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Hail Shale
America’s Energy Resilience, Visualized

The chart above tells a dramatic story, and helps explain why U.S. crude production hasn’t fallen off a cliff as global oil prices have come crashing down over the past 21 months. Back in June of 2014, oil was trading well above $100 per barrel and the only question for America’s fledgling shale industry was how high production might go. Since then, oil has fallen $75, trading today under $40 per barrel—well below what many assumed to be the breakeven levels for most U.S. shale projects. America’s overall oil output has tapered off since then as shrinking profit margins have pushed higher cost operations out of play, but the 570,000 barrel per day decline over the past nine months is a far cry from the bust many predicted, and declining well costs (again, illustrated above) have a lot to do with that. The EIA reports:

Costs per well generally increased from 2006 to 2012, demonstrating the effect of rapid growth in drilling activity. Since 2012, costs per well have decreased because of reduced overall drilling activity and improved drilling efficiency and tools. Changes in costs and well parameters, such as the need to drill deeper or longer lateral wells, have affected the onshore oil plays differently in 2015, with recent per-well costs ranging from 7% to 22% below 2014 levels.

Differences in geology, well depth, and water disposal options can affect costs for each onshore oil play area. The adoption of best practices and the improvement of well designs have reduced drilling and completion times, decrease total well costs, and increase well performance. Greater standardization of these drilling and completion practices and designs across the industry should continue to lower costs. The drilling cost per foot, based on total depth, and the completion cost per foot, based on lateral length, are both projected to maintain these lower cost trends through 2018. Sustained lower upstream costs may affect near-term oil and natural gas markets, and ultimately, the prices of these fuels.

This American energy renaissance has been powered by shale, and it’s worth remembering just how young this shale industry is. Companies are still finding new ways to adopt new best practices and bring costs down, and a host of innovations is powering this race to stay profitable even with crude trading below $40 per barrel.. There’s still much to learn and plenty of room to grow, and plenty of reasons to be bullish about America’s energy future, even in today’s bearish market.

Our costs are going to continue to come down in the coming years, and as much of a boon as that is for U.S. energy security, it’s also a massive threat to the lifeblood of the world’s petrostates—a group that’s already reeling from shale’s emergence, and whose future looks as bleak as ours looks bright.

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  • Jim__L

    This is Expansive Innovation at its best. More employment, higher wages, more resources available for humanity to use — wonderful!

    Disruptive Innovation is highly overrated.

    • Frank Natoli

      Shale’s innovation is getting a lot of press not simply because it’s cost effective but also because it’s beyond the reach of environmental maniacs in the EPA and White House. Horizontal drilling into conventionally extractible oil is also a significant innovation, resulting in very, very small surface acreage in, for example, ANWR, to reach very, very widely spaced sub-surface oil deposits. But THAT is under the mailed fist of the environmental maniacs so you don’t hear much about that.
      All that oil is waiting to be extracted. America is the only country in the world to leave oil in the ground.

      • Andrew Allison

        Did you miss the mis-reporing of the recent USGS report discussed here a couple of days ago that seven million people are risk from fracking earthquakes. Fracking is being either proposed to be or being shut down all over the country based on the same sort of scaremongering BS. Happily, if we ever really, really need it, all that oil will (like our 400-year supply of coal) be in the ground waiting. As an aside, there’s something to be said for policies which consume every other country’s fossil fuel while leaving us with plentiful supplies.

        • Frank Natoli

          Remember when people believed that “evil spirits” were responsible for all maladies that afflicted them? We are SO MUCH more advanced to have replaced “evil spirits” with “fracking”.

      • Jim__L

        Oil in the ground is money in the bank. There’s no real way it won’t be extracted eventually.

        • Frank Natoli

          Eventually? Like Mark Twain said, in the long term, we’re all dead. I live in the present. I pay fuel prices in the present. I saw two previous winters, both with more below zero Fahrenheit mornings here in northwest NJ than all my previous 63 years combined, where I had to wear winter clothes in my house because I could not afford to pay for more fuel oil near $4/gallon. New offshore Pacific drilling has been shutdown since Santa Barbara. No “eventually” there. Offshore Atlantic drilling has never happened. No “eventually” there. Alaska drilling, since the Trans Alaska Pipeline of 1977, has been stopped. No “eventually” there.
          Mind if I withdraw some of that “money in the bank”?

          • Jim__L

            Careful of the Keynsian “in the long term, we’re all dead” line. It’s the main battle-cry in the War on the Young. I’m grateful that that’s not how you’re using it here.

            It would not surprise me if under a Republican administration, there were more openness to extracting the resources that would help you. Eventually there will be one of those.

          • Frank Natoli

            Keynes insisted that deficit spending to “kick start” an economy was “better” than waiting for the free market to accomplish the same. Whether or not that is true, perpetual deficits and perpetual “kick starting” is not sustainable. It can be reasonably argued that the massive federal deficit spending at the onset of world war in 1939 ended the Great Depression. It cannot be reasonably argued, because it would be counter to fact, that the same massive federal deficit spending continued after the world war ended. U.S. industry was on top of the world, a world that lay in ruins, and the free market took over at that point, thank you very much. Economists today who claim Keynes would support perpetual massive deficits are putting false words in a long dead man’s mouth.

          • Boritz

            “It would not surprise me if under a Republican administration, there were more openness to extracting the resources that would help you.”

            Here is a way to test propositions like this. Use a slight rewording and see if it is still believable:
            It would not surprise me if under a Democrat light administration, there were more openness to extracting the resources that would help you.

    • Andrew Allison

      I agree that disruptive innovation (the automobile, jet engine, PC, iPhone, Internet, etc.) causes quantum changes, but surely fracking is, ipso facto, disruptive innovation. What has been driving the cost of wells downward is Incremental innovation. In fact, employment and wages have been declining in Fracklandia.

      • Jim__L

        Just because something changes, doesn’t mean it’s “disruptive”.

        Automobiles, jet engines, and PCs were not disruptive, they were expansive. The number of livery stables put out of business by automobiles was more than counterbalanced by the auto parts supply chain, servicing stations, and suburban construction that the automobile made possible. The jet engine made fast intercontinental travel cheap and commonplace — a service no one had ever contemplated before.

        Am I being more clear what I’m getting at, making a distinction between Disruptive and Expansive innovations?

        • Andrew Allison

          Automobiles, jet engines, and PCs were absolutely disruptive. If you don’t consider the replacement of horse based by IC engine based transportation I have a bridge I’d like to sell you. The point which I attempted to make was that incremental change (the dramatic decline in the cost of frackwells) can be as significant as disruptive change (fracking).

  • Jacksonian_Libertarian

    “it’s also a massive threat to the lifeblood of the world’s petrostates—a group that’s already reeling from shale’s emergence, and whose future looks as bleak as ours looks bright.”

    Excuse me while I gloat, the petrostates are without exception Tyrannies where the people live in ignorance and squalor and the Tyrants in charge steal all the oil earnings and use that money to keep themselves in power. I hope some of the peoples of these petrostates will have the opportunity to overthrow the scum in charge and gain some freedom for themselves.

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