North Dakota oil? It’s for real

BY MORRIS R. BESCHLOSS

PVF and economic analyst

Who would have thought of North Dakota as a major oil source? And it’s the kind of light sweet crude American refiners crave. Although ‘stripper wells’ have existed in several parts of the country for many decades, most of them have ceased being productive. But the North Dakota find has become viable as present price levels have opened up new areas of opportunity, even for small scale operations.

The oil comes from a vast blanket of rock called the Bakken Belt shale that stretches from Montana to Saskatchewan. Oil was found there as early as 1951, but the cost of extraction was too high, with prices in the low double digits, or even lower at times. Also, production methods were relatively archaic, with major oil fields still producing voluminously in Texas and Oklahoma at that time.

Now with oil exceeding $105 a barrel and possibly moving higher again, explorers are rushing in, and oil is starting to flow. And several substantial exploration companies are already cashing in with ever increasing quantities.

The Bakken has now ceased being an undiscovered area. Companies operating in the Bakken are eog Resources, Continental Resources, Whiting Petroleum and Brigham Petroleum. These span the market spectrum from big, medium to small. This has caused the local press to already fret about how an oil boom will change the rustic Dakotan atmosphere, with oil sucking up all the local labor. Even the local fast-food restaurants are offering ‘signing bonuses.’ A similar phenomenon took place in the Athabasca region of Canada’s Alberta Province, when the oil sands conversion took off early in this decade.

Despite the oil stock market spurt already in motion, further upside action is expected in the longer term. North Dakota is producing oil at a rate not previously contemplated. Already, the eighth most productive oil state in the U.S., the actively involved companies are nudging up production growth in the area of 33% per annum or more. Companies active in the area anticipate growing activity during the length of the Belt, barring objections by the state or local cities. The advantage of proceeding in this area is the low population density and the relatively low emissions generated by this process.

Although there is no guarantee that the current price for oil per barrel will continue its steady climb, America’s critical need for domestically-produced energy will assure that North Dakota’s production will be treated like a national preserve. With Alaska’s oil production lagging and only the Gulf of Mexico’s oil generating significant production, the Bakken Belt and Rocky Mountain oil shale my prove to be the only reliable future source for oil conversion in the lower 48 states.

The current operating companies have only begun tapping the Bakken inventory at this time. If prices go even higher in the future, as I expect they will, the whole “Bakken Belt” could come alive as a major source of drilling activity, commensurate with the underlying price increases. If such were the case, the huge Rocky Mountain oil reserves could add substantially to U.S.-based oil conversion activities. But it will take opening of Alaska’s Wild Life Reserve and drilling along the Florida and California coasts to make a serious difference.

America’s unlimited supply of coal could make an even more dramatic difference, if we could utilize the synthetic gasoline conversion process that was so successful in keeping Germany in the war throughout 1944 and early 1945.

It also proved to be South Africa’s sole gasoline supply provider during the Arab boycott of 1973-74. Sasol is the largest of the world’s synthetic gasoline process providers.

However, with the “green” lobbies setting up insurmountable obstacles at this time, it will take unshakable presidential leadership in the future to make this renewed energy source viable.

Energy Bill II yields bitter fruit

The bitter fruits of Energy Bill II are just beginning to make themselves felt. If you thought the biofuels-sponsored first bill was bad, the followup legislation signed into law late in December, 2007 only compounded the felony. Even as Congress and the President grappled with the son of Energy I, the evidence was already beginning to indicate that ethanol actually used more energy than the process produced.

Also, the growing ethanol movement has shifted millions of acres that previously grew wheat, rice, soybeans, and sorghum to corn. This has caused prices of such staples to rise by double digits, in most cases. Preliminary evidence also indicates that in some of the nation’s farm areas, the water tables are dropping to dangerous levels, threatening dust bowls that haven’t been seen since the early and mid-1930s, causing major population displacement.

In previous columns, I’ve also warned about food shortages all over the world due to confiscatory prices and lag of food availability from the world’s No. 1 food basket, the U.S. While making practically no dent in the energy shortage, both energy bills have gone a long way to deprive America’s huge agricultural exports of the tens of billions of revenues that farm goods provided the U.S. export sector.

The United Nation’s food program has already complained of a $35-billion shortage to purchase global food supplies for the fiscal year ending July 1. The U.N. warned that such widespread shortages could cause famines in many parts of the world.

Now we’re finding out that imports of oil converted from Canadian tar sands may be endangered. These account for 350,000 barrels of oil per day, scheduled to grow to 500,000 in the not too distant future. But according to the stricter greenhouse gas emissions embedded in last December’s Energy Bill II, oil made from tar sands may not meet the required standards.

The Canadian government has threatened to cut off further shipments unless they get a clean bill of health from the U.S. government, so as not to be caught in a tangled web that might cause one of Canada’s largest exports to be ensnared in a legal standoff, after the fact.

With worldwide demand providing the Canadian producers with ready made markets, the Canadians could easily ship their oil sand-converted shipments to China, India, South East Asia, or any number of emerging nations desperate for additional supplies.

In the meantime, Canada has upped its potential oil sand reserves to as high as 175 billion barrels, second only to Saudi Arabia’s claimed 266 billion barrels. But the latter is suspect, since the Saudis have been exporting an average nine million barrels a day for years, while not making any substantial new finds. According to one renowned geologist, the Saudis have allowed no inspection of their five giant oil fields, which are generating the lion’s share of the world’s largest exporter, while not making any new significant finds. Rumors abound that two are leaking water, reaching the end of their productive life.

With such negative consequences emanating from the joint Congress/ Administration boondoggle, the combined bitter fruit of incompetent energy planning, and agricultural desolation are only beginning to reap their bitter harvest at this time.

Morris R. Beschloss, a 51-year veteran of the pipe, valve and fitting industry, is PVF and economic analyst for The Wholesaler.