No dry wells for the last 3 years and no low-productivity well for the last 2 years. The reason for this long string of good luck in the US shale oil patch — according to Austin-based geopolitical analyst Peter Zeihan — is the combination of real-time 3D seismic imaging from within the well itself, with rapidly advancing drilling technology that allows drillers to move the drill along precise lines within oil deposits at multiple levels.
Breakeven costs for new wells continue to drop, bringing more and more oil within economic reach. This is an opposite reality from what the doomers of peak oil have been preaching about shale oil for the past ten years. To the doomers, the collapse of oil production — including shale oil production — is always “right around the corner.”
Remember that in the Permian Basin of Texas and New Mexico alone, there is as much as 2 trillion barrels of economically recoverable oil reserves. As the technologies of oil discovery, production, and recovery improve, more oil comes within reach.
In fact, shale oil production in North America seems to be preventing global oil prices from jumping to the higher quantum levels that oil dictatorships such as Iran, Venezuela, and Russia desperately need to run their countries. Remember, financial breakeven of oil production is entirely distinct from fiscal breakeven for countries who run their budgets on oil & gas receipts.
Companies with US shale assets are likely to be at a competitive advantage over the next few years. Producers that rely on oilfields in higher-cost regions such as the North Sea and the deep waters off west Africa will have to cut costs or face shrinking output.
After the oil price plunge that began two years ago, production costs have been cut across the industry, but far more so in US shale.
Average costs per barrel have dropped by 30 to 40 per cent for US shale wells, but just 10 to 12 per cent for other oil projects, said Simon Flowers of Wood Mackenzie.
Why US shale is becoming the low-cost option. (behind a subscription paywall)
The video above also contains Zeihan’s updated geopolitical and global demographic outlooks. If you have been following Zeihan’s arguments, the video above is from his most recent video available (14 Sept 2017).
Peter Zeihan’s books — The Accidental Superpower, and The Absent Superpower, are both recommended for anyone wanting a well-rounded perspective of important global geopolitical and demographic trends.
No one knows the full extent of US shale oil & gas. But if there are 2 trillion bbls of economically recoverable oil in the Permian Basin alone, and if the US continues to export oil, petroleum products, and liquefied natural gas — the economics and geopolitics of the global energy markets have been turned topsy turvy. And that is something that the bloody dictatorships of Eurasia and MENA won’t like.