Outrun Change

We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

The energy future is so bright we may have to trade in our sunglasses for welder’s goggles

Here are two resources I came across on the same day that point to why the future is so incredibly bright that regular sunglasses might not be enough:

Shale 2.0 – Technology and the Coming Big-Data Revolution in America’s Shale Oil Fields, by Mark Mills, of the Manhattan Institute

Economic Impact and Legal Analysis of the Shale Oil and Gas Activities in Mexico, preliminary report – by University of Texas San Antonio and others. Prof Thomas Tunstall is the principal investigator and Javier Oyakawa is the lead investigator at UTSA.

I have just started reading both of the reports. Plan to finish them in the next few days and will have more to say then.

A couple of initial thoughts:

The Manhattan Institute study suggests the shale revolution of the last five or seven years is barely getting started. The technological innovations in the last couple of years are going to accelerate.

If I’m getting the gist of the report, the cost to drill will continue to drop but that will be a secondary factor. Far more important will be a dramatic increase in productivity caused by increased use of Big Data.

Until the fall of 2014, the reward was on just getting oil out of the ground and getting it to market. At $100 per barrel, drillers took whatever formula seemed to worked on the previous wells and applied that to every other well they drilled.  The inefficiencies of that approach produce huge profits at $100.

That apparently leaves a huge amount of oil in the ground. Each well benefits from a tailored solution based on the geology of that location. The exact spot to place each small portion of the latteral, which specific foot of the lateral to fracked, and the precise formula for fracking of each portion varies extensively.

Low prices will allow, and in fact force, highly tailored techniques at each well.

According to the report, this will expand output.

The potentials in Mexico are huge.

I haven’t dived into understanding the numbers, but my impression is there are some fields in Mexico that could eventually be included in the discussion when one is talking Bakken, Eagle Ford, and the expanded output of Permian.

On the other hand, the obstacles are even bigger. Contract rights, technical infrastructure, physical infrastructure (think basic roads), security, regulation, sufficient skilled workers, and stability of political environment are some of the constraints that must be cleared. I’ve only read the first few pages, but guess capital availability will be another constraint.

On the other, other hand the upside potential is tremendous. The foundational change by the government to allow private exploration open ups the door to tremendous rewards for the Mexican government and the Mexican people.

I do so hope those hurdles can be cleared.

I’m looking forward to finish reading both reports. But first I gotta’ see if I can find some more powerful sunglasses.

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