Not long ago, about the time of the financial crisis in 2008, the U.S. faced grim prospects of an interminable energy crisis. U.S. oil production had peaked in 1970 at about 9.6 million barrels per day. It had been in long, slow decline ever since.
Even worse, increasing reliance on Middle East oil had put the U.S. in a delicate geopolitical predicament over the years. Greater and greater military action was needed to secure energy supplies. Dependence on foreign oil was becoming more and more precarious.
But then something remarkable and completely unexpected happened. After a 28 year slide down to about 5 million barrels per day in 2008, U.S. oil production reversed. Instead of production decreasing…suddenly, it was increasing.
According to the International Energy Agency (IEA), domestic crude production totaled 7.8 million barrels a day in the week ending October 18, the highest mark in nearly a quarter of a century. This turn of events and its ramifications are quite astounding. In fact, the World Energy Outlook 2013, released last month by the IEA, stated that the U.S. will surpass Saudi Arabia and Russia to become the world’s top oil producer in 2015.
That’s two years sooner than the IEA’s prior target of 2017. Obviously, this is quite a feat. What the heck’s going on?
Two Chapters in the Oil Markets?
Of course, the unexpected reversal of U.S. oil development is attributed to the boom in shale production. If you recall, just a few years ago obtaining oil from shale was generally thought to be impractical. The big oil and gas companies had written off shale development as a pipe dream years before.
But that was before George Mitchell and several other castoff wildcatters made incredible advances experimenting with new drilling techniques. In short, these new drilling methods involve hydraulic fracturing – fracking – of shale rocks and horizontal drilling deep below the ground surface. The combination of these processes allows drillers to tap into abundant, previously inaccessible, oil and gas resources.
“Shale oil is very good news for the United States and for the world,” said IEA Chief Economist Faith Birol. Nonetheless, Birol’s not overly optimistic about the long term prospects for shale production…
“We see two chapters in the oil markets,” explained Birol in a Reuters interview. “Up to 2020, we expect the light, tight oil [shale oil] to increase. I would call it a surge.”
“But due to the limited resource base (of U.S. tight oil), it is going to plateau and decline. After 2020 there will be a major dominance of Middle East oil.”
Here at the Economic Prism we don’t share Birol’s shale production reservations. The way we see it, this new technology is bound to turn up additional shale formations that can be produced. Things are just beginning to ramp up.
Buck Butler’s Doggone Miracle
Regardless, the time to make hay is when the sun still shines. What we mean is, seize the moment and profit from the opportunity while it’s here. Take Buck Butler, for instance…
Several years ago Buck needed a miracle in a bad way. The weathered eighty-three year old South Texas rancher had been dealt his last hand. He’d plowed all his money into land over the years and despite working seven days a week with thousands of cows…his ranch operation was coming up short.
By 2009 Buck owed over $3 million to various lenders. Yet he didn’t have much more than a penny to his name. There was only so much longer that he could hold things together…a looming bankruptcy was practically guaranteed. But then, when all hope had faded and only despair was left…
…a doggone miracle happened.
Sometimes there are moments in life when good fortune and dumb luck meet in symbiotic harmony. For Buck, the confluence couldn’t have been more surprising or timely. Nor could the windfall have been greater.
With the advent of fracking, Buck’s marginal ranch land became prime production acreage. More importantly, Buck’s life was forever transformed. Many others have been too.
Sincerely,
MN Gordon
for Economic Prism
