The summer driving season is underway, and it is an election
year, so we can expect gasoline and oil prices to garner (even) more attention
than usual. (And expect more griping too!) It’s early in the driving season,
so instead of reminding you that you just spent $85 filling your Chevy
Suburban, I decided to kick off the season with some encouraging news. First,
gas prices are going down.
Secondly, a greater portion of our petroleum expenditures are staying within
our borders because domestic oil production is on the rise, especially in North
Dakota.
The changing dynamics of America's oil supply is quite surprising because of the scale and speed at which the change is occurring. (The Washington Post had a good article about the subject this past weekend). In just a few years, the US went from seemingly being held captive by
OPEC nations, to diversifying suppliers and increasing domestic production. We
went from importing 60% of our liquid fuels in 2005 to 45% last year. US crude oil
imports from OPEC nations dropped nearly 23% between 2008 and 2011.[1] And, as noted in the Washington Post article, North Dakota went from producing just a few thousand
barrels of oil per day a decade ago to nearly half a million barrels today.
The growth in North Dakota production is astonishing. According to the
Energy Information Administration (EIA), North Dakota produced about 153
million barrels of crude oil in 2011.[2] Crude oil production in the Peace Garden
State increased 144% between 2008 and 2011.
Only Texas, Federal Offshore developments, Alaska, and California
produced more crude oil in 2011. North
Dakota, however, is about to supplant Alaska and California any day now (see graph below).
The Bakken Shale formation is fueling North Dakota’s (and the country’s) oil production boom. High oil prices and the development of new drilling
technologies is causing drillers to increase exploration, and allowing the extraction
of oil from geologic formations - like the Bakken - once thought of as technically
infeasible.
The Bakken is in northwest North Dakota and extends into
Montana and Canada. Drilling in the Bakken began in 1953, but it took over 35
years before 100 wells were producing simultaneously. At that time in 1989, the
average well produced 44 barrels of oil a day, resulting in monthly production
of about 142,000 barrels. From there, daily
productivity steadily declined to a low of 8 barrels of oil per well in 2004. [3]
Then the boom began.
Since 2005, Bakken oil production has increased 24896%,[4]
and now makes up about 89% of North Dakota’s oil production.[5] Between
March 2011 and March 2012, the number of active oil wells in the Bakken
increased 62% to 3672, and the average well produces 139 barrels of oil per
day. [6]
A record number of oil rigs - 214 - are
currently exploring and creating new wells.[7] North Dakota’s 2012 oil production is on pace
to reach 192 million barrels, which is roughly equivalent to 12.5% of our 2011
crude oil imports from OPEC nations.[8]
The development of the Bakken is good news for the economy. North
Dakota’s unemployment rate is currently 3%, which is lowest in the country, and
much less than the national average of 8.1%. Plotting oil production jobs (classified as mining and logging) in North Dakota shows a trajectory similar to the state's oil production. (See graph below).
The growth in the Bakken and other domestic reserves is also good for our balance of
trade and energy security. (And it scares other countries too). However, higher domestic production does not completely
insulate us from future oil shocks because oil is priced on the global
market.
There are also concerns about environmental impacts associated oil drilling and
consumption. Unfortunately, our economy is heavily dependent on petroleum, and
alternatives have yet to displace a significant portion of our oil demands. It
is important for oil producers to act in the safest and most environmentally
responsible manner possible. Otherwise the economic and environmental costs can be devastating (just ask BP and the Gulf Coast). It is
imperative that oil production (and energy policy in general) strikes a proper
balance between economic, environmental, and national security considerations.
The good news is we're on the right track: we are producing more oil, importing less, and, using less of it.
The good news is we're on the right track: we are producing more oil, importing less, and, using less of it.
[3] Statistics
for this paragraph from: https://www.dmr.nd.gov/oilgas/stats/historicalbakkenoilstats.pdf
[4] Ibid.
[6] Statistics
for this paragraph from: https://www.dmr.nd.gov/oilgas/stats/historicalbakkenoilstats.pdf
