States

N.D. governor discusses two-track approach on power plan, shale oil's prospects amid price shift

With a 45 percent emissions rate reduction in the final Clean Power Plan, what are North Dakota's plans for complying as it manages a power sector that runs primarily on coal? During today's OnPoint, North Dakota Gov. Jack Dalrymple (R) discusses his state's compliance and litigation plans for the Clean Power Plan. He also talks about the challenges facing his state's shale oil industry following the rapid decline of oil prices.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Gov. Jack Dalrymple, Republican of North Dakota. Governor, thank you for joining me.

Gov. Jack Dalrymple: Thank you, Monica. Glad to be here.

Monica Trauzzi: Governor, North Dakota has experienced a dramatic shift on energy this decade. Let's talk a bit about what the current landscape is looking like in your state with low oil prices at play and no signal from the international market that we could see a rebound in prices.

Gov. Jack Dalrymple: Well, I'm getting that question pretty frequently these days. North Dakota, as you know, has experienced a true oil boom in the Bakken Shale formation. We've gone from off the map to the No. 2 producer in the United States second only to Texas.

Producing about 1.2 million barrels of crude a day now and everyone is asking, "What's going to happen at lower prices?" So far, we've seen a significant reduction in rig count. Probably about half the rig count that we had last fall. We're down to about 68 rigs, but interestingly enough, our production has really not dropped yet. The rigs are going into the very best prospects that are out there. The production per well is extremely high so the production levels are staying about the same.

Monica Trauzzi: But the fact is we have more supply than demand. That is the critical issue here. You really encouraged aggressive expansion and growth of the industry within your state. Do you ever consider yourself responsible for encouraging all of that growth and now finding ourselves in the United States in a position where there is more supply than demand?

Gov. Jack Dalrymple: Well, not really. We think we are producing a huge amount of oil at 1.2 million barrels a day, but the world market is 100 million barrels a day. Even in North Dakota with our great success up there, we're not all by ourselves rocking the boat in the world's supply and demand.

But shale oil has been a factor worldwide. We're not the only place to find productivity in shale oil. That definitely has an effect. I think OPEC has looked at that and said this is more significant than we originally thought. It's going to be part of the world supply and demand scene and we're going to have to operate at a lower price level.

Monica Trauzzi: When did you begin hearing concerns in your state capital about a shale oil bust?

Gov. Jack Dalrymple: Well, we don't consider it a bust. The Bakken formation is unusual. The productivity is so high that, as I said, the production is staying steady even at these prices. We feel that nationwide or globally we will be very competitive on a cost-per-barrel basis.

Other areas of the country not so much. Oil sands certainly are not going to be competitive at these prices. So changes are taking place and our rig count is down, but by no means is it a bust.

Monica Trauzzi: So what do you see is the future of your state's economy as it relates to energy production?

Gov. Jack Dalrymple: I think our state economy is going to continue to do well because we have diversified our economy tremendously in North Dakota over the last 15 years. We're very strong in agriculture, very strong in technology, advanced manufacturing is a big deal in North Dakota, and all of those industries are doing well.

So we don't feel that we're overreliant on oil and gas. Actually less than 5 percent of our state general fund revenue comes from oil and gas taxes. So we don't need oil and gas revenue to run our state government, and that's a testament I think to the cautious attitude that our legislators have taken in this.

Monica Trauzzi: To run your state government, but there could potentially be a lot of people out of work.

Gov. Jack Dalrymple: Well, you have layoffs taking place. There's no question about it, especially the oil field services companies have laid people off, but we had going in the lowest unemployment rate in the United States. We had 25,000 unfilled jobs at one time. We're down to about 20,000 now.

Many people coming out of the oil field are finding other jobs in North Dakota. So to some extent we're catching up to the demand for employment that's been there for quite some time.

Monica Trauzzi: You've decided to not run for re-election in 2016. How much of that decision was due to the dramatic downswing that the shale oil industry has encountered?

Gov. Jack Dalrymple: Oh, none whatsoever. We're doing great in North Dakota. If I am not running it is 100 percent personal decision.

Monica Trauzzi: Let's talk about the Clean Power Plan. I know you're in town speaking with EPA about that. Following the release of the Obama administration's final Clean Power Plan, I had energy analyst Kevin Book on this show. He said that the natural gas bridge had been cut much shorter with that final rule.

Do you think the Obama administration has shifted away from its long-standing support of natural gas?

Gov. Jack Dalrymple: Oh, I don't know. All I know is that the Clean Power Plan has a set of rules proposed that really overreach we believe the authority of EPA. We feel that the rulemaking process itself was severely flawed and for that reason we are planning, preparing a lawsuit against EPA.

I don't know exactly what the master plan is. Many people have said so far the only thing they can really decipher is a war on coal coming out of this administration, but down the road, if it isn't going to be coal it's going to have to be something else. It appeared that natural gas was the next choice, but already there are some people saying that that's the next place that people will start hearing about CO2 reductions.

Monica Trauzzi: So you are planning a lawsuit, but you're also working on having conversations towards creating a compliance mechanism.

Gov. Jack Dalrymple: That's true. We're taking a dual track in that sense. We feel that the rules process was flawed and was not properly conducted, but at the same time, our power companies want us to begin work on a state plan. It takes a long time. We are committed to carbon reduction in North Dakota, but it has to be realistic. The original rule for North Dakota proposed an 11 percent reduction. On the last day when the rules were finalized that turned into a 45 percent reduction; about a four-times increase from the original proposal.

So we need to find out how in the world they expect us to deal with that because as of now our power companies are saying it is simply not doable.

Monica Trauzzi: Well, and because you function on majority coal. So how are you looking at potential compliance options and how will you manage that majority coal power generation?

Gov. Jack Dalrymple: Well, that's the big question. The development of a state implementation plan would put us on a course to eventually reduce CO2 emissions substantially, but it does take time. Part of it is better technology. Part of it is sequestration of carbon, but at the moment those technologies do not exist. So you need time to develop like means to reduce carbon.

The other part of it that's a problem is we're supposed to receive credits for investments we've made in renewable energy, but the final rule said anything that you've spent up until now gives you no credit whatsoever.

Monica Trauzzi: But your state also has a huge wind energy potential. You can grow that industry. How are you looking at the clean energy incentive program, which you just referenced, in order to potentially build on what you've already done on wind energy and continue that growth?

Gov. Jack Dalrymple: There is potential for much more wind energy being developed in North Dakota, but in order for that to work North Dakota would have to receive credit for developing that wind energy, not the state that we sell the electricity to.

At the same time, it's only going to really cover a fraction of the amount of reduction that we're being asked to do. You cannot build enough wind farms to replace the amount of electricity that we're talking about.

Monica Trauzzi: An emissions trading mechanism with other states could make things easier, right?

Gov. Jack Dalrymple: Well in theory, it appears that there's a kind of cap-and-trade-type model at play here where one state could sell credits by shutting down plants to another state that wants to continue to operate. In theory that could be where we eventually wind up, but no one has any idea what the cost of those credits might be. All of that cost has to be passed on to the consumer. That means higher power costs for everybody without any question.

Monica Trauzzi: But this is an option that your state is considering participating in.

Gov. Jack Dalrymple: Well, our power companies have no idea whether credits are going to be available or what the price will be.

Monica Trauzzi: In my conversations with various stakeholders on the Clean Power Plan, it's clear that there are more questions than answers at this point. What are your main questions for EPA?

Gov. Jack Dalrymple: Well, our first question in a meeting that we have coming up tomorrow will be how did you arrive at 45 percent when the original was proposed as an 11 percent reduction. That was the basis of all the comments that were received from thousands of different entities.

When all was said and done, suddenly it's 45 percent. What's the rationale? What thinking went into that? What changed that it would go from 11 to 45? We need to understand that.

Monica Trauzzi: Well, we'll end it right there. Thank you for coming on the show. I appreciate your time.

Gov. Jack Dalrymple: You bet, Monica. Good to be with you.

Monica Trauzzi: Thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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