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.

Yet another reason I am so optimistic when I take my eyes off the political news of the day: the energy revolution that keeps gaining speed.

One more illustration of the energy revolution currently underway. BTW, flaring is down to about 11% of all natural gas produced. Photo by James Ulvog.

One more illustration of the energy revolution currently underway. BTW, flaring is down to 9.2% of all natural gas produced. About 91% is captured, which shows great progress. Photo by James Ulvog.

When I look at the political news and the headlines in general news every morning, I get so discouraged. When I look away from those areas I am so optimistic.

Consider what the two following articles suggest about how bright our economic future could be: an abundant supply of oil and gas at increasingly lower cost to produce.

6/13 – JH at The American Interest – Resilient Shale Producers Get Their Second Wind – Article mentions a Financial Times article which indicates there is some increase in drilling, which is driven by prices a few weeks ago. Since then oil prices have come up further. Discussion speculates if prices remain in the $50 range there will be even more drilling.

The small-scale and short development time of shale wells creates a soft ceiling on prices. Shale production can increase quickly which will put supplies on the market quickly, which will counter a surge in prices.

A quoted analyst says his expectation is a long-term price of oil around $60. There will be fluctuations up to $80 and down to $40, but the price will tend toward $60. Drillers needing a price higher than that to be profitable will have a rough time.

A major reason for the responsiveness of shale wells is the small-scale. It is far easier to gear up or slow down when you’re working in increments of one well 2 miles underground at a cost of $6 which takes a few weeks to get into production compared to a multibillion-dollar project that takes many years before you see any oil flowing.

6/21 print edition – Rich Karlgaard at Forbes – Long Boom in Cheap Energy – He says the most significant technology trend in the last decade is not stuff you can do on your smart phone but actually in the area of oil-and-gas production.

He cites Mark Mills from the Manhattan Institute as saying the cost-efficiency of shale drilling has improved 400% since 2008. That means the combination of cost dropping and productivity improving has reduce costs by a factor of four. Awesome.

In 2015 alone, there was a 40% drop in the cost to operate a shale rig and the output per rig increased 50%.

He also said that for practical purposes over the next several decades, the amount of oil and gas available in shale rock is essentially unlimited. A large part of the huge potential for the future is more improvements in technology which will increasing the productivity.

The breakeven price used to be $80 per barrel. Mr. Mills says it is down to $50 now. It is headed for $40 and could eventually hit $20. That is an astounding amount of improvement in a decade or so.

This again illustrates the idea of a soft cap on oil prices. When oil hits $50 shale companies will start gearing up. I’ll make a wild guess that if prices for some inexplicable reason to hit and sustain in $80 or $100 there would be another massive surge in drilling like in the ’10 to ’14 timeframe.

Why our future is so bright

Here is the most astounding and wonderful thing in Mr. Karlgaard’s column. He says Mr. Mills explains

…that OPEC and big oil companies, such as Exxon and BP , don’t control the supply, the technology or the entrepreneurial fervor of “thousands of drillers and wildcatters funded by venture capital out of Houston and Oklahoma City.”

Mr. Mills says the era of high energy costs and lots of volatility is over. An additional major factor is:

The geophysical resources of U.S. shale are Saudi-scale.

Combine that hugely massive amount of untapped oil & gas with the rapidly dropping cost of pulling it out of the ground and I see a future so bright that we will need to wear wraparound sunglasses every minute of the day.

Single Post Navigation

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: