Shale Oil 2.0 is Coming…

bakken-oil-rig-north-dakota-continental-resources
Bakken Oil Rig – North Dakota


The cost of a barrel of oil dropped to as low as $28 per barrel recently, thanks to the Saudi’s flooding the market. The oil sheiks were hoping to ruin their American fracking competitors with price pressure. Shale oil responded by backing off or shutting down production as prices made profits impossible, but as I observed back in January when the American Shale-Oil industry is not drilling it is innovating.

Shale oil 1.0 changed the global oil game. The Saudis responded by increasing production. That increase has forced shale production down but the US shale-oil industry isn’t idle. It is getting ready for round two. Round two will come the moment the Oil Producing nations back off just enough, and Shale ramps right back up.

Does it mean that oil spikes will be less volatile and shorter in the future? It could. With Shale-oil looking for a way to turn the spigot on an off as demand requires, price spikes and production shortages could become a thing of the past. Shale deposits could become part of our affordable energy future, and act as an in ground strategic reserve.

Imagine New Hampshire’s on-again-off-again Congresswoman Carol Shea-Porter, or some other Democrat nit-wit, saying “lets tap our strategic reserves to keep energy prices stable for hardworking American families.” In the modern Shale-oil economy that would be the same thing as saying ‘Drill Baby Drill!’

Oil has crept back above $50/barrel and has its eye on $60, which some experts say is a new (lower) trigger for ramping up shale oil production.

Financial Times – (Subscription required)  The rebound in activity in the US is so far only modest. The number of rigs drilling the horizontal wells used for shale oil production has risen by 13 in the past two weeks to 262, according to Baker Hughes, the oilfield services group, down from a peak of 1,115 in November 2014.

The rigs that are being put back to work, though, reflect decisions taken a few weeks ago, when oil prices were lower than they are today. If prices remain stable for a while at about $50 per barrel — and still more if they move higher — more companies are likely to join in the revival.

So the soft ceiling for oil is between $50 and $60 a barrel, but as American Interest.com points out,

$60 may be the desired price for shale today, but that will continue to come down with time. In October 2014 the majority of shale production was believed to require an oil price of $75 to profit, but innovative new techniques and more streamlined operations have brought that breakeven price down significantly and, in true American fashion, will continue to do so.

While not much else has gotten better during the Obama years, this is a significant step toward the once-pie-eyed-fantasy of American energy independence. Private investors and industry experts have found ways to stop-gap spikes in global energy prices. We no longer need to endure podium pounding panderer’s postulations on the production of crude (or natural gas) or its alternatives. As I hinted at above, shale oil is our vast on-demand in-ground strategic reserve, and if we leave well enough alone, they’ll take care of it for us.

This situation is not just good for the United States but for developing nations looking to advance into the second and first world community.

Stable energy prices create an environment where economies and companies alike can make long-range plans without having to worry about some unpredictable $100/barrel spike eating into the edges. And as the breakeven price drops further and self-reliance becomes more a reality, assuming Democrats don’t find a way to ruin that American Dream, the ability of foreign powers to manipulate us while financing undesirable militaristic hobbies like shaking down neighbors or funding terrorism, is less tenable.

It creates jobs and revenues and fills tax coffers without new or higher taxes.

Affordable energy frees up billions if not trillions annually in an economy the size of ours for other more productive uses like individual commerce and private investment. Given time, that could do a lot of good.

A lot more useful than milking taxpayers to prop up flailing and failing green energy projects.

 

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