The Krimmel Letter

Jeff Krimmel

This week’s coverage

• Oilfield Services Playing Both Defense and Offense
• What I Learned in My First Two Years at KSG
• Gas Producers Were Winning Even Before the Storm
• Why Natural Gas Futures Are Different Than Oil Futures
• ExxonMobil and Chevron Explain Our Oil Surplus
• The Importance of New England Burning Oil for Power

Oilfield services is simultaneously playing defense and offense

​Foundations of Energy post​

Halliburton and SLB reported earnings with the usual headlines: falling rig counts, declining revenue, compressing margins.

But today’s margins remain 4-6 percentage points above pre-pandemic levels.

And that structural health is giving certain players room for offensive bets in power generation and digital.

In this post at Foundations of Energy, I explore how the oilfield service sector is trying to play defense and offense at the same time.

What the Market Taught Me in My First Two Years at KSG

​KSG blog post​

I launched KSG two years ago with two offerings: consulting and workshops.

Conference organizers asked me to speak. Workshop participants wanted ongoing conversations.

The market taught me what I missed.

Now there are four pillars: consulting, courses, speaking, and coaching.

Here I explore how I took a framework I often use when studying energy companies and turned it on myself.

Foundations of Energy is where I go deeper, unpacking the market, strategy, and finance fundamentals that help you see what’s coming, not just what happened.

If you haven’t checked it out yet, you can do so right here.

Gas producers were winning even before Winter Storm Fern

​Foundations of Energy post​

Oil and gas prices have been diverging since early 2024: WTI down from $80 to $60, Henry Hub up from under $2 to around $4.

Capex patterns show the split. Gas-focused producers are ramping investment while liquids-focused operators continue cutting.

In this post at Foundations of Energy, we explore how these gas tailwinds existed well before Winter Storm Fern arrived with its price spikes.

We also discuss why the prospects for natural gas are rosier than those for oil.

Why don’t natural gas futures get the same attention as crude oil?

​KSG blog post​

​

Natural gas futures have always been quieter than crude.

The reason: until recently, gas wasn’t truly global.

US production, US storage, US weather. That was the whole story.

Now rising power demand and scaling LNG infrastructure are ensuring what happens in US gas markets has an impact around the world.

ExxonMobil and Chevron help explain our oil supply surplus

​KSG blog post​

Global oil supply grew 4% year-over-year while demand grew just 2%.

ExxonMobil’s liquids production jumped 10%. Chevron’s jumped 17%.

When two of the world’s largest producers ramp that aggressively against modest demand growth, you get a historic supply surplus.

Notably, the EIA expects flat supply through 2027 as demand catches up.

I offer some more details in this post.

This week’s anecdote, insight, or observation

Winter Storm Fern pushed exceptionally low temperatures across the US for several days.

The resulting need for indoor heating caused electric power demand to spike.

What happened in the Northeast is particularly notable. It shows us both the challenges and the opportunities we face as we remake the electric grid during an era of strong demand growth.

To meet demand, the Northeast started burning oil as its primary fuel source to generate electricity.

That’s not normal.

On average, oil and distillate fuels are responsible for about 1% of power generation in the Northeast.

As Winter Storm Fern set in, over the course of just a few hours oil went from supplying next to no power to being the largest contributor to the Northeast’s generation mix.

Check out this chart from the US EIA:

Petroleum generation hit nearly 8 GW at the peak. That’s more than New England’s installed petroleum-only capacity.

The difference came from fuel switching: natural gas plants that can also burn distillate oil when gas becomes too expensive or unavailable.

That hidden flexibility is what kept the lights on.

Why did this happen

Three reasons.

First, variable renewables aren’t dispatchable. You can’t demand the sun shine longer or with greater intensity. The same with the wind. When demand spikes, you often have to turn to dispatchable fuels.

Second, utility-scale batteries typically have discharge durations measured in hours. You can see from the chart above that the call on oil lasted for days. We don’t yet have storage that can bridge a multi-day demand surge.

Third, natural gas prices spiked with the increasing power demand. Supply was constrained when some production was taken offline due to freeze-offs. With gas too expensive or unavailable, oil became the backup.

This isn’t the first time.

​Winter Storm Uri rolled through almost exactly five years ago. The same thing happened then: record demand spikes overwhelmed parts of the power sector.

Two major grid stress tests in five years. We should expect more.

If another record-breaking winter storm sweeps the country within the next five years, what meets that demand spike?

The honest answer: everything we can muster.

Within that timeframe, variable renewables, batteries, natural gas, and even oil as a backup, are the options available at scale. Nuclear won’t be deployable fast enough to matter for the next event.

Winter Storm Fern is a reminder that grid reliability isn’t about choosing the “right” power source. It’s about having enough dispatchable capacity to meet demand when conditions turn extreme.

We can debate the long-term generation mix. But in the short term, flexibility wins.

That’s it for this week. Thanks for reading. I hope you have an excellent weekend.

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