Vauhini Vara reports at The Atlantic about how US frackers beat OPEC.
The story starts in 2014 when “U.S. shale oil represented about 5 percent of the oil being produced worldwide. But the process was expensive, which suggested to many that shale producers could not stay in business if oil prices dipped too far.”
In a move widely viewed as a strike against fracking, OPEC kept production high despite falling prices. In late 2014, frackers needed to be able to get $69 a barrel to be profitable, and prices were just over $70.
By early 2016, prices were down below $30; you'd think that fracking would take a massive hit. It didn't, because “their average break-even price has fallen by more than 40 percent, to about $40 a barrel.”
That's largely due to innovations in fracking methods: “those producers that survived proved startlingly adept. In early August 2016, David Stover, the CEO of the shale producer Noble Energy, admitted to analysts, ‘It’s a bit surprising to me how we continue to still see improvements.'”
The effects are global. We get cheap gas, but in “Venezuela, low oil prices (combined with other factors) have led to a food shortage. In Nigeria, [low oil prices] are among the causes of an ongoing recession. And Saudi Arabia, which has recently had a hard time balancing its budget, has cut back on public services, such as subsidies for water and electricity.”
Fracking innovation has changed the geopolitics of oil.