By John Kemp
LONDON Dec 22 The magnitude of North
Dakota's oil revolution is hard for outsiders to grasp.
Superlatives fail to convey the speed and scale of the
transformation and its impact on the economy of the state.
The fracking boom is upending the traditional petroleum
geography of the United States. On current trends, North Dakota
will overtake California as the third-largest oil-producer in
the United States by the end of Q1 2012. Output is likely to
exceed production from Alaska by the end of 2012 or early 2013.
Only Texas will be producing more crude.
Fortunately, the state government publishes a wealth of
statistical information. Cold numbers are the only way to
understand what is really happening on the northern plains.
In October, the state's oil output rose to 488,000 barrels
per day, up by a stunning 9 percent compared with the previous
month (464,000 b/d) and an extraordinary 42 percent compared
with October 2010 (344,000 b/d).
There were 5,942 producing oil wells, according to the Oil
and Gas Division of the North Dakota's Department of Mineral
Resources. The well-count has risen by 863 over the last 12
months and 117 in October alone.
More than 190 rigs and crews are currently drilling for oil,
up from 140 at the same period last year, and 60 in 2009. The
rig count represents almost 10 percent of all drillers and rigs
operating across the United States, according to oilfield
services company Baker Hughes.
The resulting upsurge in production is set to continue into
2012. In the three months between September and November, the
state government issued permits for 543 more wells -- 470 for
development within existing fields and 73 wildcat wells to
explore new areas. The number of new permits was down slightly
compared with 2010, when 633 licences were issued in the same
period, but more than double the number issued in 2009.
There are already nine rail facilities capable of moving
300,000 b/d out of the state but five more are planned and will
take outbound rail capacity to more than 700,000 b/d by the end
of 2012, according to the state pipeline authority. A slew of
new pipelines and expansions are also proposed or underway to
raise export capacity.
The boom wrought by hydraulic fracturing and
horizontal drilling has boosted the state population by more
than 10,000 in the last year, and 50,000 since 2003, taking it
to a record 684,000, surpassing the previous peak in 1930 and
reversing decades of decline, according to U.S. Census Bureau
estimates released on Wednesday.
All those extra people need food, shelter and entertainment.
And drillers and producers need a host of ancillary services.
Taxable sales and purchases within the state shot up almost 40
percent in the twelve months to the third quarter, according to
the state tax commissioner.
The largest increase in both percentage and dollar terms
obviously came from the mining and oil extraction sector. But
taxable sales and purchases also surged by 67 percent in
finance, insurance, leasing and real estate; 40 percent in
construction; 17 percent in retail; and 16 percent in
accommodation and food services.
The state budget is projected to be in a surplus of more
than $300 million over the two-year cycle ending in June 2013,
up from the previous estimate of just $51 million made in
February. Tax revenues are soaring faster than expected on
everything from motor vehicle excise (up 100 percent compared
the previous two-year period), to cigarettes (up 13 percent) and
liquor (up 9 percent).
As the rest of the country's homebuilding sector languishes,
more than 2,300 new housing units are under construction in the
city of Dickinson and 1,750 in Williston, both on the western
edge of the state where drilling activity is concentrated,
according to the state's commerce department.
While the number of new house building permits issued across
the United States has halved compared with 2007, construction
permits issued in North Dakota are up 50 percent. The state
issued more than 4,000 new housing permits in the first ten
months of the year, compared with 3,000 over the same period in
2010 and 2,800 in 2006-2009.
The state unemployment rate is just 2.9 percent, compared
with 8.6 percent nationwide, which effectively means that there
is more than full-employment (assuming some level of frictional
unemployment due to turnover). In the counties on the western
side of the state overlying the Bakken formation, unemployment
rates are less than 2 percent, and labour shortages are acute.
Total employment has increased by 17,400 positions over the
last twelve months, led by increases in mining and minerals
(+4,900), construction (+3,800), professional and business
services (+2,600), transportation, warehousing and utilities
(+2,100), and retailing (+2,000).
The state employment service reports there were more than
18,500 job vacancies open in October, up 6 percent from
September and 60 percent from the same month a year earlier.
There are twice as many job openings in the state as unemployed
residents looking for work.
The rapid expansion of the oilfields has put tremendous
stress on local infrastructure, with the most frequent
complaints about the burden on emergency services, public
infrastructure for housing construction, and heavy trucking
traffic through cities and along oil country roads, according to
the governor's office.
The state government has appropriated $1.2 billion for road
repairs and construction in oil country and to address other oil
But the fracking revolution has also made North Dakota the
fastest-growing state in the union, and pushed its median income
above the national average for the first time in decades. State
GDP grew 7.1 percent in 2010, according to the U.S. Bureau of
Economic Analysis, almost three times the nationwide average.
In 2010, the state ranked 19th nationwide in terms of median
income, up from 40th in 2000 and 38th in 1990. No other state
has seen such a dramatic improvement (or fall) in its ranking
over the last 10 or 20 years.
Fracking and horizontal drilling have already transformed
the North American natural gas market, turning it from a
projected deficit into a huge surplus, in just five years. The
same technologies are well on the way to transforming the U.S.
oil balance, contributing the first increase in domestic output
since the mid-1980s.
However, the impact on North Dakota's economy has been even
more momentous. For good or ill, fracking has the potential to
transform other states, and the political and economic
consequences of the new technology are starting to ripple
Fracking and North Dakota's resulting economic revolution
will force politicians across the United States to decide what
sort of energy system, and economy, they want in future.