It is unusual for young Americans from the vibrant cities on the east and west coasts to move to the rural hinterlands in the Midwest in search of jobs. After all, in this region, in the northern part of the Great Plains, it was hard to find a job that did not involve farming. Compared to the pulsating life in the big cities, the picturesque small towns with only a few thousand folks held little charm for young people. Not anymore. Young geologists, machine operators, truck drivers, and construction workers are thronging rural towns in North Dakota, the emerging oil capital of the U.S. The state became the second biggest oil producer in the country after Texas in September this year, and the unemployment rate is just 3.5%, when the national average is close to 9%.
The oil boom has created thousands of jobs that pay well, but life is not easy out there. North Dakota is one of the most rural areas in the country, seemingly far away from almost everywhere else. Most workers live in temporary housing known locally as ‘man camps’, though the number of women working in these oil fields is gradually rising. Within a few years, the physical exertion wears out most workers, except the most tenacious and the desperate. But in a difficult economy, the oil fields are like a sanctuary for these men and women.
North Dakota owes its fortune to a rock formation under its vast grasslands. The Bakken, as the shale and dolomite rock formation is called, covers an area of nearly 200,000 square miles and holds large reserves of crude oil. Though estimates of total reserves in the formation vary widely, there is no doubt that the Bakken holds one of the largest oil reserves anywhere in the world.
But, possessing in-place oil deposits is one thing, and extracting the oil in a commercially viable way is quite another. Though the Bakken was first discovered in the middle of the last century, the oil deposits sit more than two miles below the surface and are extremely difficult to extract. However, recent advances in drilling technology, like hydraulic fracturing and horizontal drilling, have led to an almost four-fold jump in North Dakota’s daily oil production over the last five years, now mounting to nearly 500,000 barrels. That may not appear significant in a country that consumes 19 million barrels a day on average, but the potential these deposits hold for the country’s energy security is enormous.
In 2008, taking into account the available drilling technologies at the time, the U.S. Geological Survey estimated that the recoverable reserves in the Bakken were not more than 4.3 billion barrels. However, current high oil prices will likely lead to increased investments in technology development and the quantity of extractable oil could possibly become much higher. What’s more, this boom in unconventional oil and gas production is now spreading beyond North Dakota and Texas to other states as well. Reserves of shale oil and gas have been discovered in states like Pennsylvania, Colorado, Ohio, and New York. While the potential environmental damage from shale drilling remains controversial, it is hoped that new processes, technologies, and increased regulation can address such concerns.
Interestingly, rising global geopolitical uncertainties could facilitate faster development of unconventional energy deposits in North America. The large global oil companies are increasingly feeling unwelcome in countries such as Russia and Venezuela. Even in countries such as Brazil, where a large offshore oil reserve was discovered recently, government-controlled companies dominate exploration and production. These trends have already encouraged the big oil companies to invest more in developing the shale deposits in the U.S. and Canada. Energy companies from emerging countries like China and India are also aggressively investing in North American shale energy assets.
The import of these developments is already evident. The U.S. has moved past Russia as the world’s largest natural gas producer and most of the output growth has come from shale gas, which currently accounts for 34% of all natural gas production in the country. A recent study by IHS Global Insight estimates that shale gas exploration and production could possibly add 870,000 jobs in the U.S. over the next four years. IHS also forecasts that, if shale gas output growth is sustained as expected, the federal and state governments will reap $933 billion in taxes over the next 25 years. Like some in the industry say, the U.S. has the potential to become the Saudi Arabia of natural gas. Similarly, output of crude oil could also see an appreciable increase in the coming years if investments are sustained and the environmental impact is contained.
The economic and strategic significance of higher domestic energy output cannot be overstated. Increased domestic supplies have kept natural gas prices contained in recent years, and more electric utilities are making the switch to natural gas. Apart from keeping consumer prices low, natural gas is more environment-friendly as it burns cleaner than coal. Further, declining dependence on imported energy should help narrow the large U.S. current account deficit. In the future, it is possible that the U.S. could limit its energy import sources to neighbors and allies such as Canada and Mexico.
Energy independence has been an ambitious strategic objective of successive U.S. administrations for the past several decades. But this goal had never appeared realistic until now. The extensive shale energy reserves are indeed another of America’s natural blessings that, if developed judiciously, could help lighten some of the nation’s long-term economic challenges.
Postcards from Around the World
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