By John Richardson
WHEN Abraham Darby discovered a way of using coke to smelt iron ore in place of increasingly expensive wood in 1709 his technology didn’t stand still. Armies of engineers sought ways of making his process better, which led to the pivotal introduction in 1828 of “hot blast” technology.
The “hot blast” breakthrough led to fuel consumption being cut by one-third using coke or two-thirds using coal, whilst it also allowed blast-furnace capacity to be significantly increased.
And, of course, modern blast furnaces are much more efficient than those in operation in both 1709 and 1828.
This five-minute search on Wikipedia took me right back to my “O level” history studies in the 1970s, when I was taught about Britain’s industrial revolution. Every schoolkid who took the same course came away with this one overwhelming message: Innovation never stands still.
So why have some oil analysts completely failed to forecast the chart above? Baffling. From the latest edition of the outstanding pH report, it shows that there has been a four-fold improvement in the efficiency of US shale-oil wells over the last four years.
This process will continue, making nonsense of any analyst who says, “Definitely, the breakeven cost for US shale oil cannot fall below xxx/a barrel”.
As I said, history has long taught us that innovation never stands still. And today the pace of innovation is of course much more rapid than in the 18th and 19th centuries because of the power computing and Internet interconnectivity: Ideas can be much more easily shared and developed.
The shale oil and gas industries are also two of the very few genuine bright spots for the US economy. So why not more tax breaks and other government incentives that give the innovation process even more momentum?
And there is every reason to believe that US companies will want to export their expertise, enabling other countries to commercially exploit their own shale gas reserves.
We are an era of abundantly supplied oil as demand undergoes a long term, secular decline.