Over the past several years, the state of North Dakota has become synonymous with the phrase “oil boom.” After producing over 174 million barrels of oil from January through September 2012, North Dakota passed Alaska as the second highest oil producing state in the nation, trailing only Texas. The Department of Natural Resources estimates that oil production could top 1.2 million barrels per day by the end of 2014 or early 2015.
74% of North Dakota oil is currently gathered by truck, with 26% leaving the area by pipeline. This high volume has begun to wreak havoc on roads within the oil patch; a situation many believe can be rectified with the inclusion of increased pipelines across the state. Companies like Enbridge, a Canadian based oil transporter, would like to be a part of that solution.
Enbridge has had operations in North Dakota for over sixty years. According to the company’s website, by early 2013, it will have invested more than $1 billion in infrastructure to serve North Dakota oil production. Enbridge’s current transportation capacity within the state is 275,000 barrels per day. By the first quarter of 2013, the company hopes to expand that production to 425,000 per day. This goal is based on the successful completion of an expansion program into the Bakken Formation in western North Dakota.
The Sandpiper Pipeline and Bakken Extension Project are two proposed Enbridge projects that would increase the amount of oil that can be exported per day out of North Dakota oilfields. The 500-mile Sandpiper Pipeline, which could be in service as early as 2016, is a $2.5 billion expansion from the Beaver Lodge Area south of Tioga, North Dakota to the main Enbridge terminal in Superior, Wisconsin. It would enable Enbridge to move 225,000 barrels of oil a day to eastern markets and would replace long haul truck traffic by 2,000 trucks per day. The pipeline would lead to an expansion of the state’s export capacity and increased market opportunities. In addition, the decrease in truck traffic would slow down the deterioration of local and state transportation infrastructure.
An area of concern for any proposed project is cost. Enbridge is in the process of finalizing its tolls and tariffs policy for the Sandpiper Pipeline. According to the company, Enbridge is proposing to recover its project costs through a surcharge on all barrels transported through the pipeline. This policy would avoid any dependence on upfront financing.
The Oil and Gas Industry currently pays a 5% gross production tax to the state of North Dakota in lieu of property taxes. In September, the state was projected to have a nearly $1.6 billion surplus when the current biennium ends in June 30. A good portion of this money will need to be spent strengthening the state’s infrastructure, much of which has taken a direct hit since the emergence of the oil boom. Western North Dakota has experienced an influx of oil workers that has resulted in a myriad of logistical issues. According to the U.S. Census Department, North Dakota’s population grew 2.2% to 699,628 in the year ending July 1. By increasing oil exports through the utilization of additional pipelines, the state will proportionately increase profits and the availability of financial resources to address internal issues.
Like many aspects of the oil industry, the safety of pipelines is not without debate. Enbridge itself has been at the center of controversy as recently as July of 2010, when a segment of a pipeline in Marshall, Michigan ruptured in a tributary of the Kalamazoo River. The spill resulted in $800 gallons of crude oil flowing into the water and resulted in a $3.7 million fine for the company. Proponents of pipelines, however, are quick to point out the benefits of pipelines versus other transportation methods.
The utilization of pipelines is largely considered cheaper and easier than transportation via truck or railway. The use of railway in North Dakota has increased from 10,000 cars a year ago to over 200,000 in 2012. Many of these cars travel via the Bakken Oil Express, a complex of four long loops of track that serves 100-car trains of more than a mile in length. According to company officials, Burlington Northern Santa Fe has seen oil shipments soar 7,000% to 88.9 million barrels over the past five years. Supporters of increased pipeline use point to the fact that pipelines can be built to avoid population centers and fragile ecosystems. Railroads, on the other hand, frequently travel through the heart of metropolitan areas. Railroad executives point out, however, that a spill via rail car would be minor compared to that of a pipeline.
The increase in oil production in western North Dakota has brought an unprecedented increase in revenue to the state. With such prosperity, however, often come unexpected issues, one of which is the transportation of oil. Truck and rail travel has exploded within the oil patch, as has infrastructure damage. North Dakota’s 2011-2013 executive budget proposal plans to spend a total of $371 million from the Permanent Oil Tax Trust Fund for state, county, and township road construction and maintenance in seventeen oil-producing counties. Pipeline companies like Enbridge believe that increasing the use of pipelines will alleviate such strain and provide a cheap, easy, and safe way for the state to export its oil and maximize profit margins.
Big Oil brings
Big Headaches