global significance

Apr. 23—The wars in Israel and Ukraine are not good for anyone, including the American energy industry, but the Permian Basin's uniquely powerful position as one of the world's top oil- and natural gas-producing regions is helping to shield it and the United States.

That's according to State Rep. Brooks Landgraf and Waco economist Ray Perryman, who say the basin's importance grows each year.

"Amidst the uncertainties of foreign wars and geopolitical tensions the answer to our energy stability lies closer to home than we may realize," said Landgraf, an Odessa Republican who chairs the Texas House Environmental Regulation Committee. "It's right here in the heart of the Permian Basin.

"With our vast reserves and formidable production capabilities we have the means to insulate ourselves from the volatility of global markets and ensure energy affordability for every American. And by harnessing our own domestic resources we possess the capability to mitigate the impacts of external disruptions and maintain a reliable energy supply for our nation."

Landgraf said the Houthis' missile attack on the Saudi Aramco oilfields in 2019 illustrated that reality. "While the world faced escalating oil prices, energy production in West Texas shielded Americans from significant price spikes at the pump," he said.

"As long as our federal and state governments refrain from inundating the energy industry with undue regulatory hurdles, we can guarantee our ability to meet domestic demand without resorting to price hikes."

Landgraf said it's reassuring that the solution to state and national energy needs is here. "However, this reality is all the more reason to support and protect our vital region," he said.

Referring to a bill he will re-introduce in the next legislative session in January 2025, Landgraf said, "That is precisely why I am committed to passing my Texas STRONG legislation to fortify our energy infrastructure, support energy-producing communities and ensure the enduring prosperity of the Permian Basin, which is not just essential for Texas but for the entire nation's energy security."

Perryman said uncertainty due to geopolitical tensions can have notable effects on the oil market. "Prices can rise in reaction to headlines if a major disruption in supply is feared," he said.

"On the other hand a widening war may slow economic growth and therefore decrease future demand for crude. Prices may be negatively affected.

"We will continue to see these types of fluctuations, generally followed by some moderation as the extent of issues is processed. Major stock and commodity markets tend to process information and risk very efficiently, although with some initial overreaction to major events, reflecting uncertainty."

Perryman said the fact that the United States is producing oil and natural gas in today's record volumes is working in its favor by providing some level of insulation and moderation.

"In fact the ability of the U.S. to avoid a recession while Japan, the European Union and Great Britain could not was largely due to our position as a net energy exporter," he said. "When countries embargoed Russian oil and natural gas it increased the market for U.S. liquefied natural gas and we will likely continue to see many nations seek to obtain supply from an ally such as the United States, barring excessive market interference."

Perryman said terrorists will always be a problem for energy markets like they are for daily life.

"The challenge for the U.S. and our allies will be to deal with the threats presented by Houthis and other groups without escalating the conflict," he said. "On balance I think the current level of turmoil is unlikely to persist for a long period of time, though it will never resolve completely.

"Having said that, basic physics teaches us that systems become more chaotic as they become more sophisticated. Thus uncertainty will likely be more prevalent in general in the future. As to the present situations around the globe we can only hope that peaceful resolutions can be achieved in the major conflicts. In the interim, markets will continuously set prices for oil to reflect the perceived prospects.

"Unless things escalate dramatically I suspect that prices will remain in the current trading range until the next major positive or negative disruption."