Apr

14

It is true we can't predict if, when or how far oil prices will fall. But we can predict that vast investments will continue to flow into oil exploration and development.

The NYT recently ran a story on the huge Bakken Formation in North Dakota (but only page A19). This oil is spread widely along a deep and thin layer and can be recovered only with new horizontal drilling technologies. According to a recently released U.S. Geological Survey study, 3 to 4.3 billion barrels can be recovered with current technology. Higher prices and new drilling techniques raised proven reserves in this field way up from 151 million in 1995. A billion here, a billion there, and pretty soon we are talking about a real oil find.

Three billion barrels of oil "created" with new technology in just 10 years–and that's just in North Dakota and eastern Montana. Who says oil is a depletable resource? And who knows how much more oil might be discovered if most of the western U.S., Alaska, and off-shore were not federally-owned and off-limits for oil exploration.

Of course it will take time to build out the infrastructure to bring significant quantities of this oil to markets. And no doubt an array of special interests will line up to slow development and search for endangered North Dakota species (only nine animals and one plant listed so far).

Consider too that the Bakken field could lower prices today if the federal government had the good sense to choose North Dakota for a second Strategic Oil Reserve. The federal government could loosen oil supplies and push prices down today by stopping oil purchases for the current 700 million barrel reserve. And oil prices might be pushed down further–and the Federal Deficit reduced–by slowly drawing down today's reserve to, say, 500 million barrels, as a new North Dakota reserve were established.

The Federal government could contract with private firms to drill and cap a second 500 million barrel reserve in North Dakota, and expedite permits for infrastructure supporting the North Dakota reserve. And with a few billion barrels already "stored" in the ground in North Dakota, the federal government would not have to buy and ship it from Saudi Arabia to pour into expensive underground chambers in Texas, Louisiana, and Mississippi.

Current strategic reserves are located near major refineries so they are available if oil imports are cut. Allowing firms to build new Western and Midwestern refineries capable of handling North Dakota crude would further diversify U.S. supplies of refined product. State and federal governments need only get out of the way of private firms who have long tried to build new refineries and refining capacity.


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