The big story in global energy has been the drop in crude oil prices, and a lot of ink has been spilled trying to make sense of it amid news of lower earnings and industry layoffs.
But it doesn’t hurt to note a recently achieved milestone in North Dakota’s Bakken Shale to remind us how spectacularly dramatic the North American shale revolution has been.
Earlier this month the North Dakota Department of Natural Resources announced that the state’s portion of the Bakken Shale set yet another record for oil production in December, with drillers pumping more than 1.2 million barrels every single day.
To consider how remarkable that number is, consider that before the shale boom, North Dakota’s high water mark for oil production was just 147,688 barrels per day. That record was set during the summer of 1984.
It took 24 years for that record to be toppled. But since May 2008 – a period of roughly six-and-a-half years – North Dakota set new records seemingly every single month. I have highlighted several production milestones on this blog.
Part of the record-setting came because more and more wells were drilled. Just as important is that those wells were becoming more productive through technology improvements and industry innovation. In June 2009, the typical Bakken well produced 51 barrels per day. This past December the figure was 105.
Economist Mark Perry marveled at all this in his Carpe Diem blog, noting that over the past five years, “annual oil production in North Dakota has increased five times, from 80 million barrels in 2009 to 400 million barrels last year.”
He further noted that in 2009, North Dakota’s output was half the amount produced in traditional energy heavyweights California and Alaska. But last year North Dakota produced more than California and Alaska combined.
Markets reacting and adjusting
This soaring production, of course, has played some part in the nearly 50 percent drop in oil prices the global market has experienced since mid-summer. That drop has brought consequences as well. Falling prices have led to falling rig counts in North Dakota’s Bakken region, so state officials expect the rising production to stall and hold steady for a time.
The developments in the global oil industry offer a real-time lesson in the power of markets at work – supply and demand continually balancing with each other, with suppliers and consumers responding according to changing circumstances and incentives. Prices rise and prices fall, and the markets adjust accordingly.
As we consider this latest North Dakota record, and wonder about future chances to set more, let’s take a moment to reflect on how the energy markets that serve our economy work.
And let’s not forget how well they continue to fulfill our industry’s main task of providing the affordable and reliable supplies that consumers rely upon to power and improve their lives.