In an article published in Bloomberg Businessweek, recently reviewed energy and economic analyses point to a significantly reduced cost to ship petroleum by pipeline rather than by railroad or truck. This is important because those few dollars difference in cost to energy companies directly relates to the opportunities for companies to expand operations and hire individuals from engineers to craft trades to develop the infrastructure necessary to develop North Dakota resources.
According to the article, “[u]nlike Texas, which has pumped oil for more than a century and is home to thousands of miles of pipelines, North Dakota never had a reason to build much energy infrastructure. As oil gushed out of remote areas miles from any town or pipeline, wildcatters, middlemen, and traders raced to get it out by truck, train, and barge. By 2015, 800,000 barrels of crude a day was being railed out of North Dakota. Moving oil by train costs a lot more than pumping it through a pipeline, but when world crude prices hovered around $100 a barrel—as they did for several years—there was enough profit to go around. Now that prices have fallen, those transportation costs have become critical. Refineries on the East Coast, once among the biggest buyers of Bakken crude, have reverted to importing foreign oil rather than paying to ship it halfway across the country.”
Despite the massive production available in North Dakota, the high cost of transportation has actually led some American refiners to import foreign oil, rather than use domestic supplies, because of the economic realities.
The key to closing that cost gap and reducing dependence is to construct the infrastructure necessary to make North Dakota oil economically viable for the long-term future. An important part of that infrastructure investment is the Dakota Access Pipeline.
According to data compiled from Valero and Bloomberg Intelligence, current costs to ship Bakken oil to refineries across the United States by rail can range as high as $10 per barrel – at roughly $50 per barrel, that’s 10% of the total price. The estimated cost of delivery of a barrel moved by the Dakota Access pipeline would fall to about $5 per barrel, creating long-term stability for producers, refiners, and ultimately, consumers.
With the development of the Dakota Access Pipeline, transportation costs would essentially be reduced by half. Imagine if you could shave 5% off the cost of a gallon of gas, and ensure that the gallon of gas wasn’t supporting a foreign government. Not only that, but by reducing the cost of transportation, opportunities for production increase allowing more North Dakotans the opportunity to work. Right now North Dakota’s major oil producing counties support on average approximately 10% of the state workforce, and that’s with only 38 oil and gas rigs operating in November of this year. Compare that to more than 200 rigs back in 2014.
Lean operation has made production more efficient, but reducing costs for producers allows for greater development and greater economic opportunity.