Wednesday, May 16, 2012

Happiness is Multiple Pipelines

North Dakota appears to be becoming a modern day Titusville. Topping Alaska in oil production, North Dakota is now a number two oil producer in the nation, just behind Texas and ahead of California thanks to the boom in shale oil. With 152.9 million barrels of crude oil output in 2011, this Midwestern state is enjoying the lowest unemployment rate in the U.S. at 3.3 percent, drawing a massive inflow of migrant workers from all over the country, and increasing in per-capita income by 78 percent, which is twice the national average. The only complaint of North Dakotans these days has to do with crowded roads and restaurants and shortage of hotel rooms due to boom in oil workers.

While U.S. is witnessing highest levels of oil production in years, with no signs of abating in the foreseeable future, distribution of oil abundance is likely to remain a challenge in the near term. The pipeline system in the country is inadequate to carry oil freely across the states since most of it traditionally was set up to bring refined oil and gasoline from the coasts to inland. Now the problem is moving massive amounts of oil from shale production in Texas and North Dakota, leading to a bottleneck in the U.S. major crude oil storage in Cushing, Oklahoma. As a result, the price differential between Midwestern and East Coast oil prices has been substantial.
An upcoming reversal of the Seaway pipeline from Oklahoma to Texas will provide cheap domestic oil to the refineries there, which would help reduce oil imports. While the reversal of Seaway may help balance the price of West Texas Intermediate (WTI), a North American benchmark in oil pricing, the situation is calling not only to be careful in assuming that it will bring down oil prices and keep them stable, which are still affected by international developments, but also to get serious with building more pipelines to move rising domestic crude across the country.

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