The Shale Revolution...Still Very Much Alive...

When crude prices collapsed from $100 a barrel in mid-2014 to below $30 in February last year, conventional wisdom was the Shale Revolution of hydraulic fracturing and horizontal drilling was dead. ‘For Sale’ signs in places like Williston, North Dakota, ground zero of the Bakken oil fields, sprouted like weeds.

Well, a year later the picture is very different. One of the trademarks of the Shale Revolution is that technology keeps pushing the envelope. Whereas shale drillers could not make money at anything less than $60 a barrel, now with faster and more innovative drilling techniques some can make money at $30 a barrel, maybe even lower.

The map above is kind of complicated but this is because there are so many shale pockets in the U.S. today. The Permian Basin (oil) in West Texas and Eastern New Mexico and the Marcellus Shale (natural gas) in Pennsylvania are booming again. The chart below shows the prospects for U.S. oil production even with prices below $60 a barrel is bright.

Not only is America producing more oil but there is tremendous investment going on in oil related businesses. Exxon just announced that it will be spending $20 billion on refineries and petrochemical plants to double its production of U.S. shale oil in the next decade. Chevron is expected to announce similar plans. Another beneficiary of low cost production is the fertilizer industry. Urea, ammonia and nitrogen fertilizer are all derived from natural gas. The U.S. is just about the lowest cost producer of natural gas in the world today. U.S. production capacity in urea and ammonia will increase by almost 25% in the near future. China, which is the largest exporter of urea fertilizer, is suffering now. Its exports have slumped 10% recently. And just about every major petrochemical company in the world is building or planning to build a plant in the U.S. to take advantage of our lead in natural gas. Saudi Arabia can still pump oil from its enormous reservoirs at $10 a barrel, well below anyone else in the world. But the U.S. is becoming the major swing producer, meaning it can quickly ramp up production when oil prices increase just a bit.

Where you stand definitely depends on where you sit in this debate, however. Critics argue that fracking is the Darth Vader of the environment. Is fracking a benefit or a scourge? The debate will go on but for now the U.S. has taken control again of its energy future, something it has not had since back in the 1960’s.