A Tale of Two Pipelines

 A Tale of Two Pipelines

By the Numbers

The Keystone pipeline is being being brought out again as THE answer to current high price of gas problems again, and the blame being placed squarely upon the current President, Joe Biden.

Usually the whining takes the form of "if only Trump had been reelected, this wouldn't have happened."

Here is what drives the price of gas.   The price of crude, the cost of refining, distribution and marketing and lastly, taxes, 18 cents per gallon federal and 58 cents in Pennsylvania.  There is a bill in congress to drop the federal tax at the end of the year.  Other than the federal tax, the president has no control over the price of gas, and frankly that is in the control of congress. 

But fanatical right wants to blame someone, and they point to Keystone as the failure that has led us to high oil prices, currently $125 today (Mar 8, 2022) and going higher. They want to blame the president? Fine. Normally I try to make these "numbers" articles about the numbers, and not blame the politicos, unless it was well deserved.

The reason for the Keystone failed completion is financial. Plain and simple. You can point to resistance to environmentalists, and they had their role, and you can point to Native Americans getting their rights tromped on, again, but they never had the political pull to resist their lands being over run. But when President Biden canceled the Presidential Permit for Keystone pipeline, Phase IV, the American oil companies probably breathed a sigh of relief.  They may have been looking for a reason to cancel it anyway, and grateful to be able to point the finger at someone for their stock holders.

Here is the point. Shale oil is the dirtiest oil to extract, and the most acidic, and the most expensive oil to extract. Numbers range from $56 to $75 a barrel. So when oil is below that figure, the shale oil will cost more to extract then it is worth. Comparison points are about $7/barrel in Saudi Arabia. A bit more in Texas, and $17 in the Bakken oil formation. Remember that number, it will come up later.

See the timeline below. Note the presidential party and rough average price of oil for the year:

Year   Average President is:    Keystone Capacity    Notes   

       Price Oil   
2001    50    Republican
2002    40    Republican
2003    48    Republican
2004    65    Republican
2005    80    Republican    Keystone pipeline Proposed In Canada
2006    100   Republican
2007    80    Republican    Approved in Canada
2008    165   Republican    Presidential Permit Authorized in US
2009    90    Democrat
2010    110   Democrat      Permit to Proceed by South Dakota
2011    110   Democrat    500,000    Phase I completed, to Patoka IL
2012    120   Democrat    500,000    Phase II completed to Cushing OK
2013    120   Democrat    500,000    Phase III completed to Port Arthur, TX
2014    60    Democrat     500,000
2015    50    Democrat     500,000
2016    60    Democrat     500,000
2017    60    Republican   500,000
2018    80    Republican   500,000
2019    65    Republican   500,000
2020    40    Republican   500,000    Phase IV approved Presidential Permit Authorized in US to expand the pipeline capacity by 200,000 b/d
2021    75    Democrat    500,000    Phase IV Canceled.
2022    110+  Democrat    580,000    Proposed expansion

Compare the price of oil to the progress being made on the pipeline. While the price was above $75/barrel, progress was made. Below that point, no progress. Even if phase IV would have been completed in 2020, at $40/barrel, the Canadians wouldn't have produced it.

Also, for all you Fox News junkies, note that Phases I, II and III were all completed under a Democratic administration. If you are blaming Biden for Phase IV being canceled, you have to praise Obama for the earlier phases delivering half a million barrels a day.  Anything else just exposes the hypocrisy of Fox.

But what about now? Phase IV was 8% complete when Biden canceled it. It would still be under construction today, and not affect the current price of oil one wit. Even if completed, it would have added 200,000 barrels/per day to our overall feed, not enough to offset cutting off Russian oil of around 500,000 barrels/day. It would mitigate that loss certainly, but there would still be a shortfall.

Below is the present paths of the Keystone Pipeline.

The green line is what the political kerfuffle is about. All the other lines have been completed for 9 years and are delivering about 500,000 barrels a day, when profitable.

A last note on Keystone about the jobs lost by its cancellation. The number of "jobs lost" kept growing with the screaming. I once saw 119,000 jobs lost. but a State Department report instead concluded the project would require fewer than 2,000 two-year construction jobs and that the number of full-time, permanent jobs would hover around 35 after construction in the USA. This is kind of verified by the next pipeline in this monograph.

The Dakota Access Pipeline:

Have you heard of the Bakken Formation? It's in North Dakota, and is a very large deposit of oil. Discovered in 1951, its importance was minimized by the fact that the top of the formation is 2 miles deep, and the useful parts even deeper. I have worked in the oil fields. Going down a mile was considered deep. For one thing, the temperature tends to fry the sensors of measuring equipment.

So the Bakken remained the worlds worst kept secret. But starting in the mid 70's, and every year or two there would be newspaper article about "Why don't we drill there?", and "enough crude to fully fuel the American economy for 2041" and "The Saudi's are funding environmentalists..." An example of one of these "articles" is below. I have seen dozens of these over the last 35 years, all going for the heart strings, and having not one inkling of what they are talking about.  But I suspect the source of these articles were financiers trying to raise funds.

We were not going after the oil then because we couldn't make production wells that deep. It's one thing to build a test well to see what is there. But production wells take a lot more effort. And the useful oil was more than 2 miles deep. Much deeper than drilling in Texas. It might cost $17/barrel to just extract the stuff. In the early 70's, oil was $5/barrel. So it wasn't profitable then. In the late 70's, about $25/barrel made it possible, but the technology wasn't there. Then if you drill and get it, how do you bring it to market? Like shale oil, it just wasn't economical.

That began to change. We got proficient at digging deeper. And in 2002, serious drilling started, and about 20,000 b/d was being extracted. This was handled by the local refineries, but that capacity was limited as they were relatively small. By 2007, 110,000 b/d was being extracted, and the local refineries could no longer handle the load. 2015 saw over a million barrels a day, peaking at 1,400,000 b/d in 2020.

A new pipeline was built, The Dakota Access Pipeline. It was 1,200 miles long. It was proposed in 2014, work started in 2016, and completed 2017 with a capacity of 570,000 b/d. It too ran over Native American rights and environmental activism. What was different? The price of extraction. At around $17/barrel, The Bakken crude can be profitable at almost any current price point. It has been described as "sweet", meaning it is easy to refine. Also it has much smaller environmental impact to extract. Though frakking is a consideration, but the dangers of frakking are not the subject of this article, as frakking is being done everywhere.

And the number of jobs created?  About 3,000 during construction. 15 permanent.  Compare that to the claims of 119,000 jobs lost with cancellation of Keystone, Phase IV.

The Dakota Pipeline throughput is now at it's limits so more drilling in the Bakken is not going to be helpful for now. But it is going to be expanded, to about 750/b/d in the next year or so.

This is a typical Bakken Oil article.  I first noticed a variation of this in the early eighties, in a paid for article in one of the Shreveport newspapers.  Probably paid for by someone trying to drum up money to do more test drilling.  I saw a similar article about a year later, also in Shreveport.  So it was hardly a "secret".

But judging from the production numbers, I would guess this article is 10 years old. But someone felt compelled to pass it on to me last week:

U.S. OIL SUPPLY.....INCREDIBLE..!!

About 6 months ago, there was a news program on oil and one of The Forbes Bros. was the guest. The host said to Forbes, "I am going to ask you a direct question and I would like a direct answer; how much oil does the U.S. Have in the ground?" Forbes did not miss a beat, he said, "More than all the Middle East put Together."

The U.S. Geological Service issued a report in April 2008 that only Scientists and oil men knew was coming, but man was it big. It was a revised report (hadn't been updated since 1995) on how much oil was in this area of the western 2/3 of North Dakota, western South Dakota, and Extreme eastern Montana.

Check THIS out:

The Bakken is the largest domestic oil discovery since Alaska's Prudhoe Bay and has the potential to eliminate all American dependence on foreign oil. The Energy Information Administration (EIA) estimates it at 503 billion barrels. Even if just 10% of the oil is recoverable (5 Billion barrels), at $107 a barrel, we're looking at a resource base worth more than $5.3 trillion. "When I first briefed legislators on this, you could practically see their Jaws hit the floor.

They had no idea." says Terry Johnson, the Montana Legislature's financial analyzer. "This sizable find is now the highest-producing onshore oil field found in the past 56 years," reports The Pittsburgh Post Gazette.

It's a formation known as the Williston Basin but is more commonly referred to as the 'Bakken.' It stretches from Northern Montana, through North Dakota and into Canada. For years, U.S. Oil exploration has been considered a dead end. Even the 'Big Oil' companies gave up searching for major oil wells decades ago.

However, a recent technological breakthrough has opened up the Bakken's Massive reserves, And, we now have access of up to 500 billion barrels. And because this is Light, sweet oil, those billions of barrels will cost Americans just $16 PER BARREL!!!!! That's enough crude to fully fuel the American economy for 2041 years Straight. And if THAT didn't throw you on the floor, then this next one should - Because it's from 2006 !!!!!!

U.S. Oil Discovery - Largest Reserve in the World Stansberry Report Online - 4/20/2006. Hidden 1,000 feet beneath the surface of the Rocky Mountains lies the Largest untapped oil reserve in the world. It is more than 2 TRILLION barrels. On August 8, 2005 President Bush Mandated its extraction. In many recent years of high oil prices none has been extracted. With this mother lode of oil why are we still fighting over off-shore Drilling?

They reported this stunning news: We have more oil inside our borders, than all the other proven reserves on Earth.

Here are the official estimates:

8 times as much oil as Saudi Arabia

18 times as much oil as Iraq

21 times as much oil as Kuwait

22 times as much oil as Iran

500 times as much oil as Yemen

And it's all right here in the Western United States !!!!!!

HOW can this BE? HOW can we NOT BE extracting this? Because the Environmentalists and others have blocked all efforts to help America become Independent of foreign oil! Again, we are letting a small group of people Dictate our lives and our economy. WHY?

James Bartis, lead researcher with the study says we've got more oil in this very compact area than the entire Middle East, more than 2 TRILLION barrels Untapped**. That's more than all the proven oil reserves of crude oil in the World today, reports The Denver Post.

Don't think 'OPEC' will drop its price even with this find? Think again! It's all about the competitive marketplace, it has to. Think OPEC just might be funding the environmentalists?

 

And, since this is a reply to political folderal,  a meme from 12 years ago:

 

** A recent estimate places the figure at 18 billion barrels, still a lot of oil, but only 1% the hyperbole.