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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 ...

Part of the Bakken’s potency lies in its size. Its best rock underlies an area the size of Switzerland. It will take some 40,000 wells to fully develop, or nearly two decades at today’s frenetic pace. But much of what has made North Dakota such an energy powerhouse lies in how breakneck advances have massively expanded what can be wrung from the rock. When Bakken development began in earnest in 2006, companies employed a single fracture per well, a technique people now call “the Hail Mary frack.” Today, in some cases, they use 40 fracks.

In 2008, Marathon estimated it would pull 350,000 barrels from an average North Dakota well. Now, it expects 550,000: a 55 per cent increase in just four years. Crescent Point has seen a one-third increase in just two years.

Some are skeptical, saying hopes for North Dakota continuing its rocket ride are pinned, in part, on a belief that older wells will diminish more slowly than is likely. Yet more advances are likely. Companies today expect to pull 5 to 10 per cent of the oil out of the ground. They’ve already begun lab experiments using underground injections of carbon dioxide and surfactants to see if they can wring out more. “If you look at where we were six years ago to where we are at today, it’s hard for me to see there’s not more out there to improve,” says Mr. Kovacevich, with Marathon.

Then there’s the money. Bakken oil is so light it can be poured into old diesel engines unrefined. That makes it valuable: Some companies have reported profits of $50 a barrel.

But what makes North Dakota rich could have the opposite effect on Canada. Fat margins provide ample cash for Bakken producers to outbid Canadian producers for pipeline space. They also mean North Dakota can keep drilling and pumping long after the oil sands is brought to its knees. “Tight oil plays do well in $40, $50 [a barrel oil price] range,” says Phani Gadde, an oil analyst with Wood Mackenzie. At that level, most Canadian oil sands projects bleed red.

For Canada, the best insurance may be to reduce its vulnerability to oil prices, perhaps dramatically. “We may have to think about how do we get the cost of getting the oil out of the ground down by $10 or $20, because that’s probably what you need to stay competitive in the long run,” says Leo de Bever, chief executive of Alberta Investment Management Corp., which oversees $70-billion of the province’s money. That’s a tall order for companies whose current operating costs run between $35 and $45.

The easier option is simply to open wide the spigots. The hurdles that Canada faces are many, but leaping them is technically simple: Build more pipelines. There is no shortage of options. TransCanada Corp.’s Keystone XL and East Coast Pipeline Project. Enbridge’s Flanagan South, Seaway expansion and Northern Gateway. Kinder Morgan’s Trans Mountain expansion. Together, these projects stand to carry over 2.5 million barrels a day of oil to markets that want it. If they are built, Canada will have so many paths to market that North Dakota will be little more than an after-thought for more than a decade. And even if they’re not all built, the sudden advent of rail transport also holds promise.

“If a reasonable set of investments and decisions are made, those rational decisions will mean that it all works out,” says Skip York, another oil researcher with Wood Mackenzie.

The Canadian oil patch, then, sees little for despair in the flames lighting up the North Dakota country-side. Yet there is no denying that they are also warning flares. After all, the same fracking technology now plumbing North Dakota rocks has also brought forth a torrent of U.S. natural gas, leaving an industry that was once Alberta’s bedrock in tatters.

“Canada historically provided the U.S. market with approximately 15 per cent of its natural gas – and we’ve already found that’s dropped off by about half, and it’s going to go to zero,” said Bernard Roth, a Calgary partner in the energy regulatory practice for Fraser Milner Casgrain LLP. “The same thing is replicating itself now with respect to oil. ... It’s an extremely serious risk to the Canadian oil patch.”

With files from reporter Shawn McCarthy in Ottawa.

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