Refrack Resourceship: Why the Carbon-based Energy Era Is Still Young

“[T]hough the oil-market crash has put the nation’s energy boom on hold, some oil-technology companies are pursuing what they say will be a second American shale revolution … That belief lies partially in re-fracking — giving oil shale deposits a second blast of water, chemicals and sand — to get more oil out of depleted or underperforming wells. The process could be up to two-thirds cheaper than drilling a new well….”

– Collin Eaton, “Oil Firms Promise New Life for Shale,” Houston Chronicle, August 16, 2015.

The fossil-fuel era is new–and in all likelihood still young. In fact, compared to renewables, natural gas, coal and oil are the real ‘infant industries.’ Remember, for most of the last thousand years, and all of the time earlier, renewable energy (primitive biomass, falling water, wind, solar) held a virtual 100 percent market share; carbon-based energies have dominated only since the onset of the Industrial Revolution.

The fixity/depletion paradigm of mineral resource thought is in serious intellectual trouble. The neo-Malthusians have already conceded that we are not running out of resources. Instead, they now say, we are ‘running out of climate’ with the ‘tipping point’ always ahead. Thus natural gas, oil, and coal must stay in the ground! Ronald Bailey is correct when he writes Peak Oilers Shut Up Forever Please.

Ultimate-resource economics teaches that human ingenuity is not a depleting resource but an expanding one. That is, the more that is uncovered/discovered, the more that is ‘unearthed’ to find later on. Since resources come from the mind and not the ground, the cascading effect, the mineral industries are really manufacturing industries. In the words of economist Tom DeGregori:

If resources are not fixed but created, then the nature of the scarcity problem changes dramatically. For the technological means involved in the use of resources determines their creation and therefore the extent of their scarcity. The nature of the scarcity is not outside the process (that is natural), but a condition of it. [1]

Shale Revolution: Part II?

A business piece in yesterday’s Houston Chronicle, “Oil Firms Promise New Life for Shale,” reminded me of the amazing, even counter-intuitive, idea of mineral resources being open-ended. “Shale oil producers from West Texas and North Dakota have harvested enough crude to overwhelm the global oil market,” author Collin Eaton begins. Then comes the real story:

But U.S. producers have recovered only a small fraction of the oil that’s trapped in those rocks, and though the oil-market crash has put the nation’s energy boom on hold, some oil-technology companies are pursuing what they say will be a second American shale revolution.

WOW! Eaton explains:

That belief lies partially in re-fracking — giving oil shale deposits a second blast of water, chemicals and sand — to get more oil out of depleted or underperforming wells. The process could be up to two-thirds cheaper than drilling a new well, which is an alluring possibility for cash-strapped U.S. producers who are straining to keep operational costs down and drilling operations intact.

The rest of the article talks about the technology in light of the 50,000 eligible wells in the U.S., with 600 refracked to date. A lot of “low hanging fruit,” as one Halliburton re-fracking specialist put it, is ripe for new-technology picking. And round one to improve extraction from 8 to 12 percent of total estimated in-place supply will be followed by other rounds. What might future technology bring, and how many centuries might remain for fossil-fuel dominance?

Conclusion

High oil prices create incentive for more exploration and production. Low oil prices create incentive for technological improvements and other efficiencies. Both are part of the evolving, spontaneous order of the unhampered market economy, or the market process. And this process, driven by consumers and not politicians, is open-ended.

Oh how joyful and peaceful it is to be a disciple of Julian Simon and not Paul Ehrlich. It is even liberating. The last word belongs to Tom DeGregori:

Technology as ideas and as the creator of resources is not only correct, it is also liberating. It provides a conceptual basis for understanding the fact that the resource base of civilization has expanded, not contracted, with use. It gives us the kind of operational understanding necessary to frame the policies to sustain this resource-creating process. It provides a reasonable basis for optimism that the human endeavor can continue and can expand. It is, finally, the key component of a structure that challenges traditional ways of thought about the economy and opens new possibilities for creative inquiry and dialogue. [2]

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[1] Tom DeGregori (1987). “Resources Are Not; They Become: An Institutional Theory.” Journal of Economic Issues, p. 1258.

[2] Ibid.

Note: For further analysis of re-fracking re the Collin Eaton piece, see Energy, the Market, and Liberty.