Texas Frackers Drove a Global Power Shift
Thursday, October 03, 2019
We don’t hold it against anyone who is more than a little reluctant to spend free time pouring through the oil and gas data gushing out of West Texas, but that data does contain details that are relevant to daily life and critical to know as we revise policies on taxes, innovation and, of course, energy.
Take, for example, a recent report produced by the Federal Reserve Bank of Dallas. It contains dozens of charts and myriad numbers, but it also contains basic facts that show how the fracking revolution drove a power shift in oil, and why we now live in a world where something close to half of Saudi Arabia’s oil production can go off-line and not spike gasoline prices in the United States.
Two charts created by the Dallas Fed tell the story. One captures Texas crude oil production. The chart shows that in 2010 the state produced less than 1.5 million barrels per day, while today it is producing nearly 5 million barrels a day. The second chart contains details about the number of “drilled but uncompleted wells.” As of July, there were 8,108 such wells in the United States, and 3,999 of those wells are in the Permian Basin.
Compare that to 2014, when the country had a little more than 4,000 drilled-but-uncompleted wells, with fewer than 1,000 in the Permian.
The reason this is significant is that these are wells that can, relatively quickly, be brought online. Like inventory sitting in a faraway warehouse, ready to be assembled and shipped to consumers, this reservoir of uncompleted wells serves as a calming force on American oil prices.
Before the fracking revolution, the U.S. didn’t have much oil inventory waiting in uncompleted wells. If the world suddenly needed more oil, because of an economic boom or war or political shenanigans, Saudi Arabia came to the rescue. The Kingdom, known as the swing producer, monitored oil demand and prices, and turned the spigots up and down to calm volatility.
Now, in a world with fracking technology, U.S. producers can ramp up production — and complete those wells — when oil prices rise, or slow down when prices fall. Power has moved from the traditional Middle East swing producer to the new U.S. marginal producers who react to the international oil market.
There will always be volatility in energy markets, of course. And part of that volatility will relate to new technologies reducing the need and number of uses for fossil fuels. This will be especially true as developed nations turn to more renewable sources of energy. But for as long as we power up that backyard lawn mower with gasoline, fill up our autos at the gas pump, or rely on plastics in our consumer goods, those uncompleted wells will serve a crucial role.