Of Revolutions and Independence

The energy landscape has changed.

Every President since Richard Nixon has called for energy independence, and it’s been an empty phrase because the market has made it prohibitively expensive. But now, with changes in technology and new discoveries, it’s no longer just a pipe dream.

The reason is fracking technology. For decades oil companies have used enhanced oil recovery, or EOR, to improve the productivity of existing wells. By pumping water down into the area surrounding a producing well, that well’s productive life can be extended. But by forcing pressurized water into tight geological formations and using horizontal drilling, previously trapped oil reserves can be freed up, and those resources send to the surface and developed.

This change has turned North Dakota into America’s fourth largest oil producing state, after Texas, Alaska, and California. It’s created hundreds of thousands of good jobs, not just in production, but also in manufacturing and information technology. And it’s reduced our dependence on unsavory despots like Venezuela’s Hugo Chavez, even as Mexico and Canada supply over a third of our oil imports.

Combined with these changes in the energy supply are demand-side revolutions like hybrid cars, ultra-efficient diesel engines, and new types of insulation. Oil consumption peaked in the US in 2005 and has declined ever since.

It’s no great surprise. Higher prices have dampened demand and induced new supplies, as basic economic theory would predict. It’s taken some time to adapt, but energy hasn’t looked this bright in years.

Douglas R. Tengdin, CFA
Chief Investment Officer
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