Shale 2.0: The Future of American Energy

The following Q&A is based on Mark Mills’ new Manhattan Institute report “Shale 2.0: Technology and the Coming Big-Data Revolution in America’s Shale Oil Fields.”

Q: In terms of capital expenditure, what are some of the regulatory costs of shale? 

Mills: While the regulatory costs have grown modestly over the last few years, they have not become large enough to kill the industry. We seemed to have found the “Golden Goose” of alternative forms of energy, and it has already brought vast change in economic forums. While there doesn’t need to be any industry stimulation in the form of federal subsidies, burdening shale production with excessive regulation would be damaging to American industry and workers. 

Q: What are some of the average price points for OPEC member nations in order for them to be profitable? 

Mills: Some of the numbers that we currently have are political numbers. Thus, we might need to take these figures with a grain of salt. A country such as Saudi Arabia would need to charge roughly $50 per barrel. Venezuela on the other hand, would charge upwards of $100 to $150 per barrel. Some countries need to charge higher rates on a per barrel basis in order to maintain the petroleum monoculture of their economy. Without oil sales they have little to nothing to sell and thus face severe national deficits. That’s not the case for the United States with our diversified economy.

Q: Does each incremental barrel cost more or less?

Mills: There is of course a physical limit as to the amount of shale that exists. However, since we have just scratched the surface in terms of shale production, we are not anywhere close to tapping out the enormous scale of the resource and thus eons away from any kind of rising marginal cost issue. In fact, we are at the opposite end of the spectrum: through big data analytics and technology-driven efficiency, we are still at the stage that each incremental barrel is less not more costly. 

Q: Does Saudi Arabia have these shale resources?

Mills: None known – and geologists knew about America’s shale resources a century ago.  Shale oil is not a new discovery-driven trend, but the result of technology. Of course, geophysically, shale fields do exist throughout the world. However, other countries lack the $800 billion worth of new (privately funded) infrastructure that has been built within the United State. This ability to access and harness the shale, combined with our unique private mineral rights laws, is what gives America a huge competitive advantage.

Q: What would it take for congress to realize the export implications?

Mills: Congress would need to realize that trade barriers are antithetical to basic trade principles and frankly to basic moral values. The American export opportunity will significantly change the global oil business. However, I do understand that there are some challenging political considerations in play. 

Q: What would your timetable be for removing these barriers?

Mills: My timetable would be anywhere from yesterday to 5 to 10 years ago. 

Q: What, if any, are the adverse effects of the shale abundance?

Mills: There might be some negative ramifications from a geopolitical perspective. Relations with countries such as Russia or those within the Middle East are predicated upon existing economic, trade and political dynamics. More specifically, our diplomacy with massive oil producing countries is based on the status quo in the international oil market. America’s emergence as a major oil exporter because of shale would seriously alter the complex weave of diplomatic considerations. 

Q: Can the advanced technology and analytics being used in the shale industry also be implemented in the conventional oil business?

Mills: Of course: 21st century analytics is a universal tool, and is already being applied in a myriad of industries. But the use of analytics in conventional oil production will likely yield more modest gains mainly because that part of the industry has already made significant advances in using big data.  And while there’s real value in seeing incremental 5 and 10 percent gains in efficiency in the established, but larger conventional industry, the key point is that the gains yet to be seen with shale oil will almost certainly replicate the 200 percent to 400 percent efficiency improvements that have already happened in the last half dozen years in shale. 

Read the full report here. 

Mark P. Mills is a senior fellow at the Manhattan Institute and CEO of the Digital Power Group, a tech-centric capital advisory group. You can follow him on Twitter here.