A drilling well in Indian Country. Photo from Bureau of Indian Affairs
Pipelines, rail cars and the price of oil
Could low oil prices help usher in a new era?
By Mark Trahant
TrahantReports.Com A few minutes before noon on November 6, 2015, President Barack Obama stepped into the White House briefing room to announce that the Keystone XL Pipeline would not earn approval from the U.S. government. “Several years ago, the State Department began a review process for the proposed construction of a pipeline that would carry Canadian crude oil through our heartland to ports in the Gulf of Mexico and out into the world market,” the president said. “This morning, Secretary Kerry informed me that, after extensive public outreach and consultation with other Cabinet agencies, the State Department has decided that the Keystone XL Pipeline would not serve the national interest of the United States. I agree with that decision.” One of the reasons cited was a report from the Interior Department that cited “significant concern raised by some tribes in Indian Country regarding the need for protection of treaty rights and fulfillment of the trust responsibility, protection of sacred cultural sites, and avoidance of adverse impacts to the environment, including to surface and groundwater resources.The Department has also received letters from some tribal nations, particularly those located in the Great Plains region, who do not feel there has been adequate government-to-government engagement with them.” The announcement was hailed as a huge win for Indian Country. “This is a tremendous victory for all the pipeline fighters who have spent several years fighting the TransCanada “black snake,” Keystone XL! The President’s decision is a clear affirmation of our struggle to defend the sacredness of Mother Earth and to protect the future generations of all our relatives, human and non-human alike,” wrote Dallas Goldtooth, campaign organizer for the Indigenous Environmental Network. “We celebrate this as a win and a powerful step to the greater goals of keeping fossil fuels in the ground and shutting down the tar sands at the source!” Back at the White House the president used that moment to raise an analytical note: “Keystone Pipeline has occupied what I, frankly, consider an overinflated role in our political discourse. It became a symbol too often used as a campaign cudgel by both parties rather than a serious policy matter. And all of this obscured the fact that this pipeline would neither be a silver bullet for the economy, as was promised by some, nor the express lane to climate disaster proclaimed by others.” Oil and gas — and by extension, pipelines — will continue to be built as part of the country’s energy infrastructure. As Obama put it: “Now, the truth is, the United States will continue to rely on oil and gas as we transition — as we must transition — to a clean energy economy.” Fast forward to January 2016. The North Dakota Public Service Commission approved a siting permit on January 6 for the Sacagawea Pipeline Project, designed to move crude oil more than 70 miles across the Fort Berthold Indian Reservation and connect to existing pipelines. The idea is that the 16-inch pipeline will transport as much as 200,000 barrels per day. “This is significant new and important infrastructure in a part of the state where truck traffic has been intense,” said Commission Chairman Julie Fedorchak. “We reviewed this project very closely, and the company committed to high standards of construction, operation and reclamation including and especially in regard to the crossing of Lake Sakakawea.” That’s right. The pipeline will buried 100 feet below Lake Sakakawea. One of the state’s regulators, Randy Christmann, said, “The use of horizontal diagonal drilling techniques to place this pipeline over 100 feet below the bed of Lake Sakakawea makes this the safest possible alternative for moving oil from one side of that important water body to the other.” This is just one potential pipeline. The largest, the Dakota Access Pipeline Project would connect a 30-inch pipeline from North Dakota’s Bakken and Three Forks oil fields to Patoka, Illinois, a length of 1,154 miles. That’s roughly the same distance as the Keystone XL pipeline project. And because the Dakota Access Project doesn’t cross an international border, the approval process is routine. Dakota Access Partners, the builder of the project, says it anticipates beginning construction this year and to “be in service by the fourth quarter of 2016.” The goal is to move more than a half million barrels of oil per day.
The Dakota Access Project would transport oil from North Dakota to Illinois. The goal of Dakota Access Partners is to have the system in operation by the end of 2016 and to move a half million barrels of oil per day. Image from Energy Transfer Partners
On January 20, the North Dakota Public Service Commission approved a siting permit. “This project received thorough review which was totally transparent. We received broad public input. We listened and the company listened,” said Commission Chairman Julie Fedorchak. “The permit today provides for a sound, safe project that will provide an efficient and environmentally sound way to transport Bakken crude oil for many decades.” Indeed, there is an environmental case to make for pipelines. Oil that is not transported through a pipeline is shipped by truck or train. As the environmental think tank, Sightline, reported, the goal of the industry is to ship a million barrels of oil every day by railroad. “If all of the projects were built and operated at full capacity, they would require more than 100 loaded mile-long trains per week to traverse the Northwest’s railway system,” Sightline said. “Many worry about the risk of oil spills along the region’s extensive rail network, particularly in remote locations where emergency response would be challenging.” Railroad enterprises, like the pipeline, are banking on delivering Bakken/Three Forks oil to markets. Here is the problem: If the pipeline is built and the train system is upgraded there will be too much transportation capacity at current oil prices. So the railroad companies will have to seek out new customers. Or, as Sightline said, while “the projects are largely designed to transport and handle light shale oil from the Bakken oil formation in North Dakota … the infrastructure could also be used to export heavy Canadian oil.” The idea of how much capacity — especially given the price of oil — is the wild card in any transportation scheme. Many projects were designed when oil prices were higher than $75 a barrel instead of around $30. Oil is a commodity and traded on international markets. That means it’s subject to the up and down of supply and demand. Currently there is far more oil supply than demand. A report by the International Energy Agency says last year “saw one of the highest volume increases in global oil demand this century, we have long believed that this could not be repeated in 2016. But, with crude oil prices plunging below $30/bbl, must we expect some boost to the rate of growth in 2016? Unfortunately, the New Year has been awash with pessimism about economic growth.” And that means less economic growth — and less oil consumption. The IEA says that when Iran is fully online selling oil, and if other oil exporting countries maintain current production levels, the demand could exceed demand by 1.5 million barrels a day and “unless something changes, the oil market could drown in over-supply.” So yes prices could go lower. The way that will impact major projects such as pipelines is that oil companies and those that are in related businesses will need to adjust their spending. Some oil companies have borrowed a lot of money to increase production and now are unable to pay their loans without selling off major assets.
What goes up? Bureau of Indian Affairs expected oil royalty figures to top $1 billion in 2014. Estimate was before the sharp drops in the price of oil. Image from Bureau of Indian Affairs
Indian Country has a complicated relationship with the price of oil. So many of our people (both reservation and urban) drive pickup trucks and the price at the pump becomes a daily worry. On the other hand more than a dozen tribes and several Alaska Native corporations are oil and gas producers. So the low oil prices impact everything from government budgets to the number of jobs available locally. The most recent numbers posted by the Bureau of Indian Affairs estimated royalties at $900 million “and within two years, estimates royalty income will increase to over $1 billion.” And as the report projected a billion was likely exceeded as the 2014 price of oil averaged $93.17. But last year that same average was $48.67. There are other forces at play. The Paris agreement on climate change sets a target of “well below” a rise of 2 °C, with “net-zero green house gas emissions by 2100.” That means a stepped up transition away from fossil fuels but it’s worth noting that the agreement also recognizes the “unique role of gas and oil.” That will only happen if there is “significant support for mitigation technologies and approaches” and “energy economics and consumption patterns would need to change substantially, and consumers would need to accept these shifts.” In some ways that is already occurring. One factor that is contributing to the over-supply of oil is that Americans are driving less — especially the millennial generation. (More about that next week.) But it could be that oil prices are low at exactly the right moment, easing our transition to a new energy framework. Mark Trahant is the Charles R. Johnson Endowed Professor of Journalism at the University of North Dakota. He is an independent journalist and a member of The Shoshone-Bannock Tribes. On Twitter @TrahantReports Related Stories:
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