Bacon (Bakken) Lettuce and Oil

Published 12:29 pm Thursday, May 9, 2013

The process of researching and writing opinion pieces has occasionally led me to following the rabbit paths off into the deep weeds.  In a few cases those rabbit paths cross others that I have followed.  The crossing of several of these rabbit paths brought me to a new realization that there is nothing new under the sun.  Our country has an energy problem.  It is an energy problem that is purposely being made worse by our government’s green initiatives.  The history of the petroleum industry shines a light on the problem.

When Obama took office, the price of gas was around $1.60 per gallon in Alabama.  One of Obama’s more famous quotes is that the American people need to get accustomed to $5.00 a gallon gasoline.  That price would make hybrids and pure electric cars much more attractive to the American car buyer.

The law of unintended consequence intervened and brought us news from the Bakken formation which lies under Montana, Norht Dakota, and part of Canada.  Oil was first discovered in the formation in 1951.  In 1951 it was too expensive to extract oil from that formation.  Obama drove the price of gasoline up, producing oil from the Bakken field became much more attractive.  The 2010 production of oil from the Bakken formation exceeded the industry’s ability to ship the crude to refineries.  

Shipping problems reminded me of a young John D. Rockefeller working as an accountant for a produce company.   While he was involved in the process of shipping produce, moving the lettuce, that young Mr. Rockefeller learned how to efficiently ship commodities, commodities like oil.   Later in life Mr. Rockefeller understood that he could dominate the market for lamp oil if he could control the shipping.  

Today, we have the government and the environmentalists blocking the construction of low cost shipping solutions, pipelines to keep the price of oil artificially high.  It is the elevated price of gasoline that continues to encourage the development of new technology expanding the estimates of recoverable oil in the  Bakken formation.  The current estimates of recoverable oil in the Bakken formation are pegged between 8 and 24 billion barrels.  New technology for releasing the oil from the rock structures continues to expand these recoverable oil estimates.  

The development of oil production facilities in the Bakken formation are progressing very quickly.  It is estimated that by the middle of this year production will reach 1 million barrels per day, a level that only six other oil fields have ever reached.  The estimates are that the Bakken formation will sustain a very high level of production for more than 30 years.

The amount of oil in the Bakken formation is just part of the story.  If you put some of the Bakken crude in a jar, it doesn’t look like crude.  It is described as light, sweet crude.  The Bakken formation crude contains a very high percentage of gasoline and other light   volatile components that can be processed to yield gasoline.   Sweet refers to the crude oil’s low sulfur content.   Simply explained, Bakken crude oil is very high quality.  Crude oil from the Bakken field yields a high percentage of gasoline with very little refining.   

It is very interesting that Mr. Rockefeller’s approach to expanding the market for kerosene was to drive cost down by eliminating production and distribution inefficiencies.  After 20 years of producing kerosene for use in oil lamps, he had driven the price from over 58 cents per gallon down to 8 cents per gallon.  He was described as a “Robber Baron,” pursued for anti trust violations and hounded until Standard Oil was broken up.   

I wonder what will happen to Obama who has used corruption to feed American tax dollars into “Green Industries.”  He has saddled one of the most productive industries in the world with taxes, fees, and inefficiencies designed to restrict the industry only to come face to face with one of those little uniquely annoying American facts.  Our industries are great because of individual initiatives fed by the freedom to compete.  Obama’s efforts to dry up the gasoline market by forcing the price of gas to soar has provided an infusion of capital to an industry that is willing to risk failure in pursuit of financial success.  

In spite of government, the Bakken Formation is supplying us with a fresh supply of gasoline and new millionaires.  I just love these United States.  There is no other place on earth like the United States of America.