Eagle Ford Oil: 'Resources are Not, Resources Become' (and new jobs galore without government subsidy, President Obama)

“Nothing is more fatal to a realistic and usable understanding of resources than the failure to differentiate between the constants of natural science and the relatives of social science, between the totality of the universe or of the planet earth … and … the ever-changing resources of a given group of people at a given time and place….  One has but to recall some of the most precious resources of our age—electricity, oil, nuclear energy—to see who is right, the exponent of the static school who insists that ‘resources are,’ or the defender of the dynamic, functional, operational school who insists that ‘resources become.’”

– Erich Zimmermann, World Resources and Industries (New York:  Harper & Brothers, 1951), p. 11.

Resource optimists are continually rewarded by oil and gas drillers. One can only imagine what world production would be like if private property rights and profit/loss entrepreneurship were the norm as it is in much of the United States.

The only good news is that politically shackled mineral production is ‘reserved’ for the future, further refuting the peak oil (or peak anything else) proponents who fail to see that politics and not a lack of potential is the limit to growth.

Eagle Ford: What ‘Peak Oil’?

Consider Eagle Ford where a new shale drilling technology is creating a private-sector Strategic Petroleum Reserve.

Last month, a Houston Chronicle feature reported on the fast expansion of oil drilling along the 400-mile long Eagle Ford shale formation. While most new shale operations in the U.S. and Eastern Europe have been drilling for gas, at Eagle Ford drilling is for black gold, Texas Tea.

The Chron.com article focuses on new jobs and tax revenues, but the bigger story is the new oil expected to flow over the next 20–30 years across some six million acres.  The article quotes sources expecting 20,000–30,000 wells (you read that right!) to be drilled, ultimately producing up to ten billion barrels of oil.

If ten billion barrels over 30 years is a reasonable estimate, that’s comes to about a million barrels produced each day from this one large shale formation.

The Railroad Commission of Texas maintains a webpage on Eagle Ford. Oil production has jumped from 308,000 barrels in 2009 to over 3 million barrels in 2010.  January and February combined production is 614,000. This map shows the Eagle Ford Shale Play size, and current producing oil and gas wells. Natural gas production, by the way, quadrupled from 2009 to nearly 80 billion cubic feet in 2010.

How long will this rapid increase of oil production continue?  Consider that the first Eagle Ford well, drilled by Petrohawk, was announced in late 2008. Today is only mid-2011!  A similar find in California might have progressed by now to just a few Department of Conservation hearings, against a background of protests by environmentalists and Hollywood players.

But Eagle Ford is in Texas, not California, and by 2010 there were 72 producing oil leases, up from 40 in 2009. From the Railroad Commission website: “Drilling Permit Processing Time as of May 23, 2011: Expedited Permits: approximately 2 Business day[sic], Standard Permits: approximately 6 Business days.”

Drilling Permits issued in Texas dropped nearly in half–24 thousand to 12.2 thousand–from 2008 to 2009 when oil prices and the economy collapsed. But drilling permits issued climbed again  to 18,000 in 2010.

Expect oil production to continue to grow in Texas.  And expect the recent shale oil production in Texas to stimulate to new exploration in and around other shale gas fields.

A Private SPR?

The Federal Government’s Strategic Petroleum Reserve (SPR) holds 725 million barrels, which it can released at 3.5 million barrels a day.  As thousands of new oil wells begin to produce across Eagle Ford, these secure flows provide further reasons to reduce oil stockpiled at taxpayer expense (and federal debt interest expense) in the SPR.

The oil abundance of Eagle Ford is yet another reason to get the federal government out of the oil business.

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Greg Rehmke (grehmke@gmail.com) directs programs for Economic Thinking, and directs student seminars for the Independent Institute.