America's Shale Boom Not Over Despite Low Petroleum Prices
May 22, 2015
With petroleum prices down 50 percent over the past year, many analysts and pundits are predicting the end of America's shale oil boom. High prices, shale skeptics argue, created a bubble of activity in unsustainably expensive shale fields. As shale-related businesses contract, consolidate, and adjust to the new price regime, a major shale bust is inevitable, they add, with ghost towns littering idle fields from Texas to North Dakota.
It is true that the oil-price collapse was caused by the astonishing, unexpected growth in U.S. shale output, responsible for three-fourths of new global oil supply since 2008. And as lower prices roil operators and investors, the shale skeptics' case may seem vindicated. But their history is false: the shale revolution, "Shale 1.0," was sparked not by high prices — it began when prices were at today's low levels — but by the invention of new technologies.
John Shaw, chair of Harvard's Earth and Planetary Sciences Department, recently observed: "It's fair to say we're not at the end of this [shale] era, we're at the very beginning." The technology deployed in America's shale fields has advanced more rapidly than in any other segment of the energy industry. Shale 2.0 promises to ultimately yield break-even costs of $5-$20 per barrel — in the same range as Saudi Arabia's vaunted low-cost fields.
The transition to Shale 2.0 will take the following steps:
- Oil from Shale 1.0 will be sold from the oversupply currently filling up storage tanks.
- More oil will be unleashed from the surplus of shale wells already drilled but not in production.
- Companies will "high-grade" shale assets, replacing older techniques with the newest, most productive technologies in the richest parts of the fields.
- And as the shale industry begins to embrace big-data analytics, Shale 2.0 begins.
Source: Mark P. Mills, "Shale 2.0: Technology and the Coming Bid-Data Revolution in America's Shale Oil Fields," Manhattan Institute, May 16, 2015.
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