What doesn't kill me makes me stronger

Today we enjoy dramatically lower oil prices brought about by the decision of several major OPEC countries, most importantly Saudi Arabia, to vastly expand production.  This expansion has dropped the price of oil from $100 per barrel to around $45.  While this "new normal" price is below what these OPEC and other states (such as Russia) need to keep from drawing down their reserves of foreign currencies, these countries are producing as much oil as they must to keep their market share and give their citizens the level of support that keeps those citizens from becoming rebels.  More importantly, most of these countries are pursuing a strategy aimed at stopping the fracking rebirth of American oil.

But it isn't working.  In the rough and tumble of a basically free market, weak companies go bankrupt, new innovations are tested, and in the end, everyone adapts to the new reality.

Despite this financial turbulence, the fracking industry continues to become more profitable at low prices.  In other words, low prices are working market magic to dramatically increase the efficiency of the fracking industry.  As another report notes, there are a number of technological innovations being adapted or explored to drive down drilling costs.

Start with "refracking."  As the name implies, refracking involves using the more efficient new methods on wells fracked with older methods.  For example, Devon Energy is refracking old wells in the Barnett field using newer techniques it developed in the Permian and Eagle Ford fields, such as using finer-grained sand and new sealants to force open new pathways for oil and natural gas.

Schlumberger – which estimates that there are 10,000 older wells ripe for refracking – is employing fiber-optic tools to refine the process.  Also, refracking companies are using advanced software to determine where exactly to apply the sand, water, and chemicals, and how to fine-tune the balance of the mixture.

Another innovation, being explored by Glori Energy, is to stimulate the microbes present in conventional oil fields to multiply (by feeding them a high-nutrient diet), which in turn allows the microbes to help the crude oil flow more freely through the rock.  Early studies indicate that this creative hybrid of mechanical and biological technology can increase the amount of recoverable oil and extend well life by about a third.

Yet another company – Well-Dog – and you gotta love that name, is using lasers to locate oil and gas deposits in shale fields, which will cut down on exploration costs.  And GE's energy division has announced that it will increase its R&D budget this year.

This phenomenon – of lower prices forcing innovation – is not limited to fracking.  Another recent report by Bloomberg suggests that the same process is at work in Canada with regards to the extraction of oil from "tar" or oil sands.

So instead of putting a stop to the fracking revolution, the Oil Ticks are just making it stronger.  It's like when you get the flu, but stop taking your antibiotics too soon.  You kill off the weaker bugs, but the stronger ones live on and adapt, making them tougher to kill next time.  Indeed, given the Tick's financial position, they too have a limited time to work this game, and at some point they run out of resources, and then their already violence prone populations run out of patience.

I predict that absent our own government somehow putting a stop to this process, that we will eventually win it, and the thanks should go directly and unequivocally to the power of unfettered innovation and capitalism.  

Bring it on, Ticks, we will bury you.