Shale 2.0

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Shale 2.0

With petroleum prices down about 50 percent from a year ago, many analysts and pundits have been predicting the end of America’s shale oil boom.

Consider these recent headlines:

  • “Oil Price Fall Forces North Dakota to Consider Austerity” (New York Times)
  • “Oil Price Drop Hurts Spending on Business Investments” (Wall Street Journal)
  • “The American Oil Boom Won’t Last Long at $65 per Barrel”(Bloomberg Business)
  • “The Shale Oil Revolution Is in Danger” (Fortune).

High prices, skeptics argue, created a bubble of activity in unsustainably expensive shale fields. As shale-related businesses contract, consolidate, and adjust to the new price regime, a major shale bust is inevitable, they add, with ghost towns littering idle fields from Texas to North Dakota.

It is true that the oil-price collapse was caused by the astonishing, unexpected growth in U.S. shale output, responsible for three-fourths of all new global oil supply since 2008. And as lower prices roil operators and investors, the shale skeptics’ case may seem vindicated.

However, their view of history is false. First, the shale revolution that began around 2006, which can be referred to as “Shale 1.0,” was not sparked by high prices; it began when prices were at today’s low levels. Second, the catalyst of this revolution was the invention of new technologies.

Furthermore, the skeptics’ forecasts are likely to be as flawed as their history. Continued technological progress, particularly in big-data analytics, has the U.S. shale industry poised for another, longer boom, which we refer to as “Shale 2.0.”

The evolving economic realities behind this new phase of the North American Energy Revolution were explained in a just-released report titled, “Shale 2.0: Technology and the Coming Big-Data Revolution in America’s Shale Oil Fields,” compiled by Mark Mills, a senior fellow at the Manhattan Institute.1

John Shaw, chairman of Harvard’s Earth and Planetary Sciences Department, recently observed: “It’s fair to say we’re not at the end of this [shale] era, we’re at the very beginning...

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