Everything is coming up aces for energy today. President Trump is using Obama’s pen and phone to put the brakes on the crazy (and ineffectual) climate change schemes of the EPA, and over at the Wall Street Journal Mark Mills writes today about how the inexorable progress of American technology is slowly destroying OPEC:
Oil prices started to collapse in 2014 because American shale businesses oversupplied markets. The Saudis responded by increasing production, which drove prices even lower. Their theory was that this would wreak havoc on small and midsize petroleum upstarts in states from Texas and Oklahoma to Pennsylvania and North Dakota. . .
Something else happened. Little noticed outside the petroleum cognoscenti, shale technologies kept getting better. The productivity—output per shale drilling rig—has been rising by more than 20% a year. That means every 3½ years the average rig produces twice as much oil or gas. No other energy technology of any kind is improving at that rate. Put another way, the cost to produce shale oil keeps falling.
Here’s the fun part: Some OPEC nations in the Middle East, having already dipped heavily into their sovereign wealth funds to plug budget holes, are now starting to borrow against future oil revenues:
Some Middle Eastern oil producers are considering taking money upfront against future production, as the fall in the price of crude pushes them to look at new ways to plug budget holes.
In this type of pre-export finance, companies or countries pledge revenues from future sales to banks and trade houses that lend money to them.
Probably coming soon to a Russia near you. So much winning!