Every day there is more bad economic news it seems, and even President Obama started campaigning for reelection a year early. But things are different in North Dakota. The only things they worry about there is whether they can hire enough people to meet the labor demand and can they build the pipeline and other infrastructure needed to turn their black gold into real gold fast enough.
Welcome to America’s domestic energy production economics lab experiment!
This science experiment in the potential for putting American technology and entrepreneurship to work in unconventional oil and gas is going well—real well. Monthly oil production is ahead of year over year levels by 23% and up 78.5% over the past two years according to the North Dakota Department of Mineral Resources. Oil production in 2011 has averaged 10.5 million barrels per month, twice the 2008 levels, and three times the rate of five years ago.
President Obama would certainly like to take credit for the growth in jobs and personal income in North Dakota. Oil related jobs more than doubled from 6,800 jobs in May 2009 to 15,200 jobs in May of 2011. North Dakota’s unemployment rate is 3.2% compared to the Us average of 9.1%.
In the first quarter of 2011, North Dakota personal income grew faster than anywhere else in the US at a 6.9% increase four times the national average of 1.8%. As the ripple effect of high employment rolls through the North Dakota economy overall state employment level reached an all-time high in May 2011 and is now 2.5% above the June 2009 level when the recession officially ended.
When that oil gets to market and taxes are paid, North Dakota’s treasury ended up with $237.5 million MORE than projected over the last two years. For May 2011 state income tax revenues beat expectations by 10.6% and sales tax revenue was up 13%.
Maybe that is why resistance to unconventional oil and gas production using horizontal drilling and hydraulic fracturing long stalled in New York State suddenly seems to be easing. Why Pennsylvania is seeing the same signs of growth from its own rationalization of policies and regulations that held back domestic energy production in the Marcellus shale and Utica Shale.
America gets it!
Domestic energy production is one of the most promising avenues for climbing out of our economic hole. Even better it uses American technology, American entrepreneurship, using American workers to harvest American energy and keep American money at home rippling through our economy.
Now that’s a stimulus program we can believe in!
America’s domestic E&P mojo is Back thanks to American technology and our potential for E&P domestic energy growth from unconventional oil and natural gas plays here at home. The question is whether the Government will tolerate such an unqualified success without smothering it in new regulations.
North Dakota is currently the fourth largest producer of oil in the United States and has been setting new production records almost every month. At the end of 2010 oil production had grown to 342,000 barrels of oil per day (BOPD). The key impediment to even faster growth is the oil pipeline and transport infrastructure limits.
The North Dakota Department of Mineral Resources updated its estimate of recoverable oil in 2008 and 2010 based upon better E&P data and now believes there are 4.0-6.3 billion barrels of recoverable reserves in North Dakota’s Bakken and Three Forks formations alone. And there are additional oil plays including the Lodgepole, Tyler, and Spearfish that are yet to be explored for development.
Stop and think about that for a moment. At the current actual oil production rate of 350,000 barrels of oil per day (BOPD) at the current price of WTI Cushing oil of $112.43 per barrel (4/27/11) North Dakota alone is reducing oil imports by $39.3 million per day or more than $14.4 billion per year annualized.
Energy security we can believe in!
We know from experience with unconventional oil and gas production that it will not always be this way in North Dakota and pother plays as the horizontal drilling technique is effective in extracting the ribbons of oil and natural gas but the size of the plays is typically smaller than the huge conventional oil play pools found in the Gulf of Mexico or Alaska. But studies done by the North Dakota Industrial Commission and Mineral resources Department suggest the Peace Garden State has an undeveloped resource base as large again as that found in Western North Dakota suggesting at least an additional ten to twenty years of intense drilling and development, followed by several more decades of continued petroleum production.
Combine the resource potential of North Dakota with those of similar oil plays in other states and it adds up to enough domestic energy production potential to fuel America’s energy transformation. The US EIA reports that US oil production declined in all but one year from 1986 to 2008 and increased in both 2009 and 2010 caused primarily by the increase in deepwater developments in the Federal Gulf of Mexico in 2009 and by the growth in horizontal drilling programs in U.S. shale plays in North Dakota portion of the Bakken formation in 2010. In the Bakken and other shale formations horizontal drilling and hydraulic fracturing have refocused on oil production instead of shale gas production because of higher oil prices and low gas prices thus increasing oil production. Baker Hughes rig count data shows a pronounced trend toward oil horizontal rigs from less than one-third of oil-directed rigs in September 2008. Since then horizontal oil rigs have tripled to about 46% of all rigs.
And then there is Unconventional Gas
US EIA’s Annual Energy Outlook 2011, says there is 2,552 trillion cubic feet (Tcf) of potential natural gas resources in the US. Unconventional natural gas from shale resources are 827 Tcf of this resource estimate, more than double the EIA estimate published last in the AEO2010. Based upon the 2009 rate of U.S. consumption (about 22.8 Tcf per year), that is enough natural for 110 years of use. EIA expects these unconventional gas estimates to grow and other potential oil and gas plays are explored and validated.
Higher oil prices reflect the global tradable market for oil as a commodity. Lower domestic natural gas prices reflect the reality that natural gas trades primarily as a regional commodity. There was a time not long ago when energy experts expected LNG to transform natural gas into the same globally priced commodity as oil. Russia, Qatar and others even considered forming an LNG cartel like OPEC to fix prices for natural gas.
American technology demonstrated the potential for horizontal drilling and hydraulic fracturing to unlock the potential of previously uneconomic shale oil and gas plays. North Dakota and Texas were the laboratories for these new technologies and now they are the domestic powerhouses of unconventional oil and gas production.
But the success of this disruptive technology could be undermined by NIMBY restrictions out of fear of groundwater contamination or government restrictions on unconventional oil and gas from the piling on of new regulations. The oil and gas industry needs to ‘get real’ about fracking fluid disclosure and best practices to reduce the risks and mitigate the need for Federal intervention.
But the government also needs to get it priorities straight and recognize that the potential from unconventional oil and gas is a game changer that gives America a competitive advantage today. If the US restricts the use of horizontal drilling or fracking the rigs and expertise working at home today in America will just go elsewhere in the world and America will be stuck with higher imports, higher prices and a weaker economy.
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Turning around America’s economy requires reloading America’s domestic energy productive capacity to fuel job growth. North Dakota is leading the way in unconventional oil and gas production.
The North Dakota Department of mineral Resources released its monthly oil production report for July setting a new monthly production record of 321,042 barrels of oil per day. The record has been broken each month in 2010 and is up more than 100,000 barrels per day from a year ago.
All this production is from the Bakken Shales a thin play running through North Dakota, Montana up into Canada. Since it was difficult to access using convention oil drilling methods, plays like these are only now becoming commercially practicable using horizontal drilling techniques along with hydraulic fracturing of the rock with liquids to release the oil and gas deposits.
The Bismarck Tribune reported that the US portion of the Bakken made up of North Dakota and Montana together can deliver a total of 425,000 barrels of oil per day given current production and rail capacity and in July they were actually producing 385,000 barrels per day or 90% of its capability. TransCanada announced it will begin shipping oil out of Bakken for transport to the Gulf Coast. Combined with other capacity additions production is expected to rise to more than 1 million barrels per day by 2020.
Scenario Signpost: RELOAD
Continued expansion of domestic oil and gas production from unconventional sources is a signpost of America’s New Industrial Revolution Scenario. The main plot line of this scenario is a growing consensus that restoring America’s competitive advantage and security requires expanding both domestic energy production and bringing manufacturing back onshore to reindustrialize the American economy.
The oil rig explosion and resulting spill in the Gulf of Mexico is a mess no one needs, and if it turns out it could have been prevented no one should tolerate. A worse disaster, however, would be allowing this incident to derail America’s economic recovery and its energy future.
The events of the oil spill are moving too fast to yet make sense of what happened while action is being focused to stop the leak and clean up the mess. What we read in the press is part speculation, part rant and part reporting.
What we know factually is that the oil rig exploded, the safety shut off valves which were supposed to close the spigot on the oil either did not work or were not there. We know that this oil mess is now going onshore and threatening the wildlife, environment, and economy of the Gulf Coast. We also know that this has not happened before or often despite thousands of wells and rigs in the GOM—for that we should be grateful and also encouraged.
We know that President Obama who just recently defied his base and spoke in favor of expanded offshore drilling now is covered in a sticky political and public relations mess as a result of this spill. Now there are ugly reports surfacing pointing fingers at BP and the Government for not responding fast enough to mitigate the damage and making comparisons to the Katrina response or the Exxon Valdez spill.
Congress, never wanting to waste a crisis opportunity for headline grabbing, grandstanding and scoundrel thrashing, has called a hearing on the spill for early May. Attorney General Eric Holder announced he was dispatching a team of investigators and lawyers to the scene to find someone to hang and prepare the way for the army of trial lawyers about to descend on the region.
We need leadership now to clean up this mess!
The difference between politicians and leaders is the latter keep us focused on the desired end result—on achieving the articulated goal and cheer us on to achieve it.
Imagine the power of President Kennedy saying to a disbelieving nation in 1961 that “before this decade is done we will send a man to the moon and bring him home safely. We will do these things not because they are easy, but because they are hard!”
Politicians, on the other hand, distract us with vilification and vitriol that slows down clean up of messes, discourages investment and responsible risk taking needed in our economic life to grow our country and live into its potential, and dispirit us when we most need to be lifted up. Do you think President Obama’s trip last week to New York to grandstand on Wall Street while Congress hauled the leaders of Goldman Sachs to the dock for a flogging will do anything to clean up the financial mess left over from the crisis?
Fortunately, America is strong enough to weather the crises!
The good news is it will take more—much more, than a recession, a big oil spill, or an over-reaching government to tank the American economy or our spirit. We will clean up the mess on Wall Street and in the GOM! We will learn from the experience, fix the things that went wrong with remedies that do more good than harm to the patient.
The other good news is that while our politicians are ranting and over-reaching in the here and now, the American people still believe in and are still focused on living into the American dream and thus the long term goal of the prosperous pursuit of happiness for ourselves and our posterity in markets as free and competitive as we can tolerate.
So I’m going to end this rant with some “hopey, changey” things you can believe in:
- North Dakota has 2 billion barrels of onshore unconventional oil and gas—much more than expected according to the latest report from the North Dakota Industrial Commission. Read about here and be encouraged : http://www.grandforksherald.com/event/article/id/159626/.
- ARPA-E invests in President Kennedy’s Vision by its focus on transformational technologies and primary research not because they are easy but because they are hard. Read about it here http://arpa-e.energy.gov/NewsMedia/News/tabid/83/vw/1/ItemID/21/Default.aspx
- Honolulu is creating a District Cooling Project using cold ocean water to displace fossil fuels for A/C saving tons of emissions and reducing the need for 14 MW of power generation all at an amazingly affordable estimated cost of $245 million without a mention in the story about federal stimulus money, earmarks or grants. Read about this project here: http://honoluluswac.com/index.php?option=com_content&task=view&id=6&Itemid=20
So turn off your TV and quit listening to ranting politicians distracting us from our dreams and discouraging us from using our imagination and resourcefulness and go out there and do something hard for America!
The growth of unconventional oil and gas in North America in recent years is an energy success story. In 2009, North Dakota edged out Louisiana to claim bragging rights as the fourth ranking oil producing state.
Lynn Helms, Director of the state Department of Mineral Resources, reported in his April 2010 newsletter that if sweet crude oil prices hold at current levels North Dakota could produce 350,000 barrels of oil a day by late 2011. That level of production would be nearly double the production which previously was limited by the lack of export facilities to get the oil and gas to market. February 2010 results showed record production of 261,000 barrels per day. Natural gas production also hit record levels at 280,589 MCF/day.
Investors see the potential for unconventional oil and gas and have pumped capital into expanding North Dakota’s shipping capacity from 189,000 barrels per day to nearly 400,000 barrels per day. This is enough to handle the expected production growth for the next two years.
A Sweet Spot in America’s Economic Growth
This is one reason unemployment in North Dakota is the lowest of any state. Every $1 increase in the price of oil brings the State $9.3 million in additional tax revenue and that multiplier effect of spending from workers, capital investment in equipment and the growth in earnings. The Bismarck Tribune reported that the spread between North Dakota Sweet Crude and the NY MERC price had closed to within ten percent. Before the infrastructure improvements expanding shipping capacity that spread had been as much as twenty-eight percent keeping North Dakota Crude prices depressed.
While the Nation debates health care reform that is expected to raise health care costs, stimulus spending expected to raise taxes, and deficits expected to raise inflation, a quiet revolution is going on in places like North Dakota exploiting new technology and competitive energy markets to reduce America’s dependence on imported oil and natural gas. Every day North Dakota saves America $22 million in imported oil wealth transfer (at today’s average crude price of $82.98).
The good news is that what is happening in North Dakota is spreading to other parts of the country from the Rockies to Pennsylvania, from North Dakota to Texas putting America’s technology to work solving America’s energy problems.