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North Dakota Oil Boom Not What It Seems

A version of this blog also appears on NationalJournal’s Energy Experts page.

Last month I appeared on MSNBC’s All In with Chris Hayes with former North Dakota Senator Byron Dorgan talking about the Bakken fracking boom. Today the state produces 810,000 barrels of oil a day, up from 80,000 a decade ago.

But because oil is a globally priced commodity driven more by Chinese demand than domestic production, the record oil production has failed to deliver cheaper gasoline to motorists.  Oil production efficiencies and technology improvements featured in fracking aren’t translated into lower prices because consumers are charged for the price of the commodity, and Wall Street traders’ strategies price oil with irrelevance for efficiency. As a result, drilling and fracking technological efficiencies are pocketed by oil drillers, as gasoline and oil prices have actually increased for consumers during the oil boom. Contrast this phenomenon with the iPhone, microchips or solar panels, where technology efficiency gains are translated into ever-lower prices for consumers (and where renewable energy features zero fuel commodity costs). The equity prices of fracking companies benefit from the fracking boom—consumers don’t.

Many reporters credit fracking for North Dakota’s lowest-in-the-nation unemployment rate (3% in July 2013), while failing to mention that the state has always had a low unemployment rate: it was 2.6% in July 2001, 3% in July 1997, and 3.6% in July 1976.

For all of the production efficiencies, there are billions of dollars in wasted infrastructure. Thirty percent of the 850 MMcf/d of natural gas fracked alongside oil in the Bakken is flared—that wasted gas is enough to power the cities of Chicago and DC. You can see the burning fields from outer space. All because the Bakken lacks the pipeline infrastructure to move it. So instead it’s burned, along with greenhouse gas emissions.

MK-CI990_RAILCR_NS_20140101174503Oil pipeline infrastructure is lacking, too. Sixty-nine percent of the Bakken oil is shipped by rail, as nationally 9,500 railcars moved oil in 2008, while 230,000 did in 2012. Warren Buffet’s BNSF railroad shipped 1.3 million barrels in 2008 and 90 million in 2012. And while pipelines have had significant safety problems (I’m thinking Kalamazoo, Yellowstone, Pegasus and San Bruno), the industry proposes $40 billion in additional pipeline investment to move oil—with no guarantee that the additional investment will lower oil or gasoline prices. That’s billions of dollars in misallocated capital that ought to be invested in renewable energy and energy efficiency (remember when North Dakota was the subject of being the next Saudi Arabia, it was in reference to wind, not oil?). We should be moving commuters and people on rail, not oil. Our rail lines are congested moving oil to fuel cars on our cities’ congested streets.

And we’re not sure North Dakota has done safety right. The state has 19 inspectors for nearly 7,000 oil wells, and the increasing number of spills threatens North Dakota’s agricultural production.

It would be one thing if the oil boom was producing affordable, clean and safe energy. It’s not and it can’t. The more money we spend to build oil and natural gas infrastructure in North Dakota is less money we have to invest in the true technological revolution that will actually deliver for consumers: renewables and efficiency.

Tyson Slocum is Director of Public Citizen’s Energy Program. Follow him on Twitter @TysonSlocum