Tag Archives: America’s energy industry

Is OPEC Headed for the Ash Heap of History?

We read an intriguing essay by Brian Wesbury of First Trust today.  Using the phrase that Ronald Reagan used nearly 25 years ago about the Soviet Union about Marxism and Leninism being left on the “ash-heap of history,” Wesbury thinks that OPEC (Organization of Petroleum Exporting Countries) may be headed the same way.

Now it appears OPEC, another nemesis of the US from the prior century is heading for the ash heap of history as well, not because of geopolitics, but because of the hard work of engineers.

A combination of fracking, seismic imaging, and horizontal drilling has led to a huge reduction in the cost of drilling and an increase in the supply of oil and natural gas, not just in the US but around the world.

Case in point: in the past twelve months the US has run an $8.4 billion goods trade surplus with OPEC, including Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela. What a difference from less than a decade ago. Back in 2007-08, the US ran a $190 billion goods trade deficit with OPEC. The reason for the change in the trade balance is that the US is importing much less from OPEC, $64.8 billion in the past twelve months versus $253.4 billion at the peak in 2007-08.

Those are amazing statistics.  A $200 billion dollar change in the balance of trade in just under a decade, all due to a technological revolution in the production of oil and gas.  We are accustomed to thinking about technology in terms of silicon chips, iPads and cell phones.  But the bigger sociopolitical change may have been in the dirty, greasy, un-glamorous field of petroleum engineering.

Who would have guessed?

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“Shale by Rail”

In a previous post we noted the transformation of America’s energy industry by the development of “shale oil” from fields in North Dakota and Texas.  The development of these fields, their size and the technology to reach them was entirely unexpected even by industry experts.  A few years ago the term “peak oil” was on everyone’s lips.  Today, we’re looking at a new gusher that may last a thousand years.

The fact that this development was so unexpected and so fast has meant that the infrastructure to bring the oil and gas to market has lagged.  It has proved to be a boon to railroads, just as coal shipments have slipped.  From OilPrice.com we get this analysis:

If North American infrastructural constraints have yielded one clear winner, it is the railroads. With much of the production increases coming from remote locations in North Dakota and Alberta, there has been a major shortage of pipeline outlets for the glut of crude. Railroads have eagerly rushed to fill the gap in a phenomenon that is rapidly becoming known as “shale by rail.” Crude oil shipments on US Class I railroads have correspondingly increased over 3200% in the past five years. A Class I railroad is defined as a carrier with an operating revenue of more than $433.2 million.  Presently, there are seven such railroads operating in the United States. The American Society of Civil Engineers estimates that freight tonnage will increase 22% by 2035, rising from 12.5 billion tons to 15.3 billion tons.

Rail Carloads of Crude Oil

 

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