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As the politics of U.S. oil grow uglier, revelations from the North Dakota boom

REUTERS/Shannon Stapleton
An oil derrick outside Williston, North Dakota.

Last week’s Senate vote on the Keystone XL pipeline may have been utterly lacking in significance, so much sound and fury signifying merely … theater. 

But surely it can be taken as the official opening performance in a dramatic season of increasingly brutal oil politics, as Republicans prepare their agenda for congressional control and Democrats try to agree on what to give up in the bargaining.

Monday’s discouraging headline, from The Hill, was about the likelihood that the GOP will reopen the fight over drilling in the Arctic National Wildlife Refuge.

Republicans are looking at their best chance in many years to overturn the refuge’s protections, in the Hill’s analysis, and this seems to be among the first items of business for an Energy and Natural Resources Committee realigned under the leadership of Alaska’s Sen. Lisa Murkowski.

Like many, I happen to think this part of the Arctic coastal plain is the absolute last place we should place new oil wells.

Even oil development that went perfectly according to plan would still be destructive to this fragile environment. But oil development never goes according to plan, and accidents that would be merely serious in a Texas or North Dakota oilfield become catastrophic in the harsh conditions of the Arctic.

Abandoning offshore leases

The economics of oil development  in the Arctic are also difficult, and over the last six months there have been reports of major oil companies backing away from full development of their offshore leases — or even abandoning them — as they confront the costs and operational realities of  perhaps the world’s worst climate for oil production.

Yet Arctic National Wildlife Refuge is the very first place where the Senate Republicans will be looking to remake the landscape of  U.S. oil production, for perhaps no reason other than it’s a battle they’ve been fighting so long they just can’t give it up.

Even during times of Democratic control, Murkowski has kept a pair of bills in play. One would permit new wells sunk from sites within the refuge, the other would allow oil beneath the refuge to be tapped by directional drilling from pads outside its borders.

And the arguments for tapping refuge oil never really change: New techniques make oil development environmentally benign; producing our own oil makes us less dependent on imports from unfriendly countries; oilfield jobs are good jobs; state and federal regulators will ensure that the companies do a good job and natural resources are protected.

The last time Congress came close to lifting the refuge’s protections, in 2005, it was clear that refuge oil would be economically attractive only if world oil prices stayed really high for a really long time. I have not dug into those figures for a while, but surging production from North Dakota and Alberta can’t be making Alaska’s coastal plain look better on a balance sheet.

Naturally, Murkowski is already positioning her next push as a bipartisan congressional move that faces a potential veto from President Barack Obama — a veto that I frankly wish were as much a certainty as some seem to think.

The shame of North Dakota

Speaking of North Dakota’s oil fields, a remarkable piece of investigative reporting — and solid public service — turned up over the weekend in the New York Times’ two-day report, “The Downside of the Boom.”

The series summary is that “North Dakota took on the oversight of a multibillion-dollar oil industry with a  regulatory system built on trust, warnings and second chances,” and by my lights that’s putting it mildly.

The principal reporters, Deborah Sontag and Robert Gebeloff, show that North Dakota regulators haven’t been naive so much as actively disengaged as problems in the oil patch have mushroomed. They have refused to use the regulatory tools available to them, and have punished a wide range of critics and challengers who found the courage to step forward and speak up against an industry that occupies an almost sacred place in the state’s civic culture.

Whether you care particularly about what happens in North Dakota or not, I think this project is worth your time for the insights it gives into the utter falsity of the chatter raised by, say, virtually every Republican politician breathing today about the supposed stranglehold of excessive regulation on American industries.

And not just environmental regulation, for this series goes deeply into issues of public health, workplace safety and private-property protections as well.

A few statistics:

  • Though state regulators routinely assert that oil spills are steady or declining, on a per-well basis, figures assembled by The Times “from estimates, and sometimes serious underestimates, reported to the state by the industry”  show exactly the opposite. In the first nine months of 2014, oil spills totaling 3.8 million gallons were reported, nearly as much as in 2011 and 2012 combined.
  • The rate of spills, explosions, fires and other “environmental incidents” has nearly doubled; it was about one incident for each 11 wells in 2006, but had risen to one for every six in 2013.
  • Though many of the spills occur at pipelines, especially the “gathering lines” that bring oil to central places for long-distance distribution, there are no federal pipeline inspectors stationed in North Dakota because the state was permitted to supply its own, but hasn’t done so.
  • When North Dakota fines an oil producer for a violation, it nearly always forgives all but 10 percent of the penalty, and since 2006 has collected about $1.1 million in fines; Texas, which is the country’s No. 1 oil state to North Dakota’s No. 2, produced four times as much oil and collected 30 times as much through enforcement actions. (The apparent worst offender, Continental Resources, racked up 937 spills and incidents from 2006 through 2013 — more than any other company — while paying a mere $20,000 in fines out of the $2.8 billion, with a “B,” in net income it took from the ground.)
  • Three-quarters of those fines were collected not by the state’s Industrial Commission, which has primary oversight authority on oil and consists of the governor, attorney general and ag commissioner, but by the Health Department, “overseen by civil servants and not elected officials.” Most of the penalties came from a single, industry-requested enforcement action that, according to a department official, was intended to limit liability in lawsuits over the industry practice of venting volatile, untreated well gases directly into the open air.

A story long untold

There is extensive and illuminating examination of some of the state’s marquee mishaps, like  the Tesoro Logistics spill last fall that appears to be the largest in recent American history; it spread 865,000 gallons across farmland equivalent to six football fields and was disclosed only after local reporters started making inquiries.

But it is also clear that much of the Times report will be news even to North Dakotans, along with the rest of us, and not only because the state’s major media have been less than relentless in covering this story. Explaining why it had to construct its own databases from fragmentary state statistics, the paper observed:

For a North Dakotan trying to make sense of the state’s environmental and enforcement records, numbers are essentially inaccessible. The state spills site posts incidents in chronological order, without summary statistics, and it is not searchable.

 Oil and gas enforcement data is not made public at all, unlike in Texas, where the legislature mandates quarterly reports.

There are plentiful personal stories, too, of deaths and injury, of property poisoned and lost, but I’ve gone on long enough. I’ll just say that the second day’s installment features a cautionary tale of how individual property rights in oil leases don’t mean much when a big company organizes a group of neighbors to undermine them — with official state support.

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Comments (9)

  1. Submitted by Ray Schoch on 11/25/2014 - 10:47 am.

    Sorry

    Are we surprised? By any of this? State government bought and paid for by big-time capitalist enterprise? Public safety an afterthought, if that? Short-term greed winning out over long-term sustainability? “Environmental protection” that turns out to be an oxymoronic phrase? Venality is, sadly, as old as humanity, and just as common. Standards and protections could have been built in, but they weren’t. Doing so would have potentially affected profit margins, and besides, North Dakota is “flyover country,” and not important to the people who *own* and *run* the oil companies. Changing the culture there would require concerted and prolonged federal action, which is simply not going to happen.

    And by the way, the photo at the head of the column is strongly reminiscent of a genuinely alien landscape, by which I mean “other-worldly.”

  2. Submitted by Joe Smithers on 11/25/2014 - 11:13 am.

    oil/ethanol

    And yet with all of this there are still people who think we should quit making ethanol because they refuse to quit using old data and just plain lies regarding it’s production and environmental costs. Seems strange to me that people can’t see reality.

  3. Submitted by Mike Downing on 11/25/2014 - 11:10 am.

    Economics of low cost energy

    Our society and our economy was built on low energy costs. Low energy costs can become a competitive advantage for some companies to invest in the US rather than overseas. This creates job growth that in turn increases disposable income for retail sales as well as gov’t tax revenue.

    Articles such as this one needs balance between our environment and our economy.

    • Submitted by Todd Hintz on 11/25/2014 - 04:40 pm.

      Balanced Reporting

      You’ve created a false equivalency, Mike. What you’re saying is we can have cheap energy or we can extract the oil responsibly, but we can’t have both. As far as the costs go, they’re still there. Just because a company doesn’t have to pay the environmental costs of the oil directly, it doesn’t mean that someone somewhere isn’t assessed through polluted water, air, health care costs, or degraded land value.

      Someone does indeed pay. It’s cheaper though to pay those costs up front than it is to clean up a spill later on.

  4. Submitted by Bob Shepard on 11/25/2014 - 11:15 am.

    great piece, Ron

    Thanks for bringing a dose of reality with regards to the ND oil largesse. It’s not without significant cost and heartache. Having spent many days in western ND it saddens me that the environment and the people are being exploited this way. It’s a good message to all as we think about our energy future.

    The NYT piece was great too…should be required reading for anyone in the energy business, the government, or the electorate.

  5. Submitted by Ralph Kingsbury on 11/25/2014 - 01:53 pm.

    North Dakota Oil

    The Times article was distortion and lies. The reporters were lead around by a failed democratic activist. After first being swamped as a candidate for Lt Gov she tried to go to court and got thrown out twice. Now, like most failures, she uses her friends in the press who write anything with out regards to the facts.
    Too much traffic? Getting better as the state is pouring billions of dollars of oil tax revenue into the roads. Williston, housing is catching up. They have the most expensive “health club” in the state, new schools, new streets,…and on and on. Watford City would have been a ghost town in a decade. Now it is growing into one of the nicest bigger ND town. And on and on in the oil patch, and the whole state for that matter. And that is what the electorate vote for in every election by about 65 to 35.

    • Submitted by Jon Kingstad on 11/25/2014 - 02:38 pm.

      Distortions and lies

      How about some specific examples rather than an ad hominem attack on a source?

  6. Submitted by Ron Schalow on 11/25/2014 - 02:05 pm.

    Oil soaked ND Regulators

    The NYT stories aren’t the half of it…

    On Thursday November 13th, Department of Mineral Resources Director Lynn Helms presented the North Dakota Industrial Commission with proposed new standards (there never were any old standards), to “condition” the Bakken crude, supposedly for the purpose of making the Bakken oil trains non-explosive, somewhat less explosive, kinda not explosive, get the height of the fireballs down into double digits…I don’t know.

    But, if the goal is to render the Bakken oil trains NON-explosive, the proposal to “condition” the crude isn’t going to cut it.

    The producers have ALWAYS “conditioned” the crude, but, evidently, NOW they’re going to be “forced” by the North Dakota Industrial Commission to turn the knob a few notches to the right, and everything will be peachy.

    If it was that simple; perhaps they should have done that before dozens of people got killed…maybe sometime shortly after the first Bakken oil train derailed and blew sky high in 2008.

    They need to bring in the proper equipment to “stabilize” the crude, which will remove more than a fraction of highly explosive NGL’s like propane, ethane, and butane… but that option would cost the poverty stricken oil companies a substantial amount of money, and we can’t have that.

    On December 16, 2013, Lynn Helms; said his agency and the state Pipeline Authority are working to create a white paper that would study the characteristics of the state’s oil “to dispel this myth that it is somehow an explosive, really dangerous thing to have traveling up and down rail lines.”

    On November 13, 2014, Lynn Helms says, “The focus is safety first.” Uh huh.

    And…

    “We really believe that the vast majority of our Bakken crude oil will already fall well below the standard.”–Lynn Helms

    If Helms thinks that the “vast majority” is already safe for shipment, then why do the Bakken oil trains violently explode “EVERY” time they derail? We’re up to five as of today, and 47 deaths…five of whom were vaporized.

    Shockingly, the oil guys agree with Helms. (Jeff) Hume (Continental Resources vice chairman of strategic growth initiatives) said most of Continental’s Bakken oil already is below the proposed limit, and that the company would be able to easily comply with the new regulations.

    Now; how did that happen?

    All of that is more than a little dodgy, but get a load of this:

    Bakken producers aren’t just leaving explosive natural gas liquids in the crude; some are adding them…just in case 3 million gallons of “flammable” liquid per train isn’t dangerous enough.

    And our ND oil regulators had to know about it, and did nothing about it,..or else how would they know to make the rule. The practice is just going to be “limited” though, so there’s no reason for Ron Ness to freak out.

    “The rules also would limit the practice of blending Bakken crude with more volatile fuels.”–NEWSOK

    All of this sudden concern for safety is an obvious con, including the phony outrage of the ND Petroleum Council.

    Railway Age called it on September 26th…

    “The state’s (North Dakota) three-person Industrial Commission seems likely to adopt a set of industry-designed best practices. Simply put, North Dakotan crude will have to be lightly pressure-cooked to boil off a fraction of the volatile “light ends” before shipment.”

    This conditioning lowers the ignition temperature of crude oil—but not by much. It leaves in solution most of the culprit gases, including butane and propane.

    Even the industry itself says conditioning would not make Bakken crude meaningfully safer for transportation, though it would make the state’s crude more consistent from one well to another.

    The only solution for safety is stabilization, which evaporates and re-liquefies nearly all of the petroleum gases for separate delivery to refiners. Stabilization is voluntarily and uniformly practiced in the Eagle Ford formation in Texas…”–Railway Age

    Ron Schalow
    Fargo, North Dakota
    The Coalition for Bakken Crude Oil Stabilization

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