When “Revolution” Is Simply History Repeating Itself

Shale, shale, shale – it’s the new mantra of the oil and gas industry. Production of hydrocarbons from reservoirs with low permeability is destined to make the United States energy independent in the very near future.  It’s a “revolution” – The Shale Revolution – say journalists and analysts worldwide. 

And now that same “Shale Revolution” is spreading throughout the world. True? Well, the media says so – repeatedly on the 24/7 news feeds that have to say something to fill those 24/7 slots. And there is the “let’s hype this or that stock” factor so prevalent in analyst commentary.

So are we in the midst of a “revolution” and if so, what sort of revolution is it? Wikipedia says that the term “revolution” comes from the Latin word “revolutio” which means “a turn around.” A revolution, “is a fundamental change in power or organizational structures that takes place in a relatively short period of time,” Wiki says. In this respect the results of increased production of oil and gas from shale development technologies is indeed a revolution. 

But that is the case in the United States and it’s a revolution because the U.S. is becoming energy independent and even a net exporter (in the case of LNG.) That shifts the balance of power in world energy flows. The technology itself and the methods by which shales are produced are not a revolution in themselves. Fracking has been around for decades. It is just that fracking (an absolute necessity when producing shales) is expensive, and so it took $100 a barrel oil to make its everyday use economic.

Also, the U.S. economic system is different from the economic systems of other countries. I read recently a Moscow Times report on a meeting of Western-leaning economists held in Moscow which pointed out that 60 percent of oil produced in the U.S. and 85 percent of shale oil, is produced by small, independent companies. And that the current boom in hydrocarbon production is driving economic growth in oil-bearing regions of the U.S.

That’s all true. But it doesn’t mean that the U.S. experience is transferable in all cases. Please bear in mind that the U.S. domestic oil industry is governed by a legal system based on private property and land ownership. If you travel to oil-bearing regions of the U.S. you may notice “nodding donkeys” for artificial lift in farm fields, on the parking lot of a shopping mall, and even in the backyards of a single-family home. 

In each case, the owner of the land has leased the mineral rights to an oil company for a set period of time. 

And the oil company is required to pay money to the landowner. I know people of middle class means whose investment portfolio includes one oil well. Production might be so low that the well would be of no interest to an oil company. But to one family? Do the math.

The system is totally different in Russia – and much of the