by Rod D. Martin
October 21, 2015

U.S. oil output isn’t dropping. And that is…more than a little interesting.

Given the collapse in oil prices — very recently we were told that $250 oil would be the new normal — many predicted that U.S. frackers would be run out of business. That was certainly Saudi Arabia’s intent when it opened oil’s floodgates last year. The operative theory was that the frackers’ higher production costs would bankrupt them at $50 a barrel.

But it didn’t, even as prices dropped 50 percent, 25 percent of that just in the last quarter. And then we began to hear that the number might be $40. And then $30. Some are now saying $20.

U.S. rig count is indeed down by more than half. To that degree, the Saudi’s bet payed off. And yet, U.S. oil output is within 3 percent of its 40-year high, and a report out two weeks ago shows that U.S. production actually rose 1 percent in July to an incredible 9.4 million barrels a day. A more pessimistic writer frets that that OPEC is “crushing the U.S. oil boom,” and that production could drop as low as 8.86 million barrels per day next year, purely due to price, not supply.

As low as 8.86 million. It was 5 million in 2008. And everyone thought the oil was running out.

How is this happening? Innovation. Just as the fracking boom itself is a result of a technological breakthrough that left “peak oil” theory in shambles, America’s oil output stubbornly refuses to decline because its producers are getting twice as much out of each well.

This is principally due to a new technique: using more sand to increase production and profitability. Sand has always been part of fracking. Drillers pump water into the well, fracturing the shale. Those fractures are kept open with sand, allowing the oil to be extracted.

It turns out that upping the amount of sand produces fracking on steroids. According to one study, the injection of additional sand can increase output by as much as 300%. It’s no wonder, then, that sand usage has increased from less than 1,000 pounds per foot in 2012 to more than 1,500 pounds now.

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Image credit: Bloomberg

After the selloff of crude oil, prices for sand plummeted by 30 percent. This left a lot of the early boom’s sand investors gasping, but it also made it that much easier to use more sand.

In an interview with Bloomberg Business, one oil man was candid about his limitations and goals: “I can’t control the price of the commodity… The only thing we can do is get better and faster and cheaper. There’s a general correlation that more sand equates to a better well.”

Hydraulic fracturing continues to revolutionize the oil industry, increase output, maximize profits, and make the United States the leader in energy exploration and extraction. Technology and innovation — not reduction in living standards and leftist lectures on “limits to growth” —  continue to reduce our dependence on foreign oil and, more to the point, make life better for all of us.

This is a disaster for all the right people. OPEC in particular is broken: never again will it be able to arbitrarily raise global energy prices, not when American producers can flood the market just as easily (and with the Saudi government’s budget keyed to oil above $100, far more profitably). If the Saudi situation is difficult — its budget deficit is now 20% of GDP — even worse are the outlooks for Russia and Venezuela. And with Iran’s production coming back online, their trend lines only get worse.

Yes, individual U.S. producers and investors are hurting. They hurt in 1985 too. America as a whole did not: it was just beginning its longest-ever peacetime expansion, in no small part because of those same low oil prices. Energy is just one part of America’s highly diversified economy. A handful of majors with relatively few wells can keep Russia on the ropes for years to come.

The real point is, as I’ve said for many years, there is no long term shortage of oil. Since the 19th century, government estimates have consistently prophesied the imminent depletion of the planet’s second most abundant liquid. As far back as 1874, Pennsylvania’s state geologist fretted that America had only four years of oil remaining. 1878. He wasn’t the first to say it. He was far from the last.

When demand increases and prices rise, companies explore for more. As they do, they innovate: they find new ways to do more with what they find. But just as Malthus predicted imminent global starvation in 1798, and just as 230 years later Paul Erlich promised global famine by 1980 — words he wrote at the height of the Green Revolution — the left forever underestimates the power of human ingenuity to devise new technologies and expand supply.

They were wrong in 1798, they were wrong in 1968. And the Peak Oil crowd which was so very loud in 2008 is suddenly very, very quiet.