If U.S. shale can withstand domestic political pressure against hydraulic fracking, and regulatory incentives promoting a shift to renewable energies, it stands to disrupt OPEC’s global oil cartel and Russia’s strong influence in Europe, and establish the United States as the new global energy superpower.
Putin — and OPEC — hate North American shale. Most of the world’s oil remains untouched in tight source rock deposits. That massive bounty of oil was destined to remain deep inside the crust, until North American shale producers took old technology and started to innovate. All of these incremental innovations put together are amounting to a geopolitical economic revolution that is shaking the petrostates to their foundations.
Russia, the largest oil exporter outside Opec, which saw its economy shrink by 3.7 per cent last year, has acknowledged it can no longer depend solely on its oil and gas resources.
… Wealthy Gulf states such as the UAE and Oman have taken steps to cut subsidies, especially on fuel, which were previously taken for granted. Saudi Arabia has gone further, launching its ambitious ‘Project 2030’ plan it hopes will end its reliance on oil revenues.
… In Venezuela and Nigeria, reforms are even more pressing. Already riven with corruption and poverty when prices averaged $100 a barrel, both must begin the process of overhauling their economies now their hand has been forced. __ FT.com
The corruption of $100 bbl oil prices touched all the petrostates, and drove their leaders more than a bit insane with grandiose dreams. But then North American shale came along and things have not been the same for the petro-warmongers, sponsors of terror, and all around corrupt fools.
A Revolution by Any Other Name
Whatever you think you know about shale oil, is wrong:
Myth: Decline rate over first 4 months is 90%. WRONG! The decline rate over the first 4 months of production has been cut to 18% and is still being improved.
Myth: Breakeven cost per barrel for shale oil is $70. WRONG! In much of the huge Permian deposit of west Texas the breakeven cost has been cut to $2 a barrel!
Myth: Shale oil production has already peaked and will never again see the high levels of production that took place in 2014. WRONG! Production of US shale oil has slowed temporarily due to low prices and price volatility. The oil is still there — waiting for oil prices to rise — and the economics of production just keep getting more favourable.
Myth: US shale cannot compete with OPEC superfields such as Ghawar. WRONG! US shale companies have achieved breakeven rates equal to or better than most OPEC fields.
An oil drilling company operating in the Permian Basin shale formation can extract crude for as little as $2 a barrel, meaning it can compete with Saudi Arabia in terms of production costs.
Putin and OPEC Need Oil Prices Over $100 BBL to Support Imperialism and Global Terror
Russia has cut its domestic spending to the bone, and its people are suffering. Most Russian infrastructure dates to Soviet days, and is suffering accelerated aging and deterioration. Putin’s military adventures and massive spending on propaganda/espionage are pushing Russian fiscal managers to their wits’ end. Drat that North American shale!!!
Putin and OPEC were counting on shale producers crumbling under the pressure of lower oil prices. But surprise! Capitalist enterprises are under constant pressure to innovate, and North Americah tight oil producers have taken up the challenge with aplomb.
The crucial mid-tier drillers have weathered the downturn. Many are still able to raise funds at low cost. Total output in the US has fallen by 1.2m barrels a day to 8.5m since the peak in April 2015 but production has been bottoming out. Today’s frackers can just about cope with oil prices in the $40 to $50 range.
Opec may now have to brace for a longer war of attrition than they ever imagined. Global inventories of crude oil remain near all-time highs, record volumes are being stored on tankers off-shore. __ http://www.telegraph.co.uk/business/2016/07/31/texas-shale-oil-has-fought-saudi-arabia-to-a-standstill/
Putin and OPEC are confronted with an economic phenomenon that is entirely alien to them — a North American “can do” attitude that turns challenges into victories. In the lands of corruption of Russia and MENA, the creative destruction of capitalism is drowned under floods of corruption and nepotism, and remains an alien beast to the petro-dictators.
The Cost of Producing Shale Oil & Gas Keeps Dropping
As creative destruction and disruptive innovation proceed apace in the North American shale fields, other parts of the world are beginning to wonder whether their own tight source rock might be frackable. They are wondering if the “shale revolution” might be exportable to Argentina, China, Russia, and all points of the globe.
Corruption stands in the way for China, Russia, and the other hyper-centralised dictatorships. But other countries with more stable rule of law may be able to tap into the global shale boom.
Shale 1.0 is Giving Way to the Shale 2.0 Revolution
Lasting revolutions tend to come in waves. That was true for the computer revolution and it has proven true so far for the “shale revolution.” The first shale revolution — Shale 1.0 — was a result of early innovations in fracking and horizontal drilling. The shaking of the petro-world from Shale 1.0 was only a foreshock of what is taking place under the surface as Shale 2.0 begins to take hold. Because, you see, Shale 2.0 is data driven. This means that Shale 2.0 enjoys a synergetic relationship with the computer revolution — just as the parallel revolutions in biotech, robotics, materials science, nanoscience, synthetic/systems biology, and other disruptive new fields enjoy. This is a development that the “old-school” energy analysts have still not stumbled upon.
The shale industry is unlike any other conventional hydrocarbon or alternative energy sector, in that it shares a growth trajectory far more similar to that of Silicon Valley’s tech firms. In less than a decade, U.S. shale oil revenues have soared, from nearly zero to more than $70 billion annually (even after accounting for the recent price plunge). Such growth is 600 percent greater than that experienced by America’s heavily subsidized solar industry over the same period.
Shale’s spectacular rise is also generating massive quantities of data: the $600 billion in U.S. shale infrastructure investments and the nearly 2,000 million well-feet drilled have produced hundreds of petabytes of relevant data. This vast, diverse shale data domain—comparable in scale with the global digital health care data domain—remains largely untapped and is ripe to be mined by emerging big-data analytics. ____ Shale 2.0
For Decades, Big Oil and Petrostates Controlled World Energy
Now, things are spinning out of control for OPEC, big oil, Russia — all the corrupt and violence-promoting petrostates and cartels. Capitalism in flyover country is knocking dictators, kings, fat cat oil executives, and investment bankers off their pedestals.
This is only possible due to property rights, rule of law, and economic freedoms to employ innovative technologies of all kinds. This combination of opportunity only exists in a very few parts of the world. For all their faults, the Anglosphere and Europe are the best incubators for the disruptive innovations that will open the door to an abundant and expansive future that the world is likely to see.
Europe and the Anglosphere are Certain to Fall
But will they fall before they spawn the singular emergence into an abundant and expansive future — the next level — or will they drown under a flood of dysgenic immigration, ideological Idiocracy, and a corrupt authoritarianism bleeding out from Russia and China at accelerating rates?
Those westerners who slavishly root for Putin, for China, for radical Islam, and for all the forces of the anti-future, are merely doltish pawns in a game they can never comprehend.
The “Shale Revolution” is Just a Small Part of Disruptive Change
More intelligent humans can watch quietly from the sidelines as corrupt leaders such as Obama, Clinton, Putin, Xi, Hollande, take control of new and potentially disruptive innovations (and enable their “shadow backers” to take control). Or they can seize opportunities as they arise to create new niches of individual and small-scale power, similar to what happened in the early stages of multiple disruptive revolutions that have occurred in many capitalist countries — including the “shale revolution” in North America.
If you remain in thrall to a puppet-master ideology, you will never understand what you are doing — much less be able to break free and play a role in any possible breakout. Everything you think you know, just ain’t so. Any other belief you may have just leads you deeper into thralldom.
Try to see the world under a clearer sun. Then perhaps you will be able to hope for the best, prepare for the worst, and make yourself ready for a very dangerous future.
More: Oil Prices for Dummies
Oil prices result from a complex interaction of supply and demand. The price spike seen in the 1970s and early 1980s resulted from the combination of an OPEC engineered supply constriction, with a growth in demand from emerging nations in Asia.
The price spike leading up to 2008 reflected a rising demand in emerging nations springing from a flood of western investment and massive leveraging in global financial markets. The abrupt 2008 deleveraging/deflation caused a temporary price slump, but re-leveraging and reflating of the global bubble soon followed in desperate measure.
High oil prices from 2009 into 2014 were driven by artificial bubble demand in China (and other BRICS) — propagated to commodities export markets from Africa to South America to Oceania to several parts of Asia. Easy money from western central banks and wild-eyed fiscal stimulus in the US similarly helped artificially boost demand up to 2014.
What happened over the summer of 2014 is a matter of some debate, but it is clear that ordinary rules of global oil price control had been set on their heads. Instead of reducing oil production to raise prices, OPEC (and Russia) chose to rev up production far beyond what peak oilers had claimed was possible (after the “peak” of 2005). Why did OPEC and Russia push production and facilitate the ongoing, extended “price slump?”
Because they believed that they could quickly kill the upstart North American shale oil industry, and once again resume their exalted positions as obscenely wealthy & corrupt warmongers and terror-exporters in chief.
Why do Russia and OPEC not cut production now that they understand that it is the only way to raise prices at this time of depressed global oil demand? Because they failed to kill North American Shale, and they are afraid of losing market share to any petrostate that breaks rank with the others.
We have seen how that approach is working out for them.
Only governments can kill Shale 2.0 — or any other disruptive innovation of promise. Obama wishes he had seen it coming so he could have done to shale what he did to coal and Keystone. Between Trump and Hillary, the witch is more likely to try to kill shale through the EPA and other regulatory means.
This means that tight oil production in North America will remain the 20 tonne gorilla in the room that most polite folk abstain from mentioning. But you cannot understand the current regime of oil prices without having a clear understanding of the incremental revolution in source rock oil production.
By using very old data for shale wellhead costs and Permian proven reserves, Berman severely undercuts his case. But oil analysts are often under pressure to publish, whether they have anything supportable to present or not.