Shale oil has the potential to reshape the global economy, and increase U.S. energy security, independence and affordability in the long term

Mark Mills | Author and Senior Fellow, Manhattan Institute

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If oil didn’t exist, we’d invent it. It is a uniquely dense fuel with Goldilocks attributes: just the right combination of transportability, storability, safety and cost. That’s why civilization consumes nearly $2 trillion worth of oil a year. It’s the world’s largest traded commodity, with food in second place trading at 20 percent less.

The shale oil boom, which emerged in the past decade, is the beginning of the next and third great foundational shift in the technologies that can supply the world with liquid hydrocarbons. The first shift began about a century ago with “conventional” drilling on land at places like Spindletop, Texas and Bakersfield, California, then spread across America and throughout the world. The second era began just over a half-century ago with the first offshore rigs in deep waters off Louisiana, and this technology developed around the world too. The third great cycle began back on land in the shale fields around Williston, North Dakota, Midland, Texas, and a half-dozen other states.

The shale revolution is not—despite erroneous claims by peak-oil proponents—a short-term bubble. Instead, this is a long-term phenomenon emerging from the combination of two facts: a) the physical resource base of shale hydrocarbons is enormous and barely tapped, and b) continually emerging technologies promise to increase the efficacy of oil and gas extraction from shale fields. Further, even as the shale revolution eventually spreads around the globe—just as the previous tech-driven oil revolutions did—America will continue to be the leader for quite some time, not only because of first-mover advantages and our vast domestic hydrocarbon infrastructure, but also because of uniquely favorable land and mineral rights in the U.S.

As for long-hyped alternatives to oil, underlying physics and economics profoundly advantage oil. The wizards in Silicon Valley have no “Moore’s Law” for energy technologies that can emulate the torrid rate of change experienced in information technologies. However, there is a deeply symbiotic relationship between the silicon and shale revolutions. Information technologies promise to keep advancing the economics of producing shale hydrocarbons. In addition, the rise of the next information revolution is the primary reason the demand for oil will increase, perhaps much more than current forecasts anticipate.

Energy Demand: “Fly Me to the Moon”

Energy demand comes from wealth. Rising wealth allows more people to live with greater comfort, safety and convenience, and have more satisfying lives. This requires energy in ever-increasing amounts. And as incomes rise, more people around the world want, in particular, the convenience and luxury that comes with driving and flying.

Thus, the first step in understanding the future of energy demand comes from understanding that the future demand for energy in general, and oil in particular, can be seen in the deep trends—trends that are tidal forces, not episodic short-term economic ripples—illuminated by several graphs.

First, we see that not only does energy use per capita grow with wealth, but it increases suddenly and dramatically once a critical threshold is reached. It bears noting that 80 percent of the world’s seven billion people are still to the left of the ‘knee’ in the curve seen in Graph 1 on the left.

Thus, the next step in understanding the future of energy demand comes from understanding what has driven and what will drive wealth growth. In 1987, Harvard’s Robert Solow was awarded the Nobel Prize in Economic Sciences for work that definitively proved what many people and businesses have long believed: technological progress is the dominant force that propels economic growth. In The Lever of Riches, Joel Mokyr, a Northwestern University economic historian, wrote: “Technological progress has been one of the most potent forces in history in that it has provided society with what economists call a ‘free lunch,’ that is, an increase in output that is not commensurate with the increase in effort and costs necessary to bring it about.”

The Global Innovation Index measures and tracks a basket of core indicators of innovation across nations (Graph 2). More innovation leads to more wealth. A 25-percent increase in the Innovation Index is associated with a 400-percent rise in per-capita wealth.

When billions of people become wealthier, they will want more of what the one billion in developed economies already have: more comfort, convenience, safety, luxury and beauty—and, of particular relevance to oil use, they will especially want more access to air and ground travel. Technology and innovation are thus the key factors that will determine how much wealth there is and how soon, and consequently how much driving and flying will take place.

Conventional global forecasts—which see continued economic growth but make no case to return to Reagan-era growth rates—expect that in two decades, there will be 3,000 billion more passenger air miles flown annually and at least 3,000 billion more car-miles driven per year. Each increase represents an energy demand of about 10 million barrels per day of oil (bpd). It won’t be easy to add 20 million more bpd to the world’s current 90-million bpd production rate, two-thirds of which is used for transportation (Graph 3).

These projections of additional energy demand, especially regarding oil, often inspire one or both of these pushbacks:

• Global growth is slowing since we are entering a new era of tech-driven reduced growth.

• Alternatives to oil are inevitable.

But in today’s information tech communities, we find evidence that makes lies of both notions: robust economic growth is not over and companies such as Exxon will not be displaced by technologies like Tesla.

Prospects for Growth: Mobile Disrupts the World

When President Ronald Reagan was first elected in 1980, the U.S. was deep in the proverbial doldrums. The economy was dragging, unemployment was in double-digit percentages with college graduates egregiously underemployed, and inflation was destroying both savings and the housing market. The big innovations that changed the world post-WWII—the car, aviation, central computers, electrification—were all maturing and competition was ascending from Asia (Japan in those days). Also, the geopolitical landscape was a mess: The Cold War was in full swing, the Soviets were waging a war in Afghanistan and Islamic extremists had taken over oil-rich Iran. In short, the U.S. and world were beset with problems.

No one in 1980—not in the media, punditocracy nor among government forecasters—imagined that information technologies would ignite nearly two decades of torrid growth, which would create thousands of new companies and millions of jobs. In fact, most economists imagined quite the opposite, including the Nobel Laureate Paul Samuelson at the Massachusetts Institute of Technology, who published a scholarly article at the time forecasting a tepid future. No one imagined that the software business, for example, would evolve from a tiny niche to become a $300-billion global industry.

What happened? In the simplest terms, by 1985 far more computing power was moving onto desktops than was cosseted away in centralized mainframes. That precipitated the distribution of economic power to millions of people and existing businesses, and the emergence of entirely new classes of services and companies. It was also relevant that collaterally the world saw an unprecedented increase in countries embracing free—or at least freer—market principles.

Remarkably in 2000, the world crossed a threshold with 300-million desktop personal computers (PCs) wired to and episodically using the Internet. There was considerable rational, and some irrational, exuberance about the economic power unleashed by that information revolution. Then a year ago, an even more remarkable threshold was passed: more mobile computers (smartphones) were connected to the Internet than desktop PCs. This growth continues with 3,000 million mobile computers now in pockets and purses, each far more powerful than a 1984 PC, and each not episodically but continually connected to and using the Internet. The world is on track to building-out the wireless Internet at a scale that dwarfs the previous build-out of the wired Internet that took place at the end of the 20th century and propelled so much prosperity.

All this happened because, even as computing and communications capability increased, the cost of the underlying technologies collapsed. When something so valuable becomes affordable, revolutions happen.

It is difficult to forecast specifically how the economic power of the wireless Internet—“mobile”—will be used, just as in 1980 it was impossible to anticipate companies like Google, Amazon and Uber. However, some concrete data about the underlying economic power, and thus the future economic impact of mobile technologies, was revealed in a recent global survey by the Boston Consulting Group (BCG). The survey and analysis found that an average consumer puts an implied value of $6,000 on their smartphone. That number indicates the yet-to-be-realized economic potential from billions of connected people.

The same BCG analysis surveyed 3,500 businesses (in the U.S., Germany, South Korea, Brazil, China and India) and found that small and mid-sized companies, which were “mobile leaders” (defined by the intensity of mobile usage), saw 200-percent greater revenue growth and hired people at a rate 800-percent faster than “mobile laggards.” Such remarkable numbers portend an immense emerging economic disruption as the mobile revolution rolls out.

A key feature of today’s mobile revolution is that the wireless part enables consumers and businesses to connect seamlessly to the supercomputing revolution that has followed a similar transformation in cost, size and power. It’s not so much that a smartphone’s computing power is so amazing (which it is: A single smartphone outperforms the computing power of a room-sized 1980 IBM mainframe), but that the radio inside the ‘phone’ enables ubiquitous, real-time access to the remote super-computing power of the web-scale cloud, and does so through a breathtakingly easy user interface called an “app.”

Apps are an entirely new class of product that makes the smartphone phenomenologically different from—and far more powerful than—a standalone mainframe or an Internet-wired desktop PC. The $6,000 value, which BCG identified, is effectively a measure of the value of apps to consumers. We also see the value of apps in the rate of adoption: Apps went from zero to 60 billion downloads in the first four years. And according to the mobile analytics firm Flurry, overall app use still rose nearly 80 percent last year alone.

Today, over a half-million specialized mobile apps are available across the entire pantheon of social, business and medical activities. The “app economy” has become a $100- billion industry. While messaging and social media dominate app growth, running a close second (with 150-percent growth last year) are “utility and productivity” apps, for everything in the interstices of economic activity and increasingly for health and medical purposes.

We are now at the end of the beginning of the mobile revolution, which is the next and biggest cycle in the expansion of the information economy. Cisco Systems, Inc., forecasts wireless traffic—the measure of how much the mobile Internet is put to use—will grow tenfold in the next five years alone. With this, the world will get wealthier, perhaps at a rate faster than during the previous tech cycle. However, some analysts believe the ascent of ubiquitous mobile connectivity will lead to greater use of Facetime, Skype or other teleconferencing, which will decrease travel. But we have seen this “movie” before. When Internet 1.0 took off, pundits and forecasters believed that world travel would slow and even reverse because of the advantages and convenience of the Internet. A few visionaries thought otherwise, including Vint Cerf, credited as one of the handful of key players who engineered the Internet. Cerf predicted that the Internet would increase world travel because it would make it easier for remote and disparate businesses to work together—which he believed would lead to more travel and greater transport of goods. He was right.

We know two things for sure about the future of transportation: people like it and commerce requires it. In addition to increasing air travel, there will also be more cars on the world’s roads in two decades. Forecasters see a billion more cars, in addition to the 800 million automobiles in use today, and hundreds of millions more trucks.

Even in the U.S. there will be more cars. In fact, the trope that millennials (18- to 34-year-olds) eschew cars and choose instead to ride bicycles and walk appears wrong. The downturn in auto ownership breathlessly flagged by “new economy” mavens turns out to have been the consequence of joblessness and lack of money, and thus the inability to buy a car. As the Great Recession slowly recedes, data show that millennials are buying cars; surveys show they want them roughly as much as their boomer parents did.

Thus, even if the march of technology keeps the energy use of light-duty vehicles flat, as Exxon’s forecast expects, the overall demand for energy used to carry people and things on roads, rails, water and airways will rise substantially in the coming decades. If there is no doubt that wealth will grow and transportation use will increase, what chance then is there that a major proportion of those trillions of ground and air miles will not be propelled by hydrocarbon molecules but instead by biofuels or electrons?

Demand: The Teslification of Transportation?

Most anti-oil advocates have shifted their enthusiasm from biofuels to batteries and big data. The idea that Silicon Valley will deliver some kind of demand disruption is sufficiently seductive to persuade Saudi Arabia’s oil minister to ask: “Is there a black swan that we don’t know about, which will come by 2050, and we will have no demand [for oil]?”

It is unquestionably true that emerging networks and data analytics will wring far more efficiency out of everything society uses, including whatever is powered by oil. The “sharing economy” allows capital assets, whether homes and hotels or cars and aircraft, to be more fully used, thus rendered less expensive per use. But it is a silly idea to think that Uber’s ride-sharing, for example, disrupts the oil market. Algorithms mated with ubiquitous smartphones will make many things cheaper, including aircraft and automobiles, but these still use fuel. Capital and asset sharing doesn’t change the laws of physics in terms of energy consumed per mile. It’s as easy to share a ride in an SUV (now made more affordable by “sharing”) as an all-electric vehicle (EV).

But the Tesla is the iconic and ostensible evidence—for some, the proof— of the inevitability of the disruption of oil’s stranglehold on the highways. Seductively designed and impressively engineered, the nearly $100,000 Tesla is in the must-own class for the One Percent. But could it be that Tesla’s CEO, Elon Musk, has built the corporate equivalent of a modern Ferrari— an iconic, successful and valuable niche company—and not the equivalent of what Henry Ford built a century ago?

Tesla and GM, along with over a dozen other automakers, plan to soon release next-generation, lowercost, all-electric cars. Nonetheless, even the most enthusiastic forecasts predict between one million and 20 million EVs at most on the world’s roads by 2020. Although impressive, this will remain a tiny fraction of more than 1,000 million cars on the road by then (Graph 4).

However, for Tesla’s aspirational acolytes—environmentalist groups such as the Sierra Club and Tesla stockholders—the future is “obviously” one where most cars will depend on batteries of electricity rather than barrels of oil. Is that likely? We can find the answer in the physics of energy storage.

The inherent characteristics of the physical chemistry of the molecules used to store energy determine what engineers can accomplish at a price that most people will pay for transportation. Pound for pound, the chemicals comprising gasoline store at least 50 times more energy than the best chemicals in batteries. Pounds matter in all transportation and they are utterly determinative for aviation. Gasoline is not just more dense but also remarkably safe, easy to store and move. Ask a chemist: If you started with a blank slate to design a near ideal way to store energy for a mobile platform, you’d invent the oil molecule.

The disparities in physics are revealed in practice. The weight of the battery pack plus electric motor in a Tesla is over 1,500 pounds, while the combined weight of a loaded fuel tank and internal combustion engine in a Ford Taurus is about 500 pounds. Also, using batteries is expensive because they are consumable; that is, they degrade. While driving 200 miles in an EV uses just 40 kilowatt-hours (kWh), about $5 of electricity, each recharge actually costs about $90 when you include the amortized cost of the battery over its useful lifespan. In comparison, driving 200 miles in a Volkswagen GTI uses $15 of gasoline and $0.25 of steel, if you amortize the fuel tank’s cost over the vehicle’s life. One can disguise such vast economic differences with subsidies, but in the end they become obvious.

Tesla promises a 30-percent battery cost reduction with the company’s giga-scale battery factory now under construction. Batteries have a very long way to go to overcome the 5,000-percent disadvantage in energy density compared to oil (Graph 5). No venture capitalist, government subsidy or computer magic can change that. Still, battery advocates respond that the technology will improve. Yes, but where technology really gets better and faster is in the technologies that use gasoline.

A recent National Academy of Sciences study concluded there is no clear road map to a battery that is 200 percent better at any price. But 200-percent improvements in the internal combustion engine have recently been made. Last year Volvo, to name one example, unveiled as a prototype a tiny 4-cyclinder racecar-class 450 hp engine, using, in effect, yesterday’s technology. Ask any engineer in the unheralded combustion research labs on automotive and university campuses and you will learn that the inherent design of an internal combustion engine, despite its age (although it is a younger technology than the battery) is far from tapped out. The biggest change coming for light vehicle propulsion is the continual penetration of hybrid architecture: using silicon, software and small batteries to radically improve the efficiency of using gasoline.

Exxon’s view of the future (Graph 4 on the previous page) is almost certainly correct in both direction and magnitude. There will be lots more cars and nearly all them will be fueled by hydrocarbons, mainly oil with natural gas making progress as well.

As for biofuels—the only option for fueling aircraft and automobiles—it bears noting that most serious environmentalists, including European nations that were eager advocates, now actively oppose substantial expansion of land use to grow plants to fuel planes and cars. In America, there is a single telegraphic fact about land requirements for growing carbohydrates instead of drilling for hydrocarbons. At least 40 percent of America’s grain lands are now used to produce ethanol to blend with gasoline. The last time the nation used that much land for fueling transportation was in 1800, growing grain to feed horses. Ethanol is very important but supplies less than 5 percent of America’s transportation energy.

Aside from issues of food-versus-fuel, of land and water use, and of costs, the numbers simply won’t scale. Hundreds of billions of dollars have been invested in non-food biofuels (so-called cellulosic alcohol) too. But so far there are only aspirational visions for ways that grass, wood and algae could come close to competing with grain, corn and sugar for alcohol production. The problem is that nature has evolved robust and diverse plants that convert solar energy into carbohydrates. But this has come at the price of very low efficiency. Photosynthesis operates at well below one-percent conversion efficiency. One day, genetic engineers might radically improve nature’s limits. But even then, plants would remain a marginal, even if bigger, niche at the global scale of fuel needs. The technology race, underway to power the world’s engines is in effect between the chemistries of biology, batteries and burning hydrocarbons. All of them will improve, but it is oil, despite its challenges (not the least of which is geopolitical), where we find enormous inherent advantages. 

All these trends and realities—technological progress, economic growth and human aspirations for comfort, convenience and travel—are anchored in powerful forces that are essentially immune to the aspirational goals of climate apocalyptics, who seek radical reductions in global energy and hydrocarbon use. The current irony is that the latest International Energy Agency forecasts have slightly reduced the expected demand growth for oil from emerging markets, while increasing from negative to positive the expected growth in American oil demand. This is quite a reversal from the trope made popular during the Great Recession that the U.S. is entering a new post-oil era. Maybe demand was slipping because it was just a recession after all.

So if the world’s already staggering appetite for oil will in fact grow for the foreseeable future, does the world have enough oil? And perhaps more importantly, does America have enough oil?

Enough Oil? The Ever-Moving Malthusian Goalposts

The 1973 Arab oil embargo, which caused oil prices to jump 400 percent practically overnight, stunned the U.S. citizenry and policymakers. Photographs of the long lines at gasoline stations are now an iconic part of modern history texts. In 1979, a second oil-price shock struck, which—along with ensuing decades of declining output and rising dependence on oil from often hostile, anti-Western regimes—reinforced the paradigm of domestic scarcity. All this happened concurrently with an array of best-selling neo-Malthusian tomes, such as The Population Bomb by Paul Ehrlich in 1968 (which predicted both food and energy starvation by 2000) and the “Limits To Growth” report in 1972 by the Club of Rome.

Today, widespread illusions of meager American oil resources continue, not only with the persistent (though serially disproved) paradigm of limits, but also from a misunderstanding of, and focus on, reported oil “reserves”—a measure that says nearly nothing useful about long-run supply. Reserves are determined by a combination of factors: corporate decisions to spend money to map a specific project, legally required financial accounting metrics and access to technology capable of extracting a specific resource at market prices. As well, these factors function within the short time frames associated with narrow business decisions. Reserves, in other words, neither measure geophysical reality nor predict technological progress. This is true for conventional and unconventional oil, and for minerals too.

In 1970, for example, total U.S. “reserves” were officially reported at about 30 billion barrels of oil. But from 1970 to the present, the U.S. pumped nearly 200 billion barrels from those fields. The resource, quite obviously, was larger than the narrowly defined reserve number. Once again today, U.S. reserves are estimated at about 35 billion barrels (Graph 6). Future production will come from new reserves that expand as time, technology and financial needs progress, thereby allowing developers to access vast underlying geophysical resources. Thus, annual domestic consumption of about seven billion barrels of oil—and the world’s 30 billion barrels per year—should be juxtaposed against the nearly 1,000 billion barrels of U.S. resources identified by the Energy Information Administration (EIA). Even at that, the EIA doesn’t count all possible resources. For example, the Green River Formation—a shale region largely below Colorado, Wyoming and Utah—contains an estimated 1,500 to 3,000 billion barrels of oil. The Rand Corporation estimates that 30 to 60 percent of that oil is extractable with technology now available. The geology of North America is profoundly hydrocarbon-rich, with total liquid and gas hydrocarbon resources exceeding 5,000 billion barrels of oil equivalent (BBOE). This doubles the 2,500 BBOE found in the entire Middle East. Technology unlocks expensive and hard-to-reach resources and converts them into affordable “reserves.” There is no more dramatic example of this than what has happened in the shale fields of America, which were mapped out by the U.S. Geological Survey a century ago.

What Now For American Shale Oil? The Dog That Caught the Bus

In a few short years, thousands of small- and mid-sized companies, using modern smart-drilling technology on private and state lands, and using private capital, have turned the U.S. into the world’s fastest growing and largest producer of hydrocarbon liquids. Over the last six years, oil production expanded nearly 50 percent.

The data shows that if it were not for the $300 billion or so added annually to the nation’s GDP from the oil and gas sector, along with more than two million new jobs across the ecosystem, economic growth would have been far slower than it was, and perhaps even in decline, over most of President Barack Obama’s tenure thus far. By the end of 2014, American oil production surpassed levels not seen in a half-century— and it is still rising. After decades of handwringing about limits, shortages and dependencies, no one expected that the world would become oversupplied with oil—most especially because of U.S. production. Now it’s like the dog that caught the bus. What does one do with so much production that no pundit or president predicted? All this new output (temporarily) over-supplying world markets caused oil prices to collapse: precisely what one would expect. And now, collaterally unsurprising, many shale businesses and entrepreneurs are pulling back.

In the short term across the entire oil supply chain, plenty of cost-cutting and paring back of near-term plans, as well as job layoffs, are taking place. We will likely soon see the inverse of the heretofore beneficial effect of the shale industry on the nation’s unemployment statistics. There is rampant speculation now about how low prices can go before producers stop operations. There is equally rampant speculation about when, not if, a price rebound will happen. It is inevitable that the misalignment of supply-and-demand will start to work in the other direction, and in due course put upward pressure on prices. No one knows whether that will take months or even years. (Some traders will make big bets on this timing, and no doubt we will hear about good or bad trades in the months to come.)

How Low Can We Go?

Speculation aside, American shale producers should know two things about the future. First, the price that producers need to survive in non-democracies is very different from the price needed in democracies. The former is a social-political cost in places that sometimes earn the label of kleptocracies, while the latter is anchored in simple engineering economics. Second, technology will continue to do what it has done since the dawn of the oil age: make it cheaper to find and produce oil.

Non-democracies that produce oil are either nearly or completely dependent on exports to generate fat margins that prop up social programs and, in many cases, to ensure political stability. The International Monetary Fund and others try to estimate what prices these countries need. Regardless of the accuracy of the specific numbers, the range reveals much. Estimated price thresholds to sustain balanced budgets include: $184 in Libya, $131 in Iran, $123 in Nigeria, $118 in Venezuela, $104 in Saudi Arabia, $101 in Iraq, $78 in Kuwait and $77 in Qatar.

Meanwhile in democracies, businesses need prices that generate more revenue than the technology and operations cost. While there is a vigorous debate underway as to what those numbers are in the various shale fields, and in specific parts of each sprawling and varied field, the range is typically from $30 to $80 per barrel. There is little doubt that U.S. producers can tolerate a lower price environment than can much of the world. Critically, as the oil technologies pioneered in the U.S. keep getting better, the cost of finding and acquiring oil from shale will keep dropping. While one cannot predict the timing of the next cycle in a cyclical commodity’s price, one can predict that technology will keep improving. In less than a decade, the industry has seen remarkable productivity gains not only in output per rig but in all measures, including wells per rig, distances drilled per rig and speed of deployment—all at little increase in costs. According to EIA data, the average quantity of oil or natural gas produced per rig has increased by more than 300 percent over the past four years alone (Graph 8). This productivity gain matches (in equivalent terms of capital cost per unit of energy output) the improvements seen in solar power technology.

However, it took 15 years to achieve the same gains in solar efficiency, and the rate of improvement is slowing down. In contrast, there is no sign of a slowdown in shale technology. Odds are high that as profit margins continue to be squeezed in the current oil price environment, pioneers will now try out some of the new shale techniques, which have yet to be deployed. There are many undeployed shale technologies, including automated drilling, microdrilling, new types of drills (some might use lasers before long), software (finally using big data analytics), nanotechnology, on-site water recycling and new classes of high-resolution, subsurface microseismic imaging.

Such technologies prompted International Data Corporation, the global information-tech consultancy, to assert that “unconventional resources (shale gas, tight oil) will drive innovation in the expanded use of Big Data.” Or as Bill Gates said presciently in a 2011 Wired magazine interview: “The one thing that is different today [in energy] is software, which changes the game.”

Information has been the sine qua non of the oil industry from inception. It’s always been about knowing where to look, where exactly to drill. Seeing through rock is difficult since the earth is opaque to everything in the optical spectrum and essentially all radio waves. However, sound vibration propagates easily through rock. More data from better geophone sensors, better algorithms, and more computing power for both exploration and operations changed the oil world forever. One perhaps unsurprising discovery is that 3-D imaging showed that 2-D maps were not only low in resolution but often wrong. As a result, drilling success rates in the U.S. rose from an average of barely 50 percent in 1972—a coin flip, hence “wild cat” drilling—to over 85 percent today.

We are now firmly in the era of smart drilling, but it’s not quite smart enough. In the shale fields, the challenge and opportunity are clear from the singular fact that fracking is done in sections called stages. On average, only one out of four of the stages produces a payday. Such low yields would be anathema in modern manufacturing, and the continuous process (fracking) is most assuredly more like a manufacturing operation than the traditional oil-field business. Thus the potential for huge gains from technology that improve the efficacy of frack stages are arithmetically obvious. Getting to payday on just every other frack stage would, effectively, cut production costs in half.

Big data analytics will wring out more efficiencies using existing data. In addition, the combination of the exaflood of data (defined as “the growing torrent of data on the Internet”) from new sensors with increasingly ubiquitous access to cloud-based supercomputing, available at low cost and by-the-drink, is bullish for everyone, especially for thousands of smaller companies. As noted earlier, there is a natural synergy between silicon technologies and the shale fields.

The third oil age will follow this current, if emphatic, bump in the road caused by global price competition. As my colleague and I wrote nearly a decade ago in our book, The Bottomless Well, when we predicted oil abundance:

“Satellites, acoustic imaging systems, and data processing play such a pivotal role in today’s search for oil that the modern drilling rig has been aptly described by Jonathan Rauch [in 2001] as a computer with a drill bit attached to one end. Brute force is still needed, but drilling for oil has become a delicate, high-precision process of keyhole surgery. …”

We wrote that at the peak time for the peak oil theory, the ostensible imminent and inevitable demise of the age of hydrocarbons. Technology is catching up with that prediction. Recently, even the New York Times wrote that the U. S. is poised to become an oil exporter. The world has changed dramatically and we are only at the beginning.