How the Bakken Oil Boom Impacts U.S. Supply Chains

Industry expert Jason Craig illustrates through the Bakken oil boom of North Dakota the impact of the oil and gas industry on freight transportation; in relation to diesel prices, driver shortage, new lanes and rail capacity.

For those of you on the coasts (all three of them—East, West, and Gulf) you may be vaguely aware of the Bakken oil boom in North Dakota. For those of us in neighboring states, North Dakota is the source of a clichéd “giant sucking sound,” the likes of which this generation has never experienced. And it has all happened incredibly quickly. The Ninth District Federal Reserve Bank (FRB) has been diligently monitoring and quantifying this boom. They recently calculated that North Dakota just topped an average output of 1 million barrels of oil per day. Typically, you can get 19 gallons of gasoline out of a barrel of oil. Therefore if that oil was turned into gas, North Dakota alone would produce 19 million gallons of gas per day!

The astonishing part of this situation is how quickly it came about. The Bakken oil boom is a little more than four years old. Check out this amazing chart from the FRB that measures the daily output of oil over the last ten years.

There are similar scenarios playing out in Texas and Pennsylvania as well. So why does this matter for supply chain professionals? The oil and gas industry impacts freight transportation in four significant areas:

Diesel Prices

A quiet, but powerful story across supply chains this year has been the stability of fuel prices despite geopolitical turmoil. Libya, Iraq, Russia, and Venezuela have all seen incredible political turmoil as significant oil producers, yet diesel prices have stayed in a tight range for the last 12 months and are currently $0.065 per gallon cheaper than this time last year. For most of you that means a break of around $0.01 per mile. There is no doubt that domestic oil production has a significant impact on the price of fuel at the pump and contributes to keeping prices low.

Driver Shortage

I was chatting with Ben Spilger from our Reno office about this when he said, “I can’t count the number of people I’ve met in Nevada with friends or family at least considering moving to North Dakota.” That’s because the unemployment rate in the Bakken is currently at 1.6%! The national average is somewhere around 6%.

A neighbor of mine’s relative was recruited to the Bakken to help develop manufactured home communities. He didn’t even want to go, but the offer was too good to pass up. Truck drivers know that their services are in tremendous demand as well. The Ninth District FRB says that 70% of all the oil in North Dakota is trucked from the wellhead to the rail or pipeline! That percentage doesn’t even include the sand, pipe, and other materials moving to and from the state.

The FRB estimates the average weekly wage in the Bakken is almost $1,300 per week—close to 50% more than the U.S. average.

There is no doubt that the truck-intensive nature of this oil boom is one contributing factor to the driver shortage facing the long haul, over the road sector of the industry right now.

New Lanes

Because of the tremendous increase in economic activity in a previously quiet part of the country, supply chains of all kinds now move material to the Bakken and East Texas. Companies that never had orders to North Dakota now have consistent lanes, regardless of product. Establishing new lanes is always a challenge, and there is no doubt that the shift in economic activity force many supply chain professionals to get creative in order to service the surging demands of these relatively remote parts of the country. From beer and toilet paper to zip ties and shampoo, Bismarck, Minot, and Belfield have never been on as many bills of lading as they are today!

Rail Capacity

My brother-in-law lives within a half a mile of the main freight rail track in the Twin Cities. His front row seat allows him to watch the incredible increase in train traffic along the route from the oil fields. Here is a short video of one such oil train in St. Cloud, MN.

With few pipelines out of the Bakken, most of the oil gets to the refineries via rail cars. With around 30,000 gallons of capacity, each car equates to roughly 700 barrels of oil. With a little more math, we know there could be as many as 14 trains of 100 cars each, per day from North Dakota! Needless to say, Warren Buffet’s bet on buying BNSF was no gamble. With the tremendous increase in high value oil trains, service levels at other rail freight operations have deteriorated. As the summer winds down and row crop farmers begin to harvest, they are concerned that bulk rail capacity may not be available for them either. In a strange year, it may be the ultimate plot twist if traditional row crops were put in trucks and it was bulk rail to truck conversion that put even more pressure on the market.

So even if you are 1,500 miles from Williston, ND, (I’m talking about you Pittsburgh and Phoenix), there is little doubt that the titanic changes on the upper plains are impacting your supply chain operations to some degree.


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Article by Cathy Morrow Roberson from Transport Intelligence - Published on July 10th 2013

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