Utah

The Factors

  • Unique oil Characteristics

    One of the difficulties of oil development in the Uintah Basin are the Uintah crudes’ “waxy” characteristics. These crudes have a high paraffin content that causes them to harden when their temperature falls below approximately 105ºF. This results in transportation difficulties, but the paraffinic quality also makes waxy crudes valuable for specific petroleum-based products and lubricants. Uintah crudes are also renowned for their low sulfur content, which makes meeting federal emissions regulations less expensive for refineries than many other crudes.

     

    However, this oil does not provide as much gasoline per barrel as some other oil types available to Salt Lake refineries. It also requires additional refining equipment to break the hydrocarbon chain and remove the waxy characteristics before continuing the refinement process. Largely due to these characteristics, Uintah waxy crudes are priced lower by the nearby refineries in Salt Lake.

  • Limited market for selling waxy Crudes

    Until recently, the only economically feasible selling option for the Uintah Basin producers was the five refineries along the Wasatch Front via State Highway 40 (with a very small percentage continuing on to Wyoming). Over time, these refineries have ensured that they have adequate capacity to handle essentially all Uintah Basin production.

     

    In 2014, three oil transloading facilities opened in Carbon County as old coal shipping facilities diversified their portfolios. The three stations have capacity to haul 69 percent of the oil that is produced in the Uintah Basin. Currently, these rails take oil on heated cars to the Gulf and West Coasts, with a limited amount being shipped to Oklahoma. Despite low oil prices, a pipeline from the Basin to these facilities is currently in discussion. These facilities have opened many doors for producers; however, their full impact on the industry is still to be determined.

  • Price Discount

    Uintah Basin crude has been discounted an average of $11.93 less than WTI prices per barrel, and $21.40 less than Brent crude. Many people in the Basin believe the discount is partly a result of Uintah Basin crude’s constrained access to a handful of refineries. They claim transportation barriers to shipping waxy crudes hold the market captive to Salt Lake refineries since the oil has nowhere else to go.

     

    This has resulted in the belief that expanding Utah’s oil refinery market will bring waxy crude prices closer to the U.S. average. However, the necessity of heating the oil for transportation may not result in leveling prices completely. The new oil transloading stations will allow Utah producers to test these assumptions.

     

    Regardless of the cause, the size of the price discount is burdensome for Utah producers, especially when prices are down; their prices are reduced to among the lowest in the U.S. market. As a result, any great change in the discount is likely to increase Basin production.

  • Unconventional Resources

    Oil sand and oil shale deposits in the Uintah Basin contain a combined 320 billion barrels of oil. Estimates of what is recoverable vary however Utah’s Geological Survey estimates 77 billion barrels from oil shale and 15 billion barrels of recoverable oil from tar sands. These resources are not developed using traditional oil well or fracking technology. Rather, these oil deposits are mined, milled, and the oil is extracted using various methods.

     

    MCW Energy Group and U.S. Oil Sands are currently demonstrating promising new tar sand oil extraction technologies at their respective facilities in the Basin. On the other hand, oil shale companies have been impacted more by low prices than other unconventionals and have slowed development. It is unclear when development of their facilities will be completed.

     

    These operations tend to have higher levels of production stability than fracking operations. The capital costs of these mining facilities generally require them to continue producing at a base level regardless of oil prices. For this reason, they could provide high-paying jobs that fluctuate much less with the market than their fracking counterparts. Local tax revenue would also be more consistent for local governments. Large scale development of these operations would bring more economic stability to the region.

  • Land Ownership

    Despite accounting for only 1.27 percent of U.S. oil production, Utah accounted for over 25 percent of all permits to drill on federal lands. Two-thirds of Utah is federal land. Much of the conventional and unconventional oil reserves in the Uintah Basin exist on federal and tribal lands. As noted previously, permitting for land managed by the federal government takes significantly longer and has many more regulations constraining development than state or private lands. Duchesne County is 44 percent federal land, and 20 percent tribal land;  Uintah County is 58 and 16 percent respectively.

     

    As a result, changes in federal land management, permitting processes, and regulations will impact the Uintah Basin more than almost all other U.S. oil-producing regions. As regulations and permitting procedures are reduced, more federal lands will be developed. If the current trend of increasing regulations and permitting times continues, production on federal land will continue to decrease as a percentage of total development.

Map of Factors

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Utah

Utah Indicators

Uintah Basin’s pro-oil development culture results in leaders who support industry development.
A highly trained, in-place workforce make starting production in the Basin easier than many locations.
Limited access to refineries decreases the size of the market Utah producers can sell to.
The waxy crude discount decreases both profit margins and the price Utah producers are paid for their product.
When developed, unconventional resources continue producing even in downturns, resulting in potentially more stable development.
Extensive federal lands in the Basin result in more expensive development for oil companies who do not have access to private land.