Monday, September 06, 2010

Realities of the North Dakota Oil Boom

An oil boom is underway in the western part of North Dakota near Williston. If one takes the long view, eastern Montana and adjacent parts of Canada are considered parts of the same boom involving the Bakken Shale oilfield. No doubt a combination of factors make western North Dakota easy pickings for the moment. For one thing, oil rigs are hitting few dry wells. That is, as long as they use the fracking system developed in recent years by Halliburton. The consequence is that a lot of oil, money and jobs are available in these fields. From all over the country, young unemployed Americans are heading to the area to see if they can land a job. In a bad economy, a lot of people see the boom as a good thing. For many people, it is.

But there's a lot of hype and excess associated with what's going on in North Dakota. Here's an article by Tamsin Carlisle in, of all places, The National, an Abu Dhabi newspaper:
It contains hundreds of billions of barrels of light crude oil and thousands of wells and should be scaring the pants off any oil exporter needing high crude prices to balance its budget.

It is the Bakken Shale oilfield, which sprawls across two Canadian prairie provinces and two western US states including North Dakota, under 500,000 square kilometres of land.

Its US portion is described as the country’s largest oil deposit outside Alaska. With its biggest and most accessible part in Canada, the Bakken could prove to be one of the largest oilfields in the world.

That's a lot of oil and a lot of hype. The title of the article by the way is "A New US oil rush could rock OPEC." The article is worth reading and it's important not to dismiss everything that is said about the Bakken field. But we have here a newspaper in an OPEC country where things are not always what they seem. OPEC countries, ideally, want two things: they want the oil age to last as long as possible and they want high prices as long as possible. The theory is that the more the world switches to alternative energy, the faster the price of oil will drop and the more difficult it will be to fund expensive oil projects. So, it's supposedly in the interest of OPEC to convince their biggest customers (including the U.S. but also countries like China) that the world is still awash in oil. Of course, it isn't. At the very least, the age of cheap oil is largely over.

The implication of much of the hype around Bakken is that it's a game changer that will help take care of America's oil needs for years to come. There are claims that the field holds up to 500 billion barrels of oil. However, even if the figure is accurate (probably not), the only figure that matters is the amount of recoverable oil. So what is recoverable? The USGS puts the amount at 4.3 billion barrels. That's enough to supply the oil needs of the United States for eight months. At the end of the day, that's not much of a game changer.

But let's say the Bakken oilfield is the same size as the greater Prudhoe Bay oilfield in Alaska. As of 2005, Prudhoe Bay had produced some 11 billion barrels of oil. Some estimates put the remaining amount of oil to be produced after 2005 at around 2 billion barrels of oil. That's 13 billion barrels for a field said to contain 25 billion barrels (it's a fact of life that not all oil can be economically recovered).

Production at Prudhoe Bay started in 1977. So it took almost 30 years to reach 11 billion barrels. How can we put that into context? Well, let's look at a graph of U.S. oil production (courtesy of the U.S. Energy Information Administration - EIA - click on it to enlarge):

In 1970, U.S. oil production reached an all-time average high of 9,637,000 barrels per day. In the graph, you can see how U.S. oil production then dips down until 1977, the year Prudhoe Bay started producing. After that, U.S. production began to rise for several years, but production never caught up to 1970. By 1986, even with the help of the production at Prudhoe Bay, U.S. production started dropping again. Ironically, from 1986 to 1998, oil production at Prudhoe Bay continued to grow until it reached 2 million barrels per day. Think of this for a moment: 2 million barrels a day was not enough to reverse declining American oil production.

So what's the oil production in North Dakota? According to this website (and other sources), production in North Dakota has grown, as of June 2010, to 315,282 barrels a day. Production at the Bakken field is expected to grow for some time, but for now 315,282 barrels a day is less than 16% of Prudhoe Bay's maximum production in 1998 and that 2 million barrels a day could not stop declining U.S. production.

Today, the U.S. is producing not 9,637,000 barrels a day, as it did in 1970, but only 5,361,000 barrels a day. That's a considerable drop that has to be made up by imports. Total consumption of crude oil by Americans is somewhere around 15 million barrels a day (total consumption of all petroleum products is around 18-20 million barrels a day, depending on what exactly one is measuring: if this sounds confusing, blame the oil companies and their lobbyists who want as much confusion for consumers as possible so that the reality is not that clear).

Clearly we import far more petroleum than we produce. Clearly, oil production continues to decline. Even if North Dakota and Montana combined were miraculously able to ramp up and produce 4,500,000 barrels of oil a day by the end of twenty years (it takes time to build up production), we would not pass the maximum oil production of 1970. Why? Because in those twenty years, production in older oilfields would still be declining, just as older oilfields were declining during the buildup of Prudhoe Bay's maximum production years.

In the meantime, during those twenty years, the population of the U.S. would also be growing and we would be importing more oil than ever.

One can argue that the Bakken oilfield is, for the most part, if we ignore certain issues, helping the American economy. If the Bakken oil field does nothing more than help sustain the American economy for just a few years more, then the extra time must be used to help transition an economy to something that isn't heavily dependent on oil or other fossil fuels. People will still be drilling oil for some time to come. But oil is no longer the future and no longer enough to sustain our economy.

The oil barons, whether they live in the Middle East, Texas or elsewhere, don't care much about the future or much about the world. They care about grabbing the maximum for themselves. It's no way to run a civilization.

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