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Shale 2.0 Reshapes Global Energy Dynamics

March 29, 2017

When oil prices cratered in 2014, much of the blame was attributed to the dramatic increase in US energy production that was made possible by fracking and other technologies. The situation was exacerbated, everyone agreed, by Saudi Arabia’s decisions to increase their own production at the same time. Traditionally, Saudi production costs have been among the lowest in the world, so it was reasonable for them to assume they could weather the downturn better than their competitors.

It is clear today, however, that things did not play out quite as the Saudis expected. With oil prices now relatively stable, US producers are benefitting from further improvements in technology and a nimble business model that allows them to quickly adapt to market changes. According to a recent Wall Street Journal article, “The productivity—output per shale drilling rig—has been rising by more than 20% a year. That means every 3½ years the average rig produces twice as much oil or gas.” While many of the small and mid-size firms that account for the majority of domestic production did not survive the downturn, those that did are lean, efficient and starting to look to software—which they have used sparingly, to date—to make their businesses even more competitive. In short, many signs point to a future in which US energy production continues to increase significantly. You can read the WSJ article here.

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