We read an intriguing essay by Brian Wesbury of First Trust today. Using the phrase that Ronald Reagan used nearly 25 years ago about the Soviet Union about Marxism and Leninism being left on the “ash-heap of history,” Wesbury thinks that OPEC (Organization of Petroleum Exporting Countries) may be headed the same way.
Now it appears OPEC, another nemesis of the US from the prior century is heading for the ash heap of history as well, not because of geopolitics, but because of the hard work of engineers.
A combination of fracking, seismic imaging, and horizontal drilling has led to a huge reduction in the cost of drilling and an increase in the supply of oil and natural gas, not just in the US but around the world.
Case in point: in the past twelve months the US has run an $8.4 billion goods trade surplus with OPEC, including Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela. What a difference from less than a decade ago. Back in 2007-08, the US ran a $190 billion goods trade deficit with OPEC. The reason for the change in the trade balance is that the US is importing much less from OPEC, $64.8 billion in the past twelve months versus $253.4 billion at the peak in 2007-08.
Those are amazing statistics. A $200 billion dollar change in the balance of trade in just under a decade, all due to a technological revolution in the production of oil and gas. We are accustomed to thinking about technology in terms of silicon chips, iPads and cell phones. But the bigger sociopolitical change may have been in the dirty, greasy, un-glamorous field of petroleum engineering.
Who would have guessed?