Bloomberg: Pipelines Help Keep U.S. Oil Competitive

Graph courtesy of Bloomberg


Consumers around the world are currently being subject to what has been called an “oil price war”, with certain countries artificially keeping petroleum prices low in order to force American energy off the market, going so far as to lose money themselves. This shows how seriously America is being taken as an energy player and the lengths that other producers will go to maintain the status quo. The goal that is American energy independence will truly be a transformative event, and nowhere will that be more apparent than in the Midwest.

Despite the slump in prices, the Bakken oil patch has done well. While production is down slightly, the boom and bust cycle of the past is unlikely to repeat itself and the situation has been described by one observer as changing from “white hot to merely red hot.” However, there are many actions we can take to make that outlook even better.

Bloomberg recently published an article looking at the Permian shale region in Texas, observing that it is currently the only oil producing region in the country that has increased its output. The answer as to why that is happening is quite simple. According to John Auers, a vice president at an energy consulting firm, the region’s well-developed pipeline infrastructure has kept transportation costs low, and has made Permian shale oil more competitive, even in a low-price environment. According to Auers:

Putting in those pipelines and connecting the Permian to the Gulf directly allowed that premium to develop. When you talk about these price levels, $5 to $10 is the difference between putting rigs back to work or shutting down.

North Dakota and the surrounding areas are currently dependent on crude by rail shipments (CBR) for between 50 to 70% of its monthly output, which can tack on extra charges for transportation and can cost billions of dollars every year (and hurting our farmers as well). In times when other countries are gaming the markets, the difference between pipelines and CBR can mean everything. North Dakota and the region have benefited enormously from the energy revolution which has created well-paying jobs, and new sources of revenue to invest into cities and communities. A state of the art energy infrastructure is needed in our region to keep the Midwest competitive and ensure that the boom and bust cycles that have defined the past are not repeated again.