Shale , C’est La Difference

As readers of this blog will know I have been highlighting  the role of shale oil and gas exploration and production for some time.

Over 50% of the natural gas used in British Columbia today comes from fracked wells. And that is rising. All the LNG projects proposed in British Columbia are based on using fracked gas. The US conversion from coal and oil electricity production  to using natural gas from their shale revolution  of fracked wells is well underway.  The U.K. has  recently reversed course ( their own expensive offshore hydro carbon production is dwindling) and is now allowing shale drilling. They finally realized that wind and solar, ( expensive and intermittent , not to mention massive land grabbing , bird kill and noise and related problems near homes) are not the answer . Base , constant power will be needed .

Many still fail to realize the major role of shale oil and gas in what has happened and is happening right before our very eyes in North America. Some Commentators are so fixed on the past, the Middle  East , that they missed , and are missing that which is close . And I have had people argue with me that the Middle East , i.e. Saudis Arabia and OPEC will wipe out the shale industry. That is a sure sign of lack of understanding .  Of course, not all are in this camp , obviously. Recent articles and reports are now emphasizing the nimble, technological nature of shale exploration and production.

And it continues to surprise getting better all the time, thanks to good old capitalism. It is shale oil and gas exploration and production that is the single most important factor that saved Obama , economically . Without it this slow recovery would have been a disaster. Note excerpts of a recent article by Mark P. Mills of the Manhatten Institute:

‘Here’s the big question, the one that makes this cycle different: What happens to shale oil? The jobs and revenues from America’s newest industry literally kept the country out of recession during the years of tepid growth that have characterized the current administration.

The bad news is that there will be more pain to come. Low prices will continue to drive out companies that are overleveraged or poor performers. Stronger firms might suffer collateral damage. In the end, though, most companies will survive. Many will emerge well positioned for the next cycle, having acquired new assets (at distressed costs) that can be deployed as demand rises.

Even with China’s economy slowing, global oil use will still rise by 1.3 million barrels a day this year—equal to the peak daily output of the entire Bakken Shale field. Middle-class automobile ownership in Asia is rising steadily, from today’s average of 60 to 80 cars per 1,000 residents toward the West’s 600 to 800 cars. All the fundamentals point to growing demand for oil.

When prices rise again, even modestly, as they eventually will, shale producers will be ready—and this is what worries OPEC, Russia and Iran. Many foreign producers need oil above $80 a barrel to balance their national budgets. Yet industry experts at RBN Energy foresee vast swaths of American shale profitable at just north of $40 a barrel. And it can come online extremely quickly.

The billion-dollar projects of conventional oil require long planning by enormous corporations or nation-state monopolists. Each shale well is comparatively tiny—which is why tens of thousands are drilled. Permits are obtained in weeks on private and state lands (where so much shale resides), and the wells are drilled in months instead of years. Structurally speaking, shale resembles a multitude of small tech-factories “manufacturing” oil from rocks.

When prices tick up, thousands of profit-seeking investors make individual decisions to turn each factory’s switch to “on.” That’s how the U.S. so rapidly achieved, from 2009 to 2015, the record-breaking rise in production of four million barrels a day. Remember, global prices are affected by changes of only one to two million barrels a day. The upshot is that absent something like a major war, oil prices won’t be able to spike again. That’s especially true now that America can finally sell oil in world markets, courtesy of Congress’s recent lifting of the export ban.

Shale 2.0, when it comes, will be even better. The technology is advancing at a speed usually associated with Silicon Valley. Over the past half-decade, average output per rig has risen at least 400%. Productivity rose 40% last year, despite cost constraints. The rigs are getting cheaper, and the efficiencies brought by the latest tools—from data analytics to robotics to advanced materials—have yet to be deployed.’

This is the new energy reality.

And it was American ingenuity and private enterprise! Even overcoming an intrusive Federal State thanks to state and private land .  Oh, the wonders of federalism and property rights !

That’s why in the long term Command Economies can never win .





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