Keystone is the Key to Montana Oil

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Created on Thursday, 17 March 2011 08:57

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 The future of Bakken Oil in Montana and North Dakota hangs in the balance of a national debate regarding the permitting of a huge pipeline by a huge Canadian company.

While each year the potential of the Bakken gets ratcheted upwards, its production of some of the lightest, sweetest crude ever known, is being curtailed by the lack of transportation to market. Relief is promised with the construction of a $7 billion, 1,690-mile pipeline by TransCanada – the Keystone XL — but it’s not at all certain that the pipeline will get the permitting it needs from the Obama Administration.

I’m really worried about it,” said Dave Galt, Executive Director of the Montana Petroleum Association, “because a misguided environmental community keeps trying to stop it because of their opposition to development of the oil sands in Canada.”

“The Keystone XL is crucial to Montana, because we need the capacity,” said Galt, who applauded the efforts of Governor Brian Schweitzer who first pointed out to Keystone executives the opportunities available to them in the Bakken. Not many people were aware of the Bakken’s potential, “40 months ago,” said Galt. Recognizing the opportunity to relieve the Bakken bottleneck, Schweiter and former North Dakota Governor John Hoeven “brought everyone to the table,” and convinced Keystone to add to the project a $100 million on-ramp at Baker, Montana, which would give local production access.

It can’t happen fast enough as far as oil producers in The Bakken are concerned.

Access to the Keystone pipeline, passing through Montana on its way from Alberta to the Gulf Coast, will increase capacity for the Bakken by 50,000 to 100,000 barrels of oil, daily. That means better prices for producers and even greater potential for the development of a resource that has been the economic mainstay for both states during the past few recession years.

“The Bakken needs to be attached to a globally traded market; the only way to do that is to build Keystone XL” said Tad True, Casper, Wyoming, Vice President of True Companies.  As the company that will build the on-ramp at Baker for Keystone XL, True knows what he’s talking about when he says that the pipeline will be a significant economic benefit to Montana, North Dakota and Wyoming. True Companies is a family-owned oil company that has been in business since 1955. They are also affiliated with Belle Fourche and Bridger Pipelines.

True is optimistic that Keystone will “eventually get approved, because the oil is too important to the US, not to.” The Keystone XL is the second phase of the Keystone in the US, the first phase of which has already been built. The second phase extension will permit the shipment of an additional 509,000 barrels a day of oil or “bitumen” being mined in the oil sands of northern Canada.

Construction of Keystone XL has already begun in Canada, but awaits permitting from the US Government for construction south of the border.  All pipelines that enter the US must get final approval form the US Department of State. A decision was postponed, however, by Secretary of State Hillary Clinton, “to address a range of economic, engineering and environmental issues.” It is anticipated that the final determination will, now, come early this year.

While environmentalists have mounted heavy pressure against Secretary of State Clinton not to approve the pipeline, their angst about heavy carbon foot prints is countered by the understanding that the oil sands production will probably be used in Asia (China) if not accepted by the US.

”Keystone XL is good for the USA,” believes True, “We are talking about a tremendous amount oil from a safe source. At the end of the day everyone will come together and realize that Canadian crude will displace oil from unfriendly nations. People have to go through the process to realize that at the end of the day this pipeline is absolutely crucial for the economic health of the US.”

But Galt sees an administration that is less than supportive. “Obama and environmentalists seem to be bent on slowing it down,” he said, “We talk a lot about getting off our dependence on Middle East oil, and here we have a crude source from one of the nation’s friendliest allies, and we are fighting it. I just don’t understand it – it is crazy.”

Environmentalists want permitting “to be put on hold” pending further research about the risks of pipelines carrying Canadian crude.  Organizations like the Natural Resources Defense Council, Pipeline Safety Trust, National Wildlife Federation, Sierra Club, and the Montana Conservation Voters claim that the increased corrosiveness of the Canadian crude may pose a greater risk for pipeline failure and an elevated environmental risk. “Planned tar sands pipelines. . .  should be put on hold until their risks are understood and addressed,” they recently announced.

A climate science blog on the internet concludes “this report delivers one more reason for the State Department to decline this dirty energy project which will only deepen the U.S. and Canada’s dependence on fossil fuel energy.”

But besides the nation, the Keystone XL “does great things for eastern Montana and North Dakota,” said True. He speculated that most people don’t really understand the pending potential of The Bakken, a geological formation that encompasses much of North Dakota and northern and eastern Montana, and southern Alberta.

“One of the things that a lot of people don’t know,” said True, “is that development in the Bakken started in northeastern Montana, went into North Dakota, and is now coming back into Montana. One of the new frontiers of The Bakken is going to be in Eastern Montana. It is exciting that something that started in Richland County is going to play a big part in our nation’s energy future.”

Bakken producers have had to sell at discounted prices because of limited access to markets and hence less competitive markets. Bakken oil can currently only get to refineries in Bismarck, North Dakota, Guernsey, Wyoming, and Clearbrook, Minnesota. Being able to access the world market will allow the producers to sell at normal prices and produce at full capacity. It will also encourage even more exploration in the region.

In order to reach alternative markets, the use of rail has emerged as a larger portion of the Bakken’s transportation solution – something that hasn’t been seen since “the days of Rockefeller,” said True. It’s a change that True thinks may be “here to stay,” because while it may be more expensive than pipelines, it provides greater flexibility and a means to quickly reach alternative markets, which aren’t accessed by pipeline.

About $1 billion will be spent on the Montana portion of the pipeline. A study by the Perryman Group on the project concluded that its construction will have positive contributions to the Montana economy valued at $421 million.

 The project will also generate for Montana:

— More than 5,500 person years of employment

— Increase personal income by $286 million

— Additional state and local tax revenues of more than $8.9 million

— $349 million in increased Gross State Product

Once the pipeline is operational, Montana could see nearly $2.1 billion in property taxes to county and other local governments during the operating life of the pipeline.

According to the most recent reports from the US Geological Survey, North Dakota and Montana have an estimated 3.0 to 4.3 billion barrels of undiscovered, technically recoverable oil in the Bakken Formation.

The last report  in 2010 was a 25-fold increase in the amount of oil that can be recovered compared to the agency’s 1995 estimate of 151 million barrels of oil.

New geologic models, advances in drilling and production technologies, and recent oil discoveries have resulted in the substantial increase in technically recoverable oil volumes. About 105 million barrels of oil were produced from the Bakken Formation by the end of 2007.

According to the reports, The Bakken Formation estimate is larger than all other current USGS oil assessments of the lower 48 states and is the largest “continuous” oil accumulation ever assessed by the USGS. A “continuous” oil accumulation means that the oil resource is dispersed throughout a geologic formation rather than existing as discrete, localized occurrences.

The Keystone XL would be a 36-inch-diameter crude oil pipeline that would start at Hardisty, Alberta, and cross the U.S./Canada border near Morgan, Montana, and continue in a southeast direction through Montana and on through South Dakota, to terminate at Steele City, Nebraska, where it will merge with another part of the system.