There is a global price war taking place in the oil markets right now, and that’s driving prices down.
In the short term that’s not good for some companies, or even some government’s like North Dakota where tax revenues are predicated heavily on commodity prices like oil. Yet despite the price rout, we keep getting news which tells us that America’s emergence as a renewed fossil fuel powerhouse will not be short lived.
Which is a good thing. And in some ways you could argue that it’s happening because low prices are forcing the oil and gas industry to get better at what they do.
Because competition breeds competency.
Case in point, America is now reporting more oil reserves than Saudi Arabia.
“The US holds more oil reserves than Saudi Arabia and Russia, the first time it has surpassed those held by the world’s biggest exporting nations, according to a new study,” the Financial Times reports. “Rystad Energy estimates recoverable oil in the US from existing fields, discoveries and yet undiscovered areas amounts to 264bn barrels. The figure surpasses Saudi Arabia’s 212bn and Russia’s 256bn in reserves.”
How did this happen? Disruption in the oil industry caused by advancements in drilling and pumping technology, including hydraulic fracturing:
Conventional oil producers, such as Saudi Arabia, have traditionally used their huge resource riches to wield power globally, particularly among big consumer countries such as the US.
This relationship has been disrupted in recent years by hydraulic fracturing and other new technologies that have helped the US unlock vast reserves and enabled it to become more energy independent.
This disruption is playing out right under our noses here in North Dakota. Hess recently upped its forecast for recoverable oil from its North Dakota wells in the Bakken and Three Forks formations by roughly 200 million barrels.
“The increase in production is in large part due to spacing the wells closer together, as well as optimizing hydraulic fracturing techniques, said Gerbert Schoonman, a Hess vice president who oversees the company’s Bakken assets,” Amy Dalrymple reports.
Specifically it’s multi-well pads which are responsible. They allow oil companies to tap into miles and miles of underground resources from one, centralized location. This shrinks the infrastructure costs of wells. This shrinks the labor and equipment costs. That makes American, and specifically North Dakota, oil development more competitive even amid falling prices.
What’s more, these multi-well pads also minimize the impact of oil development on the landscape:
Many landowners prefer consolidating more wells onto one location rather than having several smaller pads, said Troy Coons, chairman of the Northwest Landowners Association.
“For the most part, people want things to be the most efficient so they can farm around them with the least amount of impact on the land,” Coons said.
On average, a single-well pad takes up 3.35 acres, Helms said.
But consolidating 18 or more wells on on pad can shrink that impact to less than 1 acre per well, Helms said.
“That’s an enormous reduction in use of the landscape,” Helms said. “I think we’re going to see a lot of 16-plus well pads.”
Sounds like a win-win to me.
Very often, when oil and gas development is debate in the public policy sphere, we tend to see the industry as static. Some see the industry as a dinosaur and price points as fixed. But it’s not true.
The story of America’s resurgence in oil and gas production thanks to fracking and other innovations is not dissimilar to the sort of industry disruption coming out of Silicon Valley.
People are quick to talk about Facebook and Uber and Google as companies changing the world, but I’d put some of America’s oil and gas producers in those ranks as well. What they’re doing may be less sexy, and may not be as visible to the average citizen, but their accomplishments are no less profound.
For one thing, we probably wouldn’t have had a second Obama term without the economic impact of oil and gas development. Wrap your head around that.