From The Bismarck Tribune, Bakken Breakout
[An interesting analysis of the future of Bakken crude extraction from the perspective of an apparent oil industry advocate.  They’re listening!  – RS]

Getting it right

By Brian Kroshus, Publisher, September 17, 2014

Domestic oil production levels in the United States continue to rise – largely the result of the boom in shale oil drilling across the country. Notable plays like the Bakken shale in North Dakota and Permian and Eagle Ford shale in Texas, have been leading the way with more promising formations in different geographies, targeted for exploration and drilling in the years ahead.

Plays like the Bakken, Permian and Eagle Ford were actually in decline until only recently, having peaked decades ago when conventional, vertical wells were the only economically viable means of extracting crude. Now, those same plays are part of a drilling renaissance in key parts of the country. Geologists have known for years that more oil was present, trapped in source stone within the formations, but developing technology to profitably extract shale oil hasn’t come easy.

Today, oil production in the United States is surging thanks to advances in horizontal drilling and hydraulic fracturing techniques. Drillers are not only better understanding the geology of shale formations, but technology necessary to economically drill and produce oil. Increasingly, they’re becoming more efficient. Still, only a small percentage resource is making its way to the surface presently. Undoubtedly, more will continue to be learned in the years ahead, ultimately leading to higher extraction percentage and proven reserves.

From an energy independence standpoint, the outlook for the United States is certainly promising. In October 2013, for the first time in nearly two decades, the United States produced more oil than it imported. Predictably, while there are those including the current administration attempting to take partial credit, rising output has been the result of drilling on state and private lands. On federal lands, production has actually declined during Pres. Barack Obama’s time in office according to the American Petroleum Institute.

Despite declines on federal ground, experts still predict that the United States could be fully energy independent by the end of this decade. According the EIA, U.S. oil production will rise to 11.6 million barrels per day in 2020, from 9.2 million in 2012, overtaking Saudi Arabia and Russia and becoming the world’s largest oil producer. Over the same period, Saudi Arabia production levels are expected to decline from 11.7 million barrels to 10.6 million. Russia will also product less oil, falling from 10.7 million to 10.4 million barrels per day.

With a shale revolution and energy renaissance underway in the United States, there’s reason to be optimistic. Achieving energy independence appears to be within our grasp. Still, despite the prospect of becoming an energy independent nation, potential roadblocks loom.

In May, at the 2014 Williston Basin Petroleum Conference, Harold Hamm, CEO of Continental Resources told convention attendees that “we can’t have any more issues.” He also said “It has to be done in an absolute, safe manner. It’s going to take all of us.” He was referring to recent problems related to Bakken crude including pipeline ruptures and the fiery train derailment near Casselton, North Dakota this past December.

There’s a lot at stake. Companies like Continental Resources and others, are expected to invest billions in the years ahead to fully develop plays like the Bakken. Drillers are keenly aware that it’s their game to lose. Hamm stressed, “If we have anything, they’re going to shut us down. So many people want to stop fossil fuel use and production.”

Despite the positive macroeconomic effects rising domestic oil production and decreased imports have on the U.S. economy, job creation and economic growth alone won’t guarantee that shale oil production will continue, unless it is deemed safe and not a threat to public safety during transportation of Bakken crude in particular.

Volatility levels of Bakken crude and implication on public safety, continues to be heavily debated. The Lac-Megantic, Quebec, rail tragedy, where 47 people lost their lives when a runaway train carrying tanker cars filled with Bakken formation crude, derailed and exploded in the heart of town has been at the center of that debate. The explosions were so intense, that approximately one-half of the downtown area was destroyed.

Understandably, safely transporting Bakken crude by rail throughout North America, knowing freight rail routes frequently pass through residential areas on their way to final destinations, is a top industry priority. Much of the focus has been and remains on the DOT-111 tank car. On July 23 the U.S. Department of Transportation announced comprehensive proposed rulemaking for the safe transportation of crude oil and flammable materials, with Bakken crude being mentioned – in the form of a Notice of Proposed Rulemaking (NPRM) and a companion Advanced Notice of Proposed Rulemaking (ANPRM).

The NPRM language includes “enhanced tank car standards, a classification and testing program for mined gases and liquids and new operational requirements for high-hazard flammable trains that includes braking controls and speed restrictions.” Within two years, it proposes to “phase out of the older DOT-111 tank cars for the shipment of flammable liquids including Bakken crude oil, unless the tank cars are retrofitted to comply with new tank car design standards.” It also seeks “Better classification and characterization of mined gases and liquids.”

The North Dakota Public Service Commission has set a special hearing for September 23rd, as a part of the discussion on the volatility of Bakken crude and potential oil conditioning requirements necessary to safely transport oil from the Williston Basin. Reducing the light hydrocarbons present in Bakken crude would not only provide greater safety, but the standardization of Bakken crude into a class of oil much like West Texas Intermediate, possibly creating premium pricing opportunities.

NDPSC involvement and recommendations in addition to oil conditioning include heightened rail inspection efforts at the state level in addition to the Federal Pipeline and Hazardous Materials Administration, and emergency response training. Working closely with federal officials and a heightened inspection process, will require additional resources moving forward.

Expanding pipeline capacity and reducing reliance on rail to transport Bakken crude will continue to be a growing need, playing a role in addressing public safety concerns. The North Dakota pipeline authority anticipates two new pipelines coming online before the end of 2016, with capacity for 545,000 barrels a day. Another third proposed pipeline, capable of handling an additional 200,000 barrels, could potentially be in operation by late 2016 or early 2017.

With daily production expected to reach 1.5 million barrels in 2017, and 1.7 million barrels in early 2020, diversifying how Bakken crude is moved to market will be necessary not only from a public safety standpoint, but in order to address logistically challenges that continue to surface as production levels increase.

Extracting domestic oil and gas, moving it to market and properly disposing of or using byproducts created during the production process in a safe and efficient manner will be necessary in order for plays like the Bakken to be fully capitalized on. Those opposed to fossil fuel production will continue to watch and patiently wait for any opportunity to pressure elected officials and sway public opinion.

Ensuring both public and environmental safety to ensure the future of domestic oil production – will require a cooperative effort on the part of both industry and the state. As Harold Hamm alludes to, it truly is industries game to lose.