Unquestionably, we feel fear and uncertainty in today’s oil industry. How is this going to shake out? Skimming along at $35-40 a barrel, yesterday’s dreams taunt us. The world is just a bit on tilt. Digital prophets preach about the demise of dirty crude. Is it geopolitics? Most likely OPEC? Bloomberg props up some collegiate analyst surfing a dim, distant fame of the 1980s when he looked deeply into his trusty crystal ball and guessed the market. Big hero. What we know is the reckoning came fast. Recent economic collapses have garnered media sensation and fuel exhausting political theater. The recent fall of oil has been quieter and more personal. Whether we appreciate the oilfield or loathe it, the next incarnation of oil and gas is unwritten and we can only guess what the future holds.
During its monstrous run, the oil market inspired. Massive efforts in new exploration rekindled a drive and mended our collective psyches after a wave of costly fiscal policies knocked us down. Innovations in shale gave us hope. Fracking and horizontal drilling stoked our workaholic tendencies. We looked to the silvery green prairies of North Dakota and the beautiful blue-washed skies of West Texas. Raw beaten casualties of the Great Recession gravitating to the challenges and prosperity of The Patch. To meaningful work.
Each day, oil remained high. The bust was inescapable. A cold chorus of doubters shamed us from the cheap seats for our ambitions: “You should have known better. You’re greedy.” Snarky media nihilist’s predict longer low prices through crooked grins, they relish in conspiratorial bias for the men and women of the oilfield who incubated a new era of energy in America.
Bad times are good times to be inwardly honest. The year 2015 has been a challenge but it may prove to be the start of much more. US shale was made to be the villain, flooding the market with marginal and cost intensive swing barrels. It plays nicely into the negative dialog build up around shale and anti-fracking here on the home front. OPEC’s increase in production is less about the shale boom in the US and more about fear. Fear of the independence and options that shale allows historically oil-dependent nations. The shale revolution is a disruption, signaling a shift away the Middle East’s four-decade-long stranglehold on oil production. The shale revolution was not misguided or foolish rather it is formidable and is the catalyst behind a new global democratization of energy.
While shale remains expensive to drill, the accompanying innovations have opened up plays around the world. Advancements in drilling and production enhancement have driven down costs of exploration. Technological advances are creating opportunities for energy self-reliance around the globe. Countries are feeling relief either from resources within their borders or from friendly allies. Shale may even spoil the Paris Climate Change Agreement. Cheap, easily accessible power in the third world nation is a strong argument against the best intentions of the politically driven science of well-fed, clean water drinking, air-conditioned do-gooders. It’s easy to dictate energy goals to emerging nations when not burdened by Malaria and with the bulk of your daily calories are being foraged safely from the aisle of the local CO-OP.
With 78% of the global energy resources derived from oil-fossil fuels, advocates for a future without it have doubled down. Blindly, Alternative Energy Proponents ignore currently available, scalable, energy solutions. The how of this new energy agenda and the primary sources—distributing and dynamics that need to change in the global society—have not yet been satisfactory articulated and remain splintered in many camps. Nevertheless, they persist, hoping that this is the year Moore’s Law leads itself to their cause, their technology.
Ambitious energy goals that satisfy the public’s programed self-loathing are not necessary to make cheaper cleaner universal power. Is it counterproductive to misinform the misinformed? Why is it that T Boone Pickens’ Plan gets less traction than Elon Musk’s Telsa and SolarCity? The Pickens’ Plan could have a direct beneficial impact on the US energy and economy while leveraging technology that is pre-existing. While Musk’s sexy magic car seems headed to become another high-dollar taxpayer-funded flameout, oh well, his rocket landed.
From Disneyland to Swaziland, we all have stuff that needs power. Norway, heralded for becoming a country with the most electric vehicles per capita, is confronting an increase in coal-produced electricity to service the growing number of cars plugging into the grid. The estimate of one charge for an electric vehicle is equivalent to running a refrigerator for a month. Future energy, wherever it originates, needs to include benchmarks to verify net positive energy efficiencies.
Since the veil of big oil was first pierced in Titusville, Pennsylvania and Rockefeller reported to his first Senate hearing, Oilmen have become Prometheus. It did not take long for the proprietors of oil to become the bane of industries, consumers and governments around the world. It placed the oil industry in an endless antipodal situation against indignant academics and the collective pseudo-philosophy that bemoaned if it weren’t for the ravaging effect of the dirty fossil fuels on society, we would all be living in a more secure, more perfect world.
Contrast the oil industry to the auto and banking industries. Is it better that oil companies are forced to weather downturns? As the market corrects with each market decline, the American Oil industry rallies and becomes more robust, smarter and stronger. While low prices are hard, the economy gets a little breathing room by way of lower fuel prices. Arguably, the busts may be healthier for the industry over the long term. The corporatocracies, auto and banking, get propped up by artificial economic actions and never gain robustness nor get smarter. They are not forced to learn hard lessons or weather bad decisions. If the oilfield has one thing to be thankful for in 2015, it should be that it was never a candidate for a government bailout.
So here we are and oil is at $37.46; it could dip even lower. Are we headed for $20? It’s just as likely to go back up to $45. The industry has realized the worst possible outcomes. Producers and service companies have gone bankrupt, layoffs have been huge and half a decade of full tilt drilling and fracking just keeps pumping that oil. OPEC is confused. Putin is flogging Russia’s oil resources, determined to out-produce Saudi Arabia in 2015, with no sign of slowing down in 2016. The U.S. production is slowing, but there is a lot of momentum. Plus, the export ban is history. “If you want to succeed, you should strike out on new paths, rather than travel the worn paths of accepted success.” This Rockefeller quote, like the man, embodies the spirit that winds through the men and women of the American oilfield. Well, here we are, John, looking down a new path.
What are we going to do? The Big Crew Change has arrived, Climate Change Agreements and clueless leaders, cheap gas and a defunct medieval cartel struggling to remain ligament. It’s an impossible situation to navigate, but that’s where the oilfield specializes; accomplishing the impossible. Ten years ago producing oil and gas from unconventional plays was impossible and now because of the American Oil, it is possible. My experience in the Oilfield has taught me one thing, no matter how bad it looks or how tough it gets, drill ahead. 2015 is capped. In 2016, Optimism Rules.