The American oil industry has moved into a new 'Shale 2.0' phase by pushing the country's crude oil production to the highest level in history and surpassing oil output of the world's second-largest crude oil producer Saudi Arabia.
The new techniques that were introduced a decade ago in the U.S. such as 'horizontal drilling' and 'hydraulic fracturing' paved the way for the country to almost double its crude oil production to an average 9.4 million barrels per day (mbpd) in 2015, from 5 mbpd in 2008, according to the Energy Information Administration (EIA) data.
With cost reductions, higher efficiency and new techniques in Shale 2.0, the U.S. not only managed to survive the low oil price environment that began in mid-2014 but also managed to increase its crude production to outperform the Saudis.
'The U.S.' Shale 2.0 story is a story of finance, operation efficiencies, and prolific horizontal plays in the Permian Basin [one of the U.S.' most prolific oil and natural gas geologic basins],' Ed Hirs, an energy economist at the University of Houston, told Anadolu Agency.
'Operational efficiencies developed in the Permian are tremendous and spreading to other basins,' he added.
As the U.S. almost doubled its crude oil production in less than a decade, this played a partial role in increasing the glut of supply in the global oil market and pushed oil prices lower.
When crude oil prices plummeted below $30 a barrel in January 2016, their lowest level in almost 13 years, it hit American shale producers the hardest.
'The U.S. has lost 250,000 direct oilfield workers in the price war started by OPEC. The U.S. has also lost those high-cost shale producers via some 250 bankruptcies and $250 billion in lost capital,' Hirs said.
The 'price war' was a tactic by Saudi Arabia, the most influential member of OPEC, who persuaded the cartel in November 2014 not to trim the organization's output, but instead to let oil prices fall in order to drive high-cost shale oil producers out of the global market.
The strategy worked to a certain extent in the short-term, but hurt Russians as well as Saudi Arabia, whose economies are highly dependent on revenues from oil sales.
After two years of pumping oil at maximum levels, the two countries agreed in November 2016 to join forces for the first time since 2001 to trim their individual production levels, along with some OPEC countries, in order to boost prices.
As oil prices began to climb at the end of 2016, their economies recovered; but that also paved the way for the return of U.S. shale, and only faster and stronger in the form of Shale 2.0.
'What the casual observer has not realized is that the U.S. shale growth today is a product of survivorship,' Hirs said.
'Costs per barrel have declined due to some production improvements, but remember, the companies that survived already had lower operating costs than the ones that failed,' he added.
Low crude oil prices taught American producers of the need to increase efficiency and lower costs in order to survive in the global market.
'The time to drill wells has decreased by as much as 60 percent even while the length of laterals has increased,' Hirs said.
'Today, the industry drills a well with a three-mile lateral in the time that a well with a one-mile lateral took three years ago. Instead of fracking one well with a one-mile lateral, the industry practice is to simultaneously frack three wells with each having three-mile laterals,' he explained.
'These efficiencies in manufacturing are driving the cost reductions that allowed some of the shale players to survive to this day when the Saudis and Russians agreed to raise prices,' Hirs concluded.
By Ovunc Kutlu in New York
Anadolu Agency
ovunc.kutlu@aa.com.tr