Posted on 04/14/2012 4:26:28 AM PDT by thackney
In the process of putting together the first edition of Petroleum News Bakken, we decided a geology lesson was needed.
Welcome to Petroleum News Bakken. I hope you like our first edition well enough to check in twice a month — first and third weeks.
Our editor, Ray Tyson, and I were born and raised in the Midwest; Ray in South Dakota, where he returned to live and work several years ago, and me in Minnesota.
But nothing prepared us for the shock of the oil boom in nearby states and provinces.
I’m staying in Alaska, focusing on the industry here, but Ray is building a news staff in the Williston basin, so if you’re an experienced reporter or retired geologist who prefers to work in cyberspace rather than report to an office, we may be the publication for you.
Bakken oil not produced directly from shale
Three things fascinated me as I worked on this first edition of Petroleum News Bakken. The first was the fact that Bakken oil and gas is not produced from shale, the primary source rock for hydrocarbons. Rather, it comes from a dolomitic sandstone reservoir sandwiched between the Bakken shale that generated the oil, which, in turn, escaped into that reservoir. That’s where the drill bit goes; that’s where the oil is produced from. It’s called the Middle Bakken, but it’s not shale.
Tyson tells me it doesn’t matter. After all, the hydrocarbons initially come from the shale source rock.
Yeah, well, so does the oil in Alaska’s Prudhoe Bay field. But we don’t call Prudhoe a shale play.
(Admittedly, the Prudhoe reservoir is not sandwiched between its source rocks.)
Even more peculiar is the adjacent slide from one of Lynn Helm’s recent presentations. Note points 3 and 4. When Helms, the director of North Dakota’s Department of Minerals, was showing this slide to state legislators, he said, “I think it’s important to note that our geologists at the survey (North Dakota Geological Survey) have developed four or five critical elements it takes to generate a resource play. … We have them in two plays in North Dakota … the Bakken and the Three Forks.”
Reading points 3 and 4 of what constitutes a resource play — “Expulsion of hydrocarbons from source rocks into adjacent rocks” AND “Trapping of hydrocarbons in overlying and underlying reservoirs that are porous, but low permeability” — does this mean shale plays where the shale is drilled into, hydraulically fractured and produced are NOT resource plays? (My email address is publisher@petroleumnews.com.)
Re-emergence of the railroads
The second thing that fascinated me was the railroads. Hence, Vern Whitten’s stunning rail roadphoto on page 1. My Dad, Hisle Cashman, and his father before him, were Great Northern Railway employees, and proud of it. At the time, Great Northern’s route was the northernmost transcontinental track in the United States. Completed in 1893, it was the only privately funded and successfully built, transcontinental railroad route in U.S. history. And, unlike its counterparts, no federal land grants were used for its construction.
Dad left the railroad to form his own business when I was just a kid, but he instilled in me a passion for trains, something I never lost.
I am very happy to see growth in the railroads, as I’m sure Ayn Rand would be if she were alive today. And so much of that expansion is because of shale oil and gas development in the Lower 48.
For all its devotion to high tech, North America’s greatness came from its natural resources.
Oil forced so
The third thing that grabbed my attention was the destinations of the existing and planned crude pipelines for transporting North Dakota, Montana and western Canada crude to market. The highest prices to be had for oil — North Sea Brent — are along the East, West and Gulf coasts. That’s where the tankers come in with crude from West Africa and the Middle East.
We have seen in the last year or so, especially this year, a big disconnect in what a barrel of oil is worth in the mid-continent of the U.S. versus what it’s worth on those three coasts.
We all know this, but have you looked at a Canada and U.S. crude pipeline map lately?
Since Justin Kringstad inadvertently pointed this out to me with a map of Canada and U.S. crude pipelines when I listened to his March 20 presentation to a legislative committee.
In his words:
“What’s occurring is that there has been a tremendous amount of crude oil produced in North Dakota, but also from … western Canada. That crude oil is all flowing down to the Mid-Continent area,” he said pointing at the map, which is reprinted on page 18 of this issue. “The Enbridge mainline system, going through North Dakota, travelling down to the Great Lakes. North Dakota’s crude oil is also being forced into this same area going east on the Enbridge System or south to the Guernsey Hub (Montana-Wyoming-Colorado-Nebraska pipeline infrastructure, which is filled to capacity with oil supplies from Canada). It still heads over to the Illinois area. This area of the U.S. is getting oversupplied; it’s getting extremely congested as far as crude pricing goes. …
“We can get our crude oil out of North Dakota but unfortunately it’s being forced into these regions (almost all existing pipelines flow south, most into the Mid-Continent) where the crude pricing is deeply depressed, and it’s not just North Dakota crude oil that’s getting hit with these huge discounts, it’s anything that’s being produced and by the nature of the pipeline system being forced into the Mid-Continent region,” Kringstad said. …
“Almost one-quarter (23 percent) of U.S. Bakken oil is moving by rail,” he said, “primarily to coastal facilities.”
Refineries on the east and west coasts have been touting the fact that they can get cheaper oil from the Bakken and therefore improve their profit margins, even with the higher cost of rail versus pipelines, while Bakken area producers tell their shareholders they’re getting a higher price by taking their oil to the coast.
The price is obviously somewhere in between.
Kringstad, by the way, is the director of the North Dakota Pipeline Authority, which was created in 2007 to facilitate the diversification and expansion of the state’s economy by expediting the development of pipelines to support the production, transportation and utilization of North Dakota energy-related commodities, thus improving the state’s economy.
His presentation, and his responsiveness since then, was very helpful in understanding the oil and gas industry in North Dakota.
In closing, I would also like to thank the following individuals for their help and courtesy to Tyson, Marti Reeve, Clint Lasley and myself over the last few weeks: Vern Whitten, photographer; Alison Ritter, public information officer, Department of Mineral Resources; David Houseknecht, U.S. Geological Survey; James MacPherson, Associate Press, Bismarck; Alexis Brinkman, public relations manager, North Dakota Petroleum Council; Jeff Zarling, Bakken Investor Conference; Wadeen Hepworth, Canadian Mat Systems; Eric Dompeling, SolstenXP; and even though we played far too much phone tag, Tom Rolfstad, executive director, Williston Economic Development.
Finally, my thanks to Harold Hamm, a giant of man who was willing to take a chance on something new.
Thanks for the new source of information. I would guess that the railroads would like to carry oil forever, but history points to pipelines as being the only way to economically carry crude.
very interesting. more info on why its a terrible idea to have the government decide when and where to build petroleum transportation systems.
oil by rail? Hmmmmmm. Now that the pipeline got nixed, who benefits?
Warren Buffet (Burlington Northern)
Bill Gates (Canadian Pacific)
Both are major stake holders in the these rail lines.
Look at two energy transportation systems: pipelines and electrical transmission lines.
We have serious transmission line problems because the states have a relatively higher regulatory authority than FERC. We have much less of a pipeline problem because FERC's pipeline authority transcends the individual states
I would never have believed 23 percent by rail. That is simply amazing.
The amount of oil Canadian Pacific Railways carries from the Bakken Formation down through the heartland has surged 2,500 percent since 2009, to 8.5 million barrels per year from just 325,000. The company expects to move 45 million barrels per year within the decade.
The best RULE ever written...... Follow the money.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.