Posted on 02/23/2022 9:42:45 AM PST by Red Badger
Less than two years after the price of oil briefly plummeted to roughly negative $37 a barrel, an oil boom is underway in America—even in places where drilling was all but abandoned two years ago.
“Private oil producers are leading an industry return to places like the Anadarko Basin of Oklahoma and the DJ Basin in Colorado, where drilling had almost completely stopped in mid-2020,” reports The Wall Street Journal.
The Anadarko Basin, for example, has surged from just seven active drilling rigs to 46, according to energy analytics firm Enverus, while the DJ Basin in Colorado saw its number of active rigs jump from four to 15. Meanwhile, Utah’s Uinta Basin and the Powder River Basin in Wyoming, which both saw active rigs fall to zero in 2020, have seen rigs increase to roughly a dozen.
.@wsj: Frackers Push Into Once-Dead Shale Patches as Oil Nears $100 a Barrel. Oil producers drill in less-desirable areas like Anadarko Basin of Oklahoma and DJ Basin of Colorado, where activity virtually stopped during pandemic https://t.co/b1Ipx2lD3s #energy
— Amb Antonio Garza (@aogarza) February 21, 2022
‘It Feels Great’ What is driving frackers back to abandoned oil patches? It’s not newly discovered shale oil. Rather, it’s high oil prices.
The price of oil has surged in recent months, increasing from roughly $65 a barrel to the low-to-mid $90s in recent weeks. (The price of crude closed at just under $94 a barrel Monday.) The prices—which recently hit a seven-year high—are attracting drillers to shale patches that are more expensive to drill and thus require higher prices to be profitable.
For consumers, high oil prices can be a headache, because they result in higher gasoline prices. But for drillers, high oil prices mean more potential for profit.
Klee Watchous, president of the Kansas-based company Palomino Petroleum, says the higher prices have marked a turnaround for his small company and the surrounding communities where it operates.
“After many years of fighting this low oil-price situation, it feels great,” Watchous told the WSJ. “The cycles of boom and bust have been part of the oil-and-gas industry for decades, and no one knows how long it will last.”
A Lesson on Prices
Some might begrudge oil companies like Palomino profiting from high oil prices, but it’s precisely their desire for profits that can help tame surging oil prices. As oil companies expand their production, they increase the supply of oil, which inevitably puts a downward pressure on prices. It’s a perfect example of Adam Smith’s insight that free markets harness the self-interest of individuals to serve the whole.
“Every individual… neither intends to promote the public interest, nor knows how much he is promoting it… he intends only his own security,” Smith explained in The Theory of Moral Sentiments; “and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”
High prices do two important things in an economy. First, they encourage people to conserve scarce resources. Many people love steak and lobster, but few of us eat it every week or every month because it’s quite expensive. In other words, the high price discourages us from demanding steak and lobster. But that’s not the only function of the high price. It also encourages lobster trappers and beef companies to bring more of these products to market in pursuit of profit. Together, these two mechanisms help make scarce resources more abundant.
Price is arguably the simplest and most vital principle in economics. It signals both scarcity (to consumers) and opportunity (to entrepreneurs). Yet the economist Thomas Sowell has noted the importance of prices is often misunderstood by activists and politicians.
“Prices play a crucial role in determining how much of each resource gets used where and how the resulting products get transferred to millions of people,” Sowell wrote in Basic Economics. “Yet this role is seldom understood by the public and it is often disregarded entirely by politicians.”
Unintended Consequence of High Prices? It’s worth noting that the word “price” never appeared in President Joe Biden’s 2020 executive order killing the Keystone XL Pipeline, an oil pipeline system between Canada and the US commissioned in 2010.
Nixing the 1,700-mile pipeline, which could have carried roughly 800k barrels of oil a day from Alberta to the Texas Gulf Coast, did nothing to reduce the pain at the pump consumers are feeling today, with gasoline currently at more than $3.50 a gallon. But that was expected.
What perhaps was unexpected was that higher prices would result in additional fracking—a process many contend is harder on the environment than regular drilling, and a practice Biden has said he wants to “move gradually away from.”
So while the role prices play in an economy is one of the most basic lessons in economics, politicians of every stripe would do well to remember one of the greatest fallacies: overlooking secondary consequences.
Jonathan Miltimore is the Managing Editor of FEE.org. His writing/reporting has been the subject of articles in TIME magazine, The Wall Street Journal, CNN, Forbes, Fox News, and the Star Tribune.
Drill, baby, drill.
Frackers to the rescue!
All life is economics.
Enviro-Nazis will think of a way to stop them, legal or not..............
Bkmk
Yes, it’s happening and I hope they refrack a couple of the gas wells I hold the mineral rights on. My monthly checks are up 400% already. They refracked one a few years back and it helped quite a bit.
Many “so-so” wells are profitable at this price level. I estimate US production will be up by about 1 million barrels a day by early next year.
That still leaves us about 2.5mm per day short of Trumpian supremacy days but it will help.
Nah, they will be fine.
Make hay when the sun shines. Fracking will once again prosper especially given the price spikes in natural gas.
I hope you are right, but never underestimate the cleverness of evil..............
They are too busy saving the world and nagging people on the street where they have audiences to go mess around the fields.
That’s why they have lots of lawyers.................
Being in the middle of the Permian Basin oil patch, I’m a proponent of fracking. But those that do it have to be aware of two downsides: The water source used for fracking and disposal of fracking water.
In New Mexico, fresh water used for agriculture and ranching is being used as frack water. But that water is not replaceable and there is increasing resistance to its use.
Disposal of wastewater is also a problem as deep well injection of traditional salt water plus frack water is increasingly being looked at as a likely source of the increasing frequency of small earthquakes in Oklahoma and west Texas.
Reuse of frack water following treatment is becoming more prevalent and any company starting fracking in traditional O&G areas needs to be prepared to address these issues.
BTW, fracking itself has not been shown to cause damage to near-surface fresh water supplies as in the west, especially, shale oil formations are thousands of feet below fresh water and multiple sets of cemented casing are used for its protection.
With high prices, you can still make money in the old depleted, vertical plays.
True dat. They need a big flooding rain in the Pecos River drainage to fill up Red Bluff Lake. I am not sure if they are allowed to pull water from it for fracing.
I don’t know what the restrictions on using surface water for fracking are in Texas, if any. In New Mexico all surface water is appropriated and during drought years junior user’s rights can be paused so as to make required interstate water transfers to Texas.
As far as groundwater goes, those with water rights for agriculture can transfer those for use with drilling and groundwater basins are closed for new permits. I know that along the NM-TX border, water haulers get water from Texas to use in drilling in New Mexico.
Dems, everything they touch; they destroy.
I have asked several engineers why they just can't frac with salt water and they say something about the surfactants not reacting properly in brine. Some chemist needs to figure it out.
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