Blog Archives

The Bakken Oil Boom Will End Like Every Other ‘Gold Rush’

image

Figure 1: Map of the U.S. Bakken-Lodgepole Total Petroleum System (blue), five continuous assessment units (AU) (green), and one conventional assessment unit (yellow) (Source: USGS)

The Oil Drum

[This post by Derik Andreoli, Senior Analyst at Mercator International LLC, is republished with permission from The Oil Drum.]

In 2009, U.S. oil production began to climb after declining for 22 of the previous 23 years.

The shale oil production of the Bakken formation, which straddles the Montana-North Dakota border and stretches into Canada, has been a significant contributor to this temporary uptick in oil production.

The Bakken boom has inspired a number of prominent commentators to resurrect the energy independence meme. Daniel Yergin was first at bat, asserting in an essay published by The Wall Street Journal that rising prices and emerging technologies (especially hydraulic fracturing) will significantly drive up world liquid fuels production over the coming decade(s). Ultimately, Mr. Yergin argues that tight supplies lead to high fuel prices, and high fuel prices will bring previously inaccessible oil to the market. The trouble with this line of thinking is that high prices aren’t merely a symptom of the supply problem; high prices are the problem.

After Mr. Yergin stole first base through this apparently convincing display of contortionist logic, the next up to bat was Ed Crooks who recently penned an analysis piece for the Financial Times. In this piece, Mr. Crooks declares that “the growth in U.S. and Canadian production from new sources, coupled with curbs on demand as a result of more efficient use of fuel, is creating a realistic possibility that North America will be able to declare oil independence.”

Mr. Crooks thus ‘balances’ rising production from shale oil and Canadian tar sands against declining consumption, which he mistakenly chalks up to efficiency gains rather than the deleterious effects of the greatest recession since the Great Depression. Beyond this obvious blunder, Mr. Crooks manages an even greater and far more common gaffe by neglecting to integrate decline rates of mature fields into his analysis.

But in a game where the media is the referee and the public doesn’t know the rules, Mr. Crooks manages to get on base by knocking a foul ball into the bleachers. With Yergin on second and Crooks on first, Edward Luce steps up to plate and takes a swat at the energy independence meme, directing the ‘greens’ to look away as “America is entering a new age of plenty”. And while the greens looked away, Mr. Luce took a cheap shot at clean energy through an attack on the federal government’s support for the now bankrupt solar panel manufacturer, Solyndra. Luce thus willingly employs the logical fallacy of hasty generalization to sway his audience. Of course the Solyndra bankruptcy is no more generalizable to the solar energy industry than BP’s Macondo oil spill is to all offshore oil production, but in a game of marketing one-upmanship one should not expect a balanced and rigorous evaluation of the possibilities.

With the bases loaded and oil prices remaining stubbornly high as tensions in the Middle East and North Africa persist, the crowd is getting anxious. And the crowd should be anxious. After all, tight supplies and rising oil prices strain personal finances and threaten to send our fragile economy back into recession. It is, therefore, unsurprising that the public is as eager to consume the myth of everlasting abundance, as they are eager to consume these scarce resources.

While the Bakken boom offers a hopeful story in which American ingenuity and nature’s endless bounty emancipate us from energy oppression and dependence on evil and oppressive foreign dictators, musings of energy independence are premature, misguided, and misleading. The problem with the Bakken story as told by Crooks and others is that it lacks historical context. Referring to recent developments as an energy revolution implies that there are no lessons to be learned from history. But as Mark Twain put it, “history doesn’t repeat itself, but it does rhyme.”

Read More: Source

%d bloggers like this: