By John Kemp
LONDON Nov 1 If North Dakota's oil industry is
helping transform North American and global energy markets, then
oil is having just as big an impact on the state itself.
But the extent of the state's success poses awkward
questions for political leaders in Washington and the rest of
North Dakota has seen the fastest income growth of any state
over the past five years, and almost all the gains are due to
the boom sparked by drilling into the Bakken shale. Only the
District of Columbia -- dominated by government, contracting and
lobbying jobs -- has seen incomes rise more dramatically,
according to the U.S. Census Bureau.
North Dakota's median real income has risen over $4,250 per
household (9 percent) since 2005, according to Census data,
compared with a decline of almost $2,300 (4 percent) for the
country as whole.
While income stagnates or falls across much of the United
States, North Dakota's is being propelled higher by royalties
and fees from oil and gas leases, well-paid jobs in exploration
and production, and all the services needed to cater for an
influx of drillers from out of state (everything from food and
lodging to entertainment).
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
The state also benefits from the farming boom triggered by
the ethanol mandate and increases in world food consumption. But
the surge in median incomes between 2007 and 2010 leaves little
doubt that the massive increase in oil drilling has been
primarily responsible for its dramatic prosperity.
The state's 3.5 unemployment rate is the lowest in the
union, according to an analysis published in the Financial
Times, far below the nationwide average of 9.1 percent
("American oil independence: the pendulum swings", Nov 1).
There are reported shortages of drivers to move both
equipment and tankers from well heads and gathering stations to
the pipeline network . While the country suffers,
North Dakota is unquestionably booming.
BOUNTIFUL ENERGY SUPPLY IN REACH
But North Dakota's boom poses increasingly awkward questions
for policymakers at both state and federal levels.
The twin technologies of hydraulic fracturing and horizontal
drilling pioneered in the state to extract oil from previously
inaccessible "tight" rock formations, and which were earlier
used to prize natural gas from Texas' Barnett shale, could be
widely applicable to rock formations in other areas of the
North Dakota's boom has contributed to the first upturn in
U.S. oil output since the mid 1980s. If the same technologies
were widely employed, rising domestic production could
significantly lessen the country's dependence on imports. The
fear of physical shortages would ease, even if the economy was
still be exposed to price shocks since international oil and
products markets are integrated.
Crucially, rising domestic oil production would improve the
balance of payments position. Net oil and product imports ($265
billion) accounted for more than a third of the U.S. trade
deficit in 2010 ($645 billion), according to customs data.
Reducing the need to import foreign crude is probably the
easiest way for the U.S. to cut its trade deficit on a sustained
NEGATIVE ENVIRONMENTAL IMPACT
But there are problems. Production from tight formations is
by its nature an extensive rather than intensive form of oil
output, relying on a large number of wells to maximise contact
with the reservoir rocks, rather than a few traditional gushers.
The surface environmental footprint is therefore large.
While drilling has been broadly welcomed in traditional
mining and energy-producing states like North Dakota and Texas
for the economic benefits, the issue is far more divisive in the
more built up areas and diversified economies of the north-east,
which overlay formations like the Marcellus and Utica shales.
The development of tight oil and gas fields has been plagued
by concern about ground water contamination, the chemical
composition of fracking fluids and proppants, as well as the
impact of hydrocarbon leases on real estate values and
mortgages, and the impact of surface facilities and heavy
traffic movements on quality of life.
Some of those may be presentation problems. It is not
obvious hydraulic fracturing is more damaging for the
environment than other extractive process. As Shell Chief
Executive Peter Voser admitted in September, the industry has
not always embraced openness about its operations. It may need
to be more transparent in future to reassure important
stakeholders and obtain a political "licence to operate".
AN ENERGY REVOLUTION -- BUT WHICH ONE?
The bigger political problem is the challenge that more
plentiful oil and gas supplies would pose to the clean energy
agenda strongly promoted by environmental lobbying groups, clean
technology companies, as well as parts of the Obama
administration and the congressional Democratic Party.
In theory, increasing domestic oil and gas supplies can be
seen as complementary to the roll out of zero emission forms of
energy (wind, solar, nuclear) and efforts to cut consumption by
improving efficiency (fuel economy standards, product and
Rising demand for energy domestically and worldwide arguably
means all these forms of technology will be needed just to
supply increasing consumption let alone stem the rise in
greenhouse gas emissions in the coming decades.
But many lobbyists see hydraulic fracturing and other
technologies to boost domestic oil output such as deepwater
drilling as a mortal threat to the clean energy agenda.
They fear rising oil production would relieve upward
pressure on prices and remove the threat of energy insecurity.
In turn it would undercut economic incentives and the political
momentum to undertake the expensive investments needed to switch
to a cleaner energy system.
The National Resources Defense Council (NDRC), one of the
most prominent groups lobbying on behalf of the environment in
the United States, has launched a high-profile campaign to block
regulatory approval of the Keystone XL pipeline that would take
crude oil from the midcontinent around Cushing (Oklahoma) to the
major refining centres along the U.S. Gulf Coast.
In one blog post, NRDC argued "Keystone XL is at odds with
millions of clean energy jobs" ().
The blog takes aim at the "Canadian tar sands lobby" in a
political appeal to nativism. The pipeline extension could just
as easily carry high quality light crudes from tight rock
formations in North Dakota.
Many of the employment statistics it cites are implausible
to anyone familiar with payroll numbers published by the
official Bureau of Labor Statistics.
But the NRDC sees the extension as a threat because any
project which boosts oil and gas output would undercut clean
technology industries, in its view.
"Building Keystone XL will entrench interests that oppose
policies that would create millions of jobs for Americans in the
clean energy sector," says NRDC.
Intense lobbying is underway to block Keystone XL in
Washington as well as in state legislatures like Nebraska
. Similar lobbying will be deployed
in a bid to defeat field development and other pipeline
It is far from clear how the debate will play out. The oil
reserves and the technology needed to extract them are there,
but whether the oil stays in the ground or is brought to the
surface and used is essentially a political decision.
In a Manichean struggle, leaders in Washington and state
capitals across the United States are being pressed to decide
between embracing the job and income gains that come with
drilling, or restrict them and focus on clean technology
investments and employment instead.