U.S. Shale Revolution Animal Spirits

Each day a typical oil or gas drilling rig equipped with Internet of Things (IoT)-enabled sensors collects about 8 terabytes (1TB=1,024GB) of operating data to continuously assess performance and make real-time prescriptive analytics adjustments in response to optimize well performance. Multiply that by dozens or even hundreds of wells across shale or light tight oil and gas plays in the US and you see why OPEC flooding the market with oil was not sufficient to destroy the economics of the US shale revolution.

The US Shale Revolution is driven by US technology and the animal spirits of the US oil & gas industry wildcatters, engineers, traders and entrepreneurs betting their future—with their own money.

By mid-2014 OPEC leader Saudi Arabia was feeling the pain of weak oil demand in a global economy with anemic growth rates. On top of that weak growth there was the typical cheating on production targets by OPEC members. The cheaters had been conditioned by Saudi tradition of using its swing productive capacity advantage to balance the market even if it meant cutting its own production level and revenue.

Then the Saudi’s said ENOUGH! In mid-2014 oil prices fell like a rock. You know the rest of this story—oil prices tanked around the world and all oil producers felt the pain. Speculators stored oil in ships and every other available place betting that falling prices would spell financial ruin to onshore US shale growth and slow investment in offshore oil drilling projects enough to balance the market thus driving prices higher faster on the rebound.

A funny thing happened on the way to the poor house—the US shale players used their entrepreneurship and animal spirits along with US technology to drive down the break-even point for new onshore production. As drilling costs went down production continued in the best onshore plays supported at first by higher priced natural gas liquids produced by the wells and then by the export demand for the light tight condensates used as diluent by Canadian oil sands producers to thin their heavy crude enough to enable it to flow in the pipelines toward US Gulf Coast refineries.

OPEC spent a fortune in a failed effort to stop cheating at home and savage shale competition abroad. US onshore producers got more efficient and today are even fiercer competitors in global markets.

The 2016 US Presidential election unleashed the animal spirts so evident in the onshore energy industry and told the rest of the economy to roll-up our sleeves and get ready to go back to work. The US shale revolution and the IoT and other technology advances position the US for another industrial revolution. The US Shale Revolution was an energy war game designed to show the rest of us the power of American ingenuity and entrepreneurship if government policies and regulations are better aligned to unleash the animal spirits within us once again.


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 )

Google+ photo

You are commenting using your Google+ 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 )


Connecting to %s