Where the Well Things Are

Everything we thought we knew about energy development just a few short years ago seems to have been turned on its head.  Some of this change has been caused by new technology, some by old politics; a lot by larger forces in the world around us:

Over the next three decades, world energy consumption is projected to increase by 56 percent, driven by growth in the developing world, according to International Energy Outlook 2013 (IEO2013), released today by the U.S. Energy Information Administration (EIA).

“Rising prosperity in China and India is a major factor in the outlook for global energy demand. These two countries combined account for half the world’s total increase in energy use through 2040,” said EIA Administrator Adam Sieminski. “This will have a profound effect on the development of world energy markets,” said Mr. Sieminski. Clean-fuel technology is also playing an important role in the outlook, with renewable energy and nuclear power expected to grow faster than fossil fuels over the forecast period.

It’s hard to keep up.

The technology of hydraulic fracturing and underground mapping (the “unconventional market”) have converged to open up vast reserves of oil and natural gas which were previously unknown or uneconomical to recover.  Plus the long surge in global energy prices have institutionalized strong profit motives to develop new oil plays.

Local economic benefits (and costs) of oil and gas development come in two waves—exploration and production.  The first wave is highly speculative, and may be a one-shot deal or a series of waves as producers refine their techniques and technology.  A leading indicator of exploration is rig count.  How many drilling rigs are out there drilling new wells?

The Baker Hughes oil services firm has been counting active drill rigs since 1944.  Year after year, Texas holds the top spot, followed by Oklahoma and Louisiana (counting onshore and off-shore rigs).  The biggest changes have come in North Dakota’s Bakken Shale and Pennsylvania’s Marcellus Shale.  North Dakota has recently joined the top tier, growing from an annual average of 10 drilling rigs a decade ago to 40-50 five years ago and 188 last year.  Pennsylvania also vaulted from 10 rigs to 100 by 2011 to join the next tier of exploration, similar to New Mexico, Colorado, and Wyoming where natural gas-related activity started earlier before oil shale took off.  There is also significant drilling activity in Utah and California in the West, Kansas and Arkansas in the nation’s middle, and West Virginia back East.

As of the 6th of September 2013, there are 1,767 rigs drilling across the United States, and 389 rigs drilling in Canada.  Both counts were down less than a dozen from a week earlier; Canada was up by 44 rigs since September 2012, but the U.S. was down almost 100 active rigs.  Across the western U.S., there are 838 rigs drilling in Texas, 170 rigs in Oklahoma, 168 rigs in North Dakota, 74 in New Mexico, 68 rigs in Colorado, and 49 in Wyoming, including two drilling rigs in Laramie County (one of which I could see out my office window).  Not all parts of the West are attracting that much oil and gas exploration—there are more rigs drilling in Mississippi than in Montana.

Baker Hughes also provides a “quarterly census of the number of new onshore oil and gas wells” by basin across the U.S.  Looking at production regions gives us a better picture of activity impacts.  In the second quarter of this year, Baker Hughes counted 2,294 wells in the Permian Basin of West Texas and eastern New Mexico; 619 wells in the Williston Basin of North Dakota, South Dakota and Montana; 448 wells in the Marcellus shale in the northeastern U.S. (with more in the larger Utica formation); and 293 wells in the Niobrara across Colorado, Wyoming and Nebraska.

U.S. domestic oil production peaked at 3.5 billion barrels per year in 1970, gradually bottoming out to 1.8 billion barrels in 2008.  According to the US Energy Information Administration, there were 2,374,021,000 barrels of crude oil produced in the U.S. in 2012.  Once again, Texas is an entirely different nation, with production rebounding to 729 million barrels in 2012, 70% higher than 2010.  North Dakota doubled oil production in the same period, passing both California and Alaska.  Production in California and Alaska has been steadily declining.  Oklahoma production in 2011 was 50% 1981 levels, but rebounded in 2011.  New Mexico has varied, but saw record production in 2012.  Wyoming crude production declined significantly in the 1980s and 1990s, and has been fairly static since.  Colorado also declined in the same period, but recovered to record production in 2012.

U.S. natural gas production also peaked in the 1970s, not reaching similar levels again until 2010, with 25,319,457 mmcf marketed production in 2012.  Alaska produces a large amount of natural gas from oil wells, but 90% is used to re-pressurize wells.  Texas marketed 7,240,315 mmcf onshore and off-shore in 2012, while marketed production in other states was led by Louisiana 3,002,937 mmcf, Oklahoma 2,021,001 mmcf, Wyoming 2,055,244 mmcf, and New Mexico 1,266,099 mmcf.  Colorado marketed 1,637,576 mmcf in 2011.

Where the Wells Are, and May Be

The rapid expansion of oil and gas production in the Bakken oil play has deservedly attracted a lot of attention, both inside the affected states and from outside interests.  Back east, rapid expansion in the Marcellus and Utica plays has also raised concerns, especially given the much greater population density in the Northeast.  The large numbers of new workers, truck traffic and demand for frac water create both opportunities and challenges for local leaders and long-term residents.

Still, its important to realize that North Dakota wouldn’t be the second largest oil producing state if Alaska and California had maintained their production levels.  And there are almost four times as many producing wells in the Permian Basin of Texas and New Mexico as in the Williston Basin of North Dakota, South Dakota and Montana, and the Niobrara is half that size.

The impacts are real, but we still have a chance to do something positive for our communities.

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