North Dakota Oil: Reality Beginning to Settle In?

Just one of the many things that gives tea party Republicans away is their smugness over North Dakota's considerable oil play. The tea party people seem to believe that North Dakota proves some point that puts Democrats at a disadvantage. That's curious, because I cheer the fact that the extra oil helps our economy. In fact, it might help us switch to alternative energy a little sooner. Switching to alternative energy is expensive but necessary. The fortunate side effect of alternative energy is that it will create a considerable number of new jobs. And in the meantime, buying less oil from other countries because of North Dakota can help our economy and make it easier to pay for new energy projects, ones that will be sustainable and that won't fuel global warming. Of course, as recent events have shown, tea party Republicans are not rational.

If a majority of today's Republican politicians were rational instead of off in never never land trying to recreate the 1920s, they would agree that we face major issues.

They would agree that the first priority of Americans in 2011 is the creation of new jobs. They would also agree that global warming and the depletion of fossil fuels are also major issues that cannot be ignored.

They would not fantasize, as some business people do, that someone will invent the way out of our problems at any moment using a trickle of narrowly focused corporate research dollars (the situation is so bad that in the last six years, scam artists have played on such beliefs with gullible business investors willing to put their money in new types of energy projects, except the schemes turn out to be bogus or produce only a very small amount of energy gain).

A Republican Party controlled by rational pragmatists would see that major research dollars are needed for our society to move forward. They would see that we are running out of time to make a difference. We need major, intensive research now to dig our way out of our problems. Rational Republicans, if there were enough around, would be joining with Democrats to find a way to fund those research dollars in today's troubled economy. They would know that delay is not an option, for things can only get worse if we wait.

Rational Republicans would see the oil play in North Dakota as a bit of luck that is buying us time (and jobs to boot) to get our act together. They would not fantasize as so many radical Republicans do that global warming is somehow a left wing conspiracy and that the oil and gas projects around the country are going to save our energy future.

Democrats like me have no serious problem with the North Dakota oil play. I admit I'm unhappy with the problems associated with fracking but 80% of all energy technologies in use today are problematic. That's an additional reason we need a major research initiative in this country. But we need to be able to fund that initiative while there is still time. I'm a realist about North Dakota and the other oil and gas plays. These projects are not a game changer as some conservatives so desperately want to believe (they would object to the word 'desperately,' but they have little idea just how much in denial they have become). But as we transition to alternative energy, I would far rather see gas and oil burned than coal. Nearly everything we burn produces CO2, but no fossil fuel produces as much carbon dioxide than coal. Coal is the planet killer. Make no mistake, every green energy project is a step in the right direction, and the faster we can transition, the better. But I'm a realist, as I said. It is going to take time.

U.S. oil production is way off from what it was back in the 1970s. We were fortunate, in a way, that we had oil from the North Slope of Alaska to mitigate the fall in US oil production. There was even a brief upward blip from that production, though we came nowhere close to the maximum production we reached in the early 1970s. Since the North Slope reached its maximum production in the late 1980s, total American oil production has continued to decline in most years. The maximum production of oil in Alaska was 2.2 million barrels a day.

In North Dakota, using the new fracking method, oil production has been increasing dramatically since early 2008. Despite the good news, there's a small problem: production may be on the edge of leveling off. We don't know yet. In May, 2009, oil wells in North Dakota produced 205,995 barrels of oil per day. By May, 2010, the number of barrels produced per day increased to 298,975 barrels of oil, an increase of 93,000 barrels. Oil production has continued to rise. In May, 2011, 361,438 barrels a day were produced. Not bad, though nowhere close to the North Slope. Some argue that production will continue to rise. No doubt it will, but it will not surpass or even approach the maximum production from the North Slope. Unfortunately, there's that worrisome difference to note from the figures above: the increase in May production from 2010 to 2011 was only 63,000 barrels a day.

All along, there has been strong suggestive evidence all along that North Dakota is not going to be a replay of Alaskan oil. It's a help, but already the falling increase suggests a leveling off of oil production. It's entirely feasible that oil production will be much greater next year, but the production of individual oil wells in North Dakota tend to fall off rapidly after the first year. The long-term prospects are not good, though the Bakken oilfield in North Dakota will remain an important source of oil for some time to come.

Again, North Dakota is a good oil play (though admittedly, the fracking problems are unsettling). But all the Bakken oilfield can do is buy us time. We need to use that time wisely. Instead, we have watched tea party Republicans waste an entire year that should have been spent creating jobs instead of destroying them. We need to create jobs where they matter most: alternative energy projects, major research projects to deal with global warming and energy issues, and modestly increasing the number of teachers instead of firing them. We need an educated and creative population, not a road map to third world status courtesy of tea party Tories.



S & P Rating Games: A Quick Mention

Let's just say I'm very skeptical about the S & P downgrading of US debt, particularly after the fiasco by the tea party Republicans where they got more than any other debt conscious group of politicians in history. Both Moody's and the S & P lost considerable credibility during the financial meltdown in 2008. Both rating firms were giving high ratings to banks and Wall Street firms that not only contributed to the financial meltldown but that were, in many cases, the explicit and gloriously crooked cause of it. When such institutions do not have the money to pay off on bad loans, why should they have such high ratings? Was the 2008 election part of the reason for the high ratings? I don't know.

It is a historical fact that in June of 2007, a frigid wind of reality blew through the banks of the world. Everybody in the financial sector knows what happened. Everybody discovered in that month that the complex diced and packaged financial instruments they were holding were probably worthless (banking executives should have known earlier but they were too busy counting their fat commissions and fat salaries to take the trouble to understand the financial fraud they were a part of; actually Moody's and the S & P should have known earlier). And yet, despite the discoveries, despite the enormous shudder that went through all the markets, the high ratings continued for more than a year. Are we seeing a replay of recklessness? And why now? Why the downgrading after rather than before the vote? I don't know. We'll see. But I remain skeptical.

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.