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Shale 2.0, characterized by a potent combination: eager and liquid capital markets funding hundreds of experienced (now-lean) small to midsize companies that can respond to modest upticks in price with a velocity unseen in oil markets in eons — all using shale technology that is shockingly better than before and poised to keep improving.

This year sees the U.S. not only filling storage tanks to the brim but also exporting more than a million barrels of crude oil a day. Exports are at the highest level in American history, twice the previous crude export peak in 1958. The U.S. is exporting more oil than five of the Organization of the Petroleum Exporting Countries’ 13 members.

The stress test that brought this about began two years ago, when Saudi Arabia decided it would try to tame American shale oil and gas production. The technology of hydraulic fracturing, which began to emerge barely over a decade ago, led to the fastest and largest increase in hydrocarbon production in history.

Oil prices started to collapse in 2014 because American shale businesses oversupplied markets. The Saudis responded by increasing production, which drove prices even lower. Their theory was that this would wreak havoc on small and midsize petroleum upstarts in states from Texas and Oklahoma to Pennsylvania and North Dakota.

The fall from the $120-a-barrel stratosphere to under $30 did take a toll on producers everywhere. Businesses reduced investments and staffing, and many went bankrupt. It also deprived OPEC member states — and Russia, it bears noting — of hundreds of billions of dollars in revenues, forcing them to tap sovereign-wealth funds and cut domestic budgets.

Something else happened. Little noticed outside the petroleum cognoscenti, shale technologies kept getting better. The productivity — output per shale drilling rig — has been rising by more than 20% a year. That means every 3½ years the average rig produces twice as much oil or gas.

software tools and techniques will now start to invade the shale domain, one of the least-computerized industrial sectors. “The cloud” will be just as much of an economic accelerant for shale as it has been for other complex and distributed industries.

Established tech companies such as Microsoft, IBM, Teradata and Splunk see the opportunity. The digital oilfield is also the animating logic of the huge merger of oil services giant Baker Hughes with General Electric’s “industrial internet” and oil-and-gas business. Even more portentous, a new ecosystem of tech startups is chasing the prize of unlocking value in petabytes of untapped shale data.

Venture capitalists like to talk about “unmet needs” in “big markets.” Oil is the world’s biggest market in a traded commodity, and America’s shale market went from near zero to $150 billion in a decade, largely without help from software.

For the Saudis and other oil oligarchs, the worrisome feature of Shale 2.0 is that software enhances the most remarkable feature of shale production: velocity. The thousands of small to midsize shale operators and investors make rapid individual decisions, each involving a tiny fraction of capital per decision compared with the supermajors. This fluid, chaotic, very American entrepreneurial environment operates in private markets, largely on private land, and can expand or pull back with a volume and velocity unseen in oil markets in a century.

This is fantastic. You can be happy about it, or you can join with the lunatics over at HuffPo who prove Chesterton correct day after day.

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