Oil Makes Things Possible

Cold days are good for reading and writing, and I’ve been reading stuff written by some of my old friends—four of them, to be exact—as they hunker down inside their warm houses and offices waiting for above-zero days. Four thoughtful men, and they’re thinking about the future of our state, and writing about it from informed positions, since they’ve all been part of our past and our present. And interestingly, they’re all thinking about it in the context of our present-day oil boom, and all the things—good and bad—that have come with it.

Lloyd Omdahl, our former Lieutenant Governor, who still writes one of the best weekly columns in the state, and who is celebrating his 82nd birthday today (Happy Birthday, Lloyd), began his column this week with this:

“Economists at North Dakota State University have calculated the annual economic impact of the Bakken Field development and came up with $13 billion for 2009 – and a lot of growth has occurred since then. For a people used to dealing in thousands, and sometimes millions, talk about billions is impressive.”

Impressive indeed, and that new-found wealth, and what we should do with it as we head into the year in which we are going to celebrate 125 years of statehood, has gotten a couple of my other friends writing this week.

“This is North Dakota’s moment,” wrote Mike Jacobs in the Grand Forks Herald’s editorial Saturday morning. “Put as plainly as possible: Oil makes things possible. With revenue from oil, North Dakota can build the institutions and the infrastructure that will carry the state forward with and then past the age of oil.”

“Oil makes things possible.” Mike and I first heard that phrase more than twenty years ago from a Bad Lands rancher, in response to our question about why a stretch of gravel road was paved over in front of a ranch we were driving by. Oil money from a well drilled on the edge of a pasture during our first oil boom, back in the1970’s, let that rancher keep the dust down from passing traffic on dry, windy North Dakota days. Oil money made that paved road possible.

The possibilities are much bigger now, although certainly paving roads is still one of them—just longer stretches of them, in much busier places than Bad Lands ranching country.

Writing about plans for the state’s Quasquicentennial (get used to that word—you’re going to hear it a bunch this year—it’s what a 125-year anniversary is called), which kicks off Monday with a press conference in Bismarck, Mike wrote: “We’ll have to wait to see what the state’s historians and political leaders have in mind. Much emphasis will be on the past, of course. That’s the nature of anniversary celebrations. But the future can’t be ignored. There needs to be a discussion about how to spend the Bakken wealth, for example, so that prosperity is shared at home rather than exported elsewhere.”

How to spend the Bakken wealth. Mike is right. Those six words ought to dominate the thoughtful discussion in North Dakota this year. To be sure, we’ve started on it. We’re investing hundreds of millions of dollars in infrastructure to try to keep up with the demand this unprecedented growth in North Dakota has precipitated. In Mike’s back yard, we’re building a new medical school at UND. In my front yard, we’re about to unveil our new $50 million Heritage Center addition. Dickinson State University is going to build a $15 million Theodore Roosevelt Presidential Library, most of it with state funds. A new Outdoor Heritage Fund which, although drastically underfunded, is supposed to help us build new parks, protect wildlife and enhance our outdoor quality of life, will make its first round of grants this week.

Clay Jenkinson echoed some of the same themes in his thoughtful column in Sunday’s Bismarck Tribune. “We have more money in our state coffers than we know what to do with. Our public institutions are more generously funded than ever before in our history. After many decades of barely getting by, North Dakota suddenly has enough money to fund a wide range of desirable initiatives, with money to spare.”

Higher education, Clay argues, ought to be a top priority as we plan for our future in this Quasquicentennial year. On the surface, it’s not as sexy as many other things we North Dakotans could put on our “bucket list” for the state, but, Clay wrote,  “This is the time to redouble our efforts to create the best-educated citizens of America–in faraway North Dakota, seemingly so distant from MIT, Yale, and Cal Tech. We should do this here in North Dakota because for the first time we can really afford it, and because every study indicates that the twenty-first century is going to belong to the societies that invest deeply in education at every level. If we invest the windfall wisely, we could become one of the most attractive places to live in America by 2050, and we could overcome the 20th century ‘problem of North Dakota,’ that there is not enough within our borders to convince our children to make their lives here, not enough to lure new families who had the misfortune to be born elsewhere.”

Clay’s right, of course. We have enough money to build the best higher education system in America, and still have plenty left over for almost anything else we could want. A few years back, Clay and I, and a couple others, were having supper with the president of one of our North Dakota universities, and the conversation got a little high-minded, as it often can do when you put Clay and a university president together, and I proposed that one way we could make that happen would be to announce that we were immediately going to double the salaries of every college professor in North Dakota, and at the same time, open up every position on every campus, and let current faculty compete for those positions at double their present salary. We wondered if we could attract the top professors in America to North Dakota, and with them, the top students in America, seeking the best affordable education available at public institutions in our country. And we also wondered how many of the current faculty members at North Dakota universities would support such a program. We didn’t answer those questions, but this might just be the time to open the financial faucets of our higher education system and see what happens.

Beyond that, though, we need to use this year, as both Mike and Clay argue, to figure out a way to deal not just with the new-found wealth, but with the problems associated with this boom. Clay again: “The best way to celebrate our birthday would be to create a new North Dakota social contract, a twenty-first century mission statement, so that we can direct the economic miracle that has come to North Dakota rather than be, in the end, merely overwhelmed and damaged by it.”

Direct the economic miracle. Those are the four most important words Clay wrote. Now that we mostly understand what is happening to us, after sitting back and just letting it happen for the last few years, probably  the most important thing we could do now is to take charge, to thank the oil industry and this great American capitalistic system that has let this happen here, and say “We are happy you are here, and we are happy you are bringing us this great wealth, but we’d like to remind you that we are North Dakotans, and we are in charge here, and here are the new rules by which we’re all going to play.

In Lloyd Omdahl’s words: “Our euphoric daze should not blind us to the reality of oil development. The oil industry is not in North Dakota because it saw a state in need of an economic boost. Neither is it here because our tax revenue has always been short. And it is not here to provide new jobs and more population for a sparsely-populated semi-arid west. The oil industry is here because it can make billions of dollars mining our resources. And let us not forget that while North Dakota is prospering from the oil development, the oil industry is profiting even more. When oil exploration and production ceases to be profitable, the oil industry will pack up and leave us with the consequences, whatever they may be.”

We saw one of those consequences just in the past week. The vision of the huge fireballs erupting over the countryside on the outskirts of Casselton brought home to us that we are not in charge here right now. Frankly, no one’s in charge. The Bakken Boom has taken on a life of its own, a bigger, more dramatic life than we’ve ever seen here on the northern prairie. That’s dangerous. We are not a people accustomed to, or comfortable with, chaos, yet chaos rules the day in North Dakota right now.

The derailment and explosion in North Dakota brought us the realization that we are living dangerously by shipping most of our oil by rail in unsafe tanker cars. During this chaotic period the state granted drilling permits as fast as we could, to keep the industry happy, and when we got to the point we were producing more oil than we could ship by truck or pipeline, well, glory be, the railroads stepped up to the plate and said “Give it to us. We’ll haul it.” Our officials breathed a deep sigh of relief and turned them loose. All kinds of rules were bent to accommodate the oil companies and the railroads, but then there were three really big, fiery crashes. And now we’ve realized things are out of control.

But what can be done? If the government moves to pull the unsafe cars hauling unsafe products out of service, the oil doesn’t move. That’s unacceptable. The oil has to move, or the boom stops.

One solution came from my old friend Fred Schumacher, a thoughtful expatriate who has been watching all this happen from a distance. Fred suggested a way to begin to take control: Build our own fleet of oil tank cars. As I wrote here the other day, the one thing private industry has refused to do is upgrade their tanker cars to make them safe. It would be costly and it would take time, and the oil doesn’t have time—it is coming out of the ground and needs to be moved. One solution is to undertake a “war effort” like we did at the beginning of WWII, this time to build safe oil tank cars. I suppose a massive effort, with enough steel and enough money, could crank the cars out pretty fast. Fred says we have the money, and there is precedent.

When the province of Alberta, Canada, realized it wasn’t able to move all of its grain to market a number of years ago, it used oil tax money from its Heritage Fund (sound familiar?) to build its own fleet of covered hopper cars to move the grain. It loaded those hopper cars full, and the railroad just pulled in with a couple of locomotives, hooked up, and took the grain where it needed to go, mostly coastal markets.

“Alberta conservatives (who ran the provincial government at the time) weren’t stupid, and they realized that oil was a one-time harvest and taxes had to be collected to be set aside for the future. Alberta’s Heritage Fund grain hopper cars are a model for what North Dakota could do,” Fred wrote to me this week. “We need a special session of the Legislature. They should look at what the Alberta Tories did to institute their Heritage Fund and use that money to fund mitigation for oil development and double-wall tanker cars to lease to the railroads as Alberta did with grain hopper cars.” Take a look at the hopper cars here.

Well, Fred’s right. We could do that. There’s precedent here. We have a state-owned bank, and a state-owned mill and elevator, and there’s no reason we could not react very quickly to build a fleet of safe oil tankers and require that railroads use them to move oil through our state. Or at least threaten to do that. That might get the private sector to move forward with a massive effort to build safe oil tanker cars. (Although secretly, I’d like the state to do it instead.)

Another big idea. I hope our leaders will follow the advice of Lloyd and Mike and Clay and Fred, big thinkers, all of them. We’ve got problems to solve. We’ve got the money to solve them. And we’ve got the raison d’etre—a Quasquicentennial—to do it.  Let’s use this year to take charge of our future.

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8 Responses to Oil Makes Things Possible

  1. Robert Carlson says:

    Great column! As Winston Churchill said, “take change by the hand, or it will take you by the throat.” We have the opportunity to do that if we do some planning soon.

  2. Tom says:

    Enjoyed the read. If I read the message right let’s tax the oil related industries more and then dream about how we can have government go into competition with free enterprise. Investing more money in “Government” by taxing those that are experiencing success does not guarantee “Government” knows what to do with the additional revenue!
    I would suggest we do more of what South Dakota has done by making it more profitable to run a business in the our great state. Create a “mouse trap” that will attract the new service industries to move here. Differentiate our State to attract new business to locate in ND, diversifying our economy. Building bigger government does mean a better economy!

    • anthony says:

      Alaska is hardly a hotbed of big government liberals. However in Alaska, oil companies are in fact taxed and the proceeds are deposited into the Alaska Permanent Fund. Out of that fund, every man, woman and child in the state who has been a resident for at least one year, received a check regardless of financial need or income. A family of four with two parents and two children would have received $3600 last October. I have always found it fascinating that in one of the most conservative states in the union, textbook socialism is enthusiastically embraced by the citizens as well as the overwhelming majority of its elected officials, including their former governor.

      • Avatar of Jim Fuglie Jim Fuglie says:

        Not only that, Anthony, but in Alaska, I believe, the state owns all the minerals, except for those owned by the federal government, and there is no private ownership of minerals. So in addition to the taxes on oil being available to the people, so are the royalties, something like one of every six or eight barrels. That makes Alaska a very wealthy state.

  3. Anita J says:

    And the Poppers thought ND would become the ‘Buffalo Commons.’ I wonder if they’ve changed their minds!

  4. Brian Dwyer says:

    Everything has a price or downside. Too much for a few and too little for many seems to be the downside of capitalism, the grand Monopoly Game. When Alaska was floating in oil money they threw money at everything, with questionable planning. Eventually they did get the ‘Permanent Fund’ set up so that every resident got a little piece of the pie. Local people spent money locally and it became a part of life for everyone in the state. It is not the only answer and I believe your people are right to consider catching up the infrastructure and services including if not especially the education system. I write this as a North Dakota son and former Alaska resident now living in a logged out Oregon that had its boom years in timber.

  5. David Nix says:

    “we could become the most attractive state by 2050″. Interesting prediction! If we don’t start RIGHT NOW to move away from an oil/coal based economy global climate change will have long passed the tipping point by 2050 and it won’t matter how we spend all our revenues from oil development. I fear for my grandchildren when thinking about the kind of world there will be in 2050. Two things we know will be true: too many of us and far warmer. All the $ in ND won’t eliminate those concerns.

  6. Fred Millar says:

    Thoughtful discussions here about the future of the oil industry in North Dakota. What ND does with its new wealth could also benefit the rest of the nation. As for any state faced with massive profit-driven extraction economic Chaos machines, the last question posed on this thread is the most important — how much and how fast to allow extraction? The fireballs from trains blowing up tragically all over the North American continent are a very useful icon and wake-up call, and suggest we might need a capable government after all, despite the long Reagan-era denial of that need.

    We not only do not have any real government of the rail transportation of hazardous chemicals, we do not have any effective regulation of even the most disaster-prone oil and chemical plants. Serious readers of this blog will appreciate seeing a devastating critique of how lame the US disaster prevention regulatory system is at all levels compared with nations like Australia, the UK and Norway. The US Chemical Safety Board’s latest report on the disastrous Chevron refinery fire in California is a clear and persuasive comparison of the systems and an indication of what a serious US effort to improve safety for fixed facilities or for hazmat transportation would look like. Wonder how much chemical engineers are paid in US industry compared with the pretend-government regulators? See p. 81. [This is not to slam the good intentions of the over-matched government staffers.]
    CSB Safety Case regs needed CA Chevron full report 12 16 13
    http://www.idevmail.net/link.aspx?l=3&d=86&mid=414620&m=1280

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