The unconventional natural gas and oil revolution in North America has been less a random series of fortuitous events and more a cascading set of circumstances that has created a new world order for energy markets and upended the global economic outlook, according to industry guru Rusty Braziel.
Braziel lays out his theory in a new book, “The Domino Effect: How the Shale Revolution Is Transforming Energy Markets, Industries, and Economics,” published by NTA Press and available on Amazon.com. Originally designed for an energy-centric audience, the book takes the reader on a fascinating and winding journeywith Braziel, who has spent his life working in all the relevant segments of the oil and gas industry. It describes the revolution that appeared to spring out of nowhere to transform the energy world with the fortunate marriage of two separate developments, horizontal drilling and hydraulic fracturing. Weather also had a part to play, withthe hurricanes in 2005 that sent prices soaring and producers pouring their talents and money into unconventional drilling.
Braziel brings together the factors that first transformed the natural gas markets, then moved into natural gas liquids (NGL) and finally the crude oil markets, an enjoyable ride that thoroughly explains how the United States has led the way and what may happen in the years ahead. The end result for each commodity is a cyclical market basically following the pattern set by the natural gas market over the past six years.
“My experience is that a lot of times, the folks that are getting involved in one segment of the business don’t really know what’s going on in the other segment of the business,” Braziel said in an interview with NGI. “My main goal was to spread the information around so that people who understand one segment can understand how the rest of the segments tie it all together.”
The book is attracting an audience beyond the energy sector, drawn to by people who want to know why prices are low and when they will rise. It dawned on Braziel that the little boxes he was using in PowerPoint presentations for energy conferences to explain the history of the shale transformation looked like dominoes. That lightbulb moment brought into context how the massive changes have occurred — and will continue to occur.
The first domino to fall was put in place by the man many considered the “Father of Shale,” George Mitchell, whose team honed drilling techniques in a North Texas field known as the Barnett Shale in the 1980s, combining old school hydraulic fracturing with horizontal drilling.
Gas prices still were low back in 2002 when Devon Energy Corp. paid what is now seen as a bargain — $3.1 billion — to buy Mitchell Energy & Development Corp. (see Daily GPI, Nov. 19, 2002). It took three more years for the next domino in place to tumble, when the terrible twins Katrina and Rita tore through the Gulf of Mexico in 2005, with Rita’s wrath alone damaging or destroying more than 20 offshore installations (see Daily GPI, Jan. 6, 2006). The natural gas industry, then preparing to head into the winter withdrawal season, saw prices soar — and remain high for several years.
“A lot of folks didn’t realize how important that price run-up after the hurricanes was to the development of shale,” Braziel said. “My sense is, it probably would have happened eventually, but it wouldn’t have happened nearly at the speed it did had it not been for a price run-up to $12 and $13.00/Mcf.”
All in, Braziel sets up 30 dominoes that he said have fallen, including price shocks, production economics, more efficient drilling — and the applications from gas to NGLs to crude oil — a trio of “drillbit hydrocarbons,” or DBH, that now can be produced from one well. Each segment has played and will continue to play a “distinctive role as the domino effect ricochets through the markets and topples one domino after another,” he writes in the book.
Braziel said the most frequent question he is asked is when will the energy sector, i.e. prices, recover. There’s no book that can clarify that completely.
“My response is, you need to get the ‘R’ word out of your vocabulary because it’s not going to happen that way,” he said. Six principles he outlines in the book offer a direction on which dominoes will fall next, which are tied to a now proven fact: “We can produce more NGLs, natural gas and crude oil than anyone expected. And all of that is coming from that single hole in the ground.”
So what’s next?