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Bright natural gas flares dot the North Dakota landscape amid an oil boom that is changing the energy dynamics of North America. (Nathan VanderKlippe/The Globe and Mail)
Bright natural gas flares dot the North Dakota landscape amid an oil boom that is changing the energy dynamics of North America. (Nathan VanderKlippe/The Globe and Mail)

In U.S. energy renaissance, flares of fear for Alberta’s oil patch Add to ...

Against a backdrop that also includes lingering concerns about the environmental impact of Alberta’s oil industry, some companies are contemplating an exit. Marathon Oil Corp. has publicly mused about pulling out of the oil sands, even as it chases the thick profits in not only North Dakota, but a series of similar “tight oil” fields across the U.S. Between 2011 and 2012, Marathon expects its onshore U.S. production to rocket up 90 per cent. The company recently highlighted one “monster well” that shot to surface 6,275 barrels of oil equivalent in one day, and said that in Texas, the Eagle Ford field alone “is a company maker.”

That has Marathon looking at whether it can cash out its 20-per-cent stake in the Athabasca Oil Sands project, one of the most expensive ever built on a per-barrel basis, to “reinvest that in profitable growth” elsewhere – in places like the Bakken, which, as they say in North Dakota, is rockin’.

Money is pouring in. So many workers have flocked here that it can take three hours to check out at the local Wal-Mart, and half an hour to get through a 700-metre line of cars waiting on a left-hand turn. They are building an energy future for the U.S. that was unimaginable – to the industry on both sides of the border – even a few years ago.

“As I tell my employees, you’re sitting through history in the state of North Dakota,” says Terry Kovacevich, who leads Marathon’s operations in the state.

A PIPELINE BUILDING SPREE

Not far from Stanley, N.D., a brand new Enbridge pipe curves out of the ground, untarnished steel painted white and coated with ice crystals that glint in the sun. The pipe is empty, but not for long. Early next year, the first barrels of North Dakota crude will flow through, pushed along by a pair of 3,500-horsepower electric pumps.

A few hundred kilometres from here, in Manitoba, those barrels will drop into an existing pipeline, the Enbridge Mainline, that has long connected Alberta’s oil fields with refineries in the U.S. Midwest. For years, the Mainline has been the backbone of Canadian oil exports. It was built to carry Canadian product to market. But North Dakota stands geographically between Alberta and those markets – and increasingly, Bakken barrels merging onto the system are creating traffic jams for Canadian barrels.

Some 235,000 barrels a day of Bakken crude now run through a pair of Enbridge pipelines that connect to the Mainline. That brilliant new pipe near Stanley will help boost the total volume to 395,000 in 2013. By 2016, Enbridge expects to complete construction on Sandpiper, a new $2-billion pipeline that will scoop up another 225,000 barrels a day from North Dakota.

The flood of U.S. crude is already having a substantial impact. This November, Enbridge pipelines are under apportionment, the industry term for the rationing that takes place when the pipes can’t carry any more oil.

For Canadian oil producers, the market has responded ruthlessly. Though oil is a commodity, prices vary widely. The global benchmark, Brent crude, currently fetches about $109 (U.S.) a barrel. The U.S. benchmark, West Texas intermediate, stands at just $86 or so because of the continental surplus, driven in part by North Dakota. And with Canadian oil even more backed up, prices north of the border are even weaker.

December sales of Canadian heavy crude are trading a full $30 beneath the benchmark North American oil price. On average, 2013 futures prices show a $24.25 discount.

Numerous companies are now hauling oil on trains to get around the pipeline logjam. Tundra Energy Marketing Ltd. has taken it a step further. It’s now loading small volumes of Canadian oil on trucks and sending them south.

“We’re trucking crude to Stampede [N.D.] from Canada so we can get it on rail cars to move it to refineries,” said president Bryan Lankester. “It’s crazy,” he said. But “Canadian crude is moving into the U.S. because of Enbridge’s issues with apportionment in Canada.”

He believes the pain is unlikely to be short-lived. Pipelines take time to build, and the deluge of oil keeps coming: The Bakken is expected to hit nearly a million barrels a day in coming years, while forecasts have Canada delivering an extra million barrels a day between 2012 and 2018. There is a “huge discount on Canadian crude,” Mr. Lankester says. He adds: “there’s going to be more of these disparities over the coming years.”

REFINERY FLEXIBILITY

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