The Amazing Energy Future that the Federal Government Wants to Prevent

Shale oil development in places like North Dakota means ‘OPEC’s days are numbered,’ but federal regulators pursue alternative future with potentially devastating results.

In 2004, North Dakota was the ninth largest oil producing state in the country, producing less than half as much oil per year as the state of New Mexico. In 2010, a mere six years later, North Dakota had climbed to the fourth largest, surpassing energy rich Oklahoma and Louisiana. What happened?

Two words: shale oil. The Bakken formation in the western part of the state, which the U.S. Geological Survey predicted in 1995 had only 151 million barrels of oil, turned out to be one of the largest onshore oil fields ever discovered in the United States — in 2008 the USGS famously revised its estimate upward by an amazing 25-fold, projecting that the Bakken could hold more than four billion barrels of oil.

This incredible story was told in detail this weekend in the Wall Street Journal‘s weekend interview, ” How North Dakota Became Saudi Arabia,” which focused on Harold Hamm, the oil man credited with discovering the massive energy potential in the Bakken:

[S]ince 2005 America truly has been in the midst of a revolution in oil and natural gas, which is the nation’s fastest-growing manufacturing sector. No one is more responsible for that resurgence than Mr. Hamm. He was the original discoverer of the gigantic and prolific Bakken oil fields of Montana and North Dakota that have already helped move the U.S. into third place among world oil producers.

How much oil does Bakken have? The official estimate of the U.S. Geological Survey a few years ago was between four and five billion barrels. Mr. Hamm disagrees: “No way. We estimate that the entire field, fully developed, in Bakken is 24 billion barrels.”

Of course, none of this would have been possible were it not for horizontal drilling and hydraulic fracturing, both of which are needed to unlock the vast deposits of oil and natural gas in shale deposits across the country.

Yet even with this amazing success story, the America’s ability to reduce its reliance on OPEC is far from written in stone, and indeed seems to be under attack by federal regulators whose actions could undermine this renaissance just as its getting started. As the WSJ further explains:

[Hamm’s] only beef these days is with Washington. Mr. Hamm was invited to the White House for a “giving summit” with wealthy Americans who have pledged to donate at least half their wealth to charity. (He’s given tens of millions of dollars already to schools like Oklahoma State and for diabetes research.) “Bill Gates, Warren Buffett, they were all there,” he recalls.

When it was Mr. Hamm’s turn to talk briefly with President Obama, “I told him of the revolution in the oil and gas industry and how we have the capacity to produce enough oil to enable America to replace OPEC. I wanted to make sure he knew about this.”

The president’s reaction? “He turned to me and said, ‘Oil and gas will be important for the next few years. But we need to go on to green and alternative energy. [Energy] Secretary [Steven] Chu has assured me that within five years, we can have a battery developed that will make a car with the equivalent of 130 miles per gallon.'” Mr. Hamm holds his head in his hands and says, “Even if you believed that, why would you want to stop oil and gas development? It was pretty disappointing.”

Washington keeps “sticking a regulatory boot at our necks and then turns around and asks: ‘Why aren’t you creating more jobs,'” he says. He roils at the Interior Department delays of months and sometimes years to get permits for drilling. “These delays kill projects,” he says. Even the Securities and Exchange Commission is now tightening the screws on the oil industry, requiring companies like Continental to report their production and federal royalties on thousands of individual leases under the Sarbanes-Oxley accounting rules. “I could go to jail because a local operator misreported the production in the field,” he says.

The impact of the “regulatory boot” and federal delays have a greater cost than hamstringing America’s capacity to produce energy. They also undermine the type of job creation and economic growth that a struggling economy so desperately needs:

Mr. Hamm believes that if Mr. Obama truly wants more job creation, he should study North Dakota, the state with the lowest unemployment rate in the nation at 3.5%. He swears that number is overstated: “We can’t find any unemployed people up there. The state has 18,000 unfilled jobs,” Mr. Hamm insists. “And these are jobs that pay $60,000 to $80,000 a year.” The economy is expanding so fast that North Dakota has a housing shortage. Thanks to the oil boom—Continental pays more than $50 million in state taxes a year—the state has a budget surplus and is considering ending income and property taxes.

Less reliance on OPEC. More high-paying jobs. Budget surpluses. Lower tax burdens for everyone. These are undeniable benefits of responsible oil and gas production — particularly in states with significant shale resources such as Pennsylvania (Marcellus shale), Texas (Eagle Ford shale), Louisiana (Haynesville shale), and now Ohio (Utica shale) — that the federal government should be encouraging. Instead, members of Congress are pushing for the Environmental Protection Agency to ban hydraulic fracturing, thereby cutting off at the knees America’s energy revolution. The President, meanwhile, is threatening to curb domestic oil and gas production through higher taxes.

Instead of trying to shut down North Dakota’s model of more American energy production, more jobs, and more public revenue, maybe the federal government should be taking lessons from it.

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