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!
Fracking Safety Review Panel named even as new unconventional production records are set.
North Dakota is doing its part by setting another record production month in March with reports that it pumped 359, 589 barrels of oil per day in March according to the North Dakota Department of Mineral Resources.
But no good deed goes unpunished as the old saying goes so back in Washington DC:
- On April 16, 2011 House Democrats Henry A. Waxman, Edward J. Markey and Dina DeGette released a report they said was “the first comprehensive national inventory of chemicals used by hydraulic fracturing companies during the drilling process.” used by the 14 leading oil and gas service companies in the U.S. They want the industry to disclose all the chemicals used in fracking and want EPA to regulate their use in hydraulic fracturing to prevent groundwater contamination.
- On May 9, 2011 U.S. Department of Energy Secretary Steven Chu formed a subcommittee of his Energy Advisory Board of industry, environmental and state regulatory experts to make recommendations to improve the safety and environmental performance of hydraulic fracturing from shale formations in response to fears that use of fracking chemicals can cause groundwater contamination.
- Frankly, the oil and gas industry has not helped allay concerns about groundwater contamination by its reluctance or refusal to release the ingredients used in fracking fluids. This has fed fears that the chemicals are dangerous and given opponents of horizontal drilling using hydraulic fracturing more ammunition for their NIMBY cause.
The steady increase in domestic oil and natural gas production from unconventional sources is a genuine American energy success story. US DOE’s Energy information Administration says recoverable unconventional natural gas deposits may represent more than 100 years of average domestic supply and oil recovery from unconventional sources is offsetting the foot dragging on drilling in the Gulf and deep water along the coasts needed to replace rapidly depleting conventional vertical drilling resources.
So let’s get on with this health and safety review and set some best practices to assure that hydraulic fracturing is the safe, reliable, effective E&P strategy we think it is for putting America back into the energy production big leagues.
- U.S. Investigates Safety of Natural Gas “Fracking” (scientificamerican.com)
- Shale gas and ‘fracking’: disaster deferred? (safetymanagement.wordpress.com)
- Russian Gas -vs-Unconventional Gas: Which will the EU Choose? (insightadvisor.wordpress.com)
- France To Ban Fracking (businessinsider.com)
- Inhofe says fracking doesn’t cause contamination, day after contamination (americablog.com)
The concept of peak oil has been around for decades in the imagination of those who either fear —or wish—that the days of successful E&P of the black liquid are waning. Peak oil advocates argued that we have already reached the point where the most oil able to be produced from the easy to find sources has been reached and we can expect to see steady declines in new oil discoveries—-ergo—get thee off the black stuff and onto cleaner options.
The political correctness of peak oil helped it grow in popularity among both the ‘chattering classes’ and the ‘political classes’ because it reinforced their environmental views.
I am not opposed to renewable energy nor cleaning up the environment, but in the real world where I live and work “sustainability” means I can continue to afford to use the product and live the lifestyle I have chosen without harassment or breaking the law.
Yes, I know, I am making fun of the peak oil true believers.
But admit it, they have it coming. Most of us know enough about science and the scientific method to realize that just because Al Gore says there is ‘incontrovertible evidence’ of global warming does not make it so. And just because The Oil Drum says we reached the stage of peak oil in 2008 and it is irreversible—does not make it so.
That is why it was SO DELIGHTFUL to read in an authoritative source none other than The Oil Drum that a new high in liquid production has been reached. The problem for The Oil Drum was this report was written January 2011 for a period including November 2010! And worse, the report was confirmed by both IEA and OPEC. Oh Mon Dieu!
“Both the IEA and OPEC came out with new monthly reports recently. And both report that oil production in November 2010 exceeded the previous high month of July 2008 (back when oil was over $140). Probably the difference is within the margin of error, and in any case the third agency (the EIA) won’t weigh in for a few months.”—-The Oil Drum January 5, 2011
I’ll take that as an admission of error on the peak oil notion.
So the problem with the peak oil concept is that it relied on the old school view of oil and gas E&P where vertical drilling in search of vast pools of oil was the stuff of petro-dreams. Today most of the new prospects for such oil come from non-OPEC countries in places of large potential and larger risks like Africa and deep water off-shore Brazil. No doubt we will find it there, but meanwhile, the real story of the oil and gas future is in unconventional sources that use horizontal drilling and hydraulic fracturing to search for the ribbons of hydrocarbons once thought uneconomic to produce the old style conventional ways. They were right then, but not today.
Even better news is that unconventional oil and gas apparently can be found in many places around the world from North America where it is transforming the energy business despite the best efforts of our government to prevent domestic oil and gas production from growing to China that so desperately needs new domestic sources of energy that it is now importing coal from the US that we will not allow to be used here to the EU where Russian gas always carries a risk greater than any OPEC price gouge.
It is time for the US to have an energy policy driven by a reasonable balancing of economic and environmental considerations and focused on sustainable economic growth not a failed policy of picking winners based upon the political correctness of fuels.
While the results of the 2010 midterm elections are still be digested, the impact on the energy industry seems likely to be net positive if you believe in a balanced energy future that includes using more of America’s domestic energy potential. If you are the American Wind Energy Association you probably are still drinking to ease your pain. This gallows humor is meant to suggest that the GOP and TEA Party view that America should have a well rounded, domestic product focused energy strategy is likely to move forward in search for common ground with the Democrat view of climate change action and renewable energy.
From RES to CES. The panel said that AWEA’s push for a national renewable energy standard (RES) had little chance of passing but a modified clean energy standard (CES) that included tax support for building new nuclear power plants and investing in clean coal technology along with continued tax credits and loan guarantees for renewable energy might find common ground. As you can imagine adding tax supported competition for new baseload generation from zero emission nuclear power and low emissions from clean coal carbon capture and sequestration was not what the wind boys wanted to hear on top of their other problem competing with China. But that is where they are like it or not so the debate is shifting toward finding a compromise number higher than the 15% RES proposed by AWEA but allowing nuke and clean coal to count. Unless you raise the target it becomes a zero-sum game with the larger baseload plants swamping the smaller wind and solar plants. Do I hear 33% anybody?
Waxman-Markey is Dead and AB32 Got a Stay of Execution. It seems clear that hell will freeze over before any kind of carbon tax bill makes it out of Congress. Even the president admitted this was dead until at least after the next Presidential election. Even in California where voters rejected Proposition 23 to suspend AB32 the California Global Warming Solutions Act those same voters approved Proposition 26 which reclassified administrative fees and impact fees just like CARB expects to impose to tax carbon releases under AB32 as a “tax” and thus requires a 2/3 vote of the Legislature or voter approval. Carbon taxes are going to be radioactive in this new political environment.
New Nukes. It is time to step up the nuclear licensing, standards and regulatory approval process for new standard technologies for smaller scale, safe nuclear power plants. We should create a competitive market among the major architect-engineers and take advantage of the construction experience in other countries while America has been on the nuke sidelines to accelerate our go-to-market strategies. America needs more baseload power for the future and now is the time to build the next generation of nukes to expand the current fleet and progressively replace the oldest units. And we need to do this BEFORE inflation eats our lunch and sends us déjà vu into the same death spiral cost overrun conditions that hurt the first generation nuclear units.
Drill Baby Drill. Domestic oil and gas production won new champions in this election in the belief that America should produce more of its own energy book and put its best technology to work to do so efficiently, cleanly and effectively. Horizontal drilling and hydraulic fracturing are America’s current technology wonder of the world and we should use to our own advantage. States like New York and Pennsylvania that seek to restrict the use of these technologies in the Marcellus shale risk being left behind with higher price energy costs and lower tax revenues.
Will Clean Coal still be King? The technology risk associated with carbon capture and sequestration and other clean coal technologies make them very costly and commercially un-viable today. More R&D is needed to unlock that potential and drive down the cost. There is a role for the government in encouraging and supporting such R&D efforts but the coal industry must now step up and spend more of its own money to extend its useful life. Similarly, creating a market for the captured carbon and turning it into useful CO2 gathering products makes perfect sense and also need to be supported. Meanwhile, add scrubbers and other pollution control equipment to the current units and mitigate their negative impacts.
EPA and New Rules for Regulatory Accountability. A likely scenario to a wounded President unable to get his energy and environmental agenda through a disbelieving Congress is to use his executive authority to regulate everything that moves in the energy industry through the US EPA and other Federal agencies. The new Republican majority in the House will need to guard against this over-reach. And the TEA party members will probably welcome one more revolutionary idea—all Federal regulations must reasonably balance policy objectives intended with the public and economic interests of the nation and be submitted to Congress for an up or down vote. Give Congress 90 days from submittal to act or the rules go into effect but force legislative accountability for regulatory actions. Also sunset every regulation at least every ten years so we have to rethink this stuff periodically. If the goal is to control the size and reach of government and force it to balance interests reasonably the Congress must fix the problem of regulatory free will.
There ends the rant!
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.