For the past months, drilling activity has been on the rise in Montana, and as it has been for the past two years, a roar can be heard from the Bakken in North Dakota.

As Montana Gov. Brian Schweitzer said, Currently, there are only two American states that have consistently continued to increase their production, and that’s North Dakota and Montana. However, despite this increase, there’s something troubling to the oil and gas producers, the landowners and the governing bodies of the state – the market differential of Bakken crude is too great.

“During its height in 2008, there was a difference of $23,” Continental Resources President Jeff Hume said. Currently, the price is much lower, Harold Hamm issuing a statement last week saying it is $8 to $12 per barrel, and that’s a price that adds up even with oil at a fairly steady price of about $70 per barrel.

This difference means Bakken producers will receive $63 or so as compared to $73. Where the difference comes in is the lack of suffecient infrastructure for Bakken producers to ship their product to market. This means there’s not enough room in the pipeline systems, and not enough pipelines to easily ship the crude oil.

The common thought is that once the oil is extracted it goes straight into a nice pipeline that will soon send it directly to a refinery. However, that’s not how it goes in the Montana or North Dakota Bakken. Companies have built rails, tracks, and must truck their product either to a refinery or to a tap, “on ramp,” of a pipeline that is going to the proper market.

TransCanada, a Canadian pipeline company, has proposed an expansion to its current Keystone pipeline system, which mainly serves producers of the Alberta tar sands.

“The first purpose of the Keystone XL pipeline system is that it can grow the oil source in Canada with increase in demand in the U.S.,” Jeff Rauh, the project representative for the Keystone XL, said.

The current pipeline starts in Hardisty, Alberta goes through Saskatchewan, down eastern North Dakota and ends in Cushing, Okla., or Patoka, Ill. The proposed Keystone XL pipeline will start in Hardisty but this time cut through eastern Montana, right through Bakken territory, and continue all the way to the markets on the Gulf.

The oil the pipeline will be carrying, as of right now, is Alberta tar sands, mined and extracted by Canadian producers.

“The problem is they [TransCanada] forgot to ask us,” Gov. Schweitzer said.

A praise that had been made in reference to this proposed pipeline system was that by giving the tar sand a new avenue to get to market, then room in other pipelines would be made. So, Bakken producers would have their oil highway – the bottleneck would be relieved.

“That logic is flawed,” Schweitzer says, believing instead as the avenues for tar sands widen, the Canadian producers will increase their production, filling both Keystone XL and Enbridge.

Now, the Keystone pipeline system is a common carrier system. “Any shipper interested can sign a contract for capacity on the pipeline,” Rauh said.

The process seems straightfoward and formal – a shipper expresses interest in contracting capacity, once enough interest has been shown by various shippers, an “open season” auction is held. During this, shippers may bid for capacity. If this is so, then why the commotion from the governor? Why a sudden demand that U.S. Bakken producers get to have a tap onto TransCanada’s oil highway?

For the Keystone XL, several “open seasons” have already been held. Eighty-three percent of the pipe’s capacity is under contract – the contract year average being 17 years.

“You’re comparing apples and oranges here,” Hume said, referring to the difference in the Canadian tar sands producers and the U.S. Bakken producers. The tar sands are more similar to mining operations than oil productions – it will be easy for them to increase production and keep that production at a high volume.

“There’s not an American entity that can put that kind of volume for that long-term on the pipeline,” Hume said.

If producers were given the chance to access the pipe, either by contracting as a collective or coming to terms through extensive negotiations with TransCanada for shorter-term contracts, Hume believes it is something that all producers would benefit from and utilize.

“It would give access to another avenue to move out,” Hume said. “Making the market differential as low as possible.” Something that matters not only to oil men but also to landowners and local and state governments which receive a percentage of each barrel through taxes.

The money the states of Montana and North Dakota receive through oil is substantial. If the product was being sold within a couple of dollars of market value, the more the state financially benefits.

Schweitzer sees himself in the role of a facilitator, starting and encouraging the dialogue between U.S. shippers and TransCanada. A meeting with Montana and North Dakota local government and Bakken producers will soon be announced. The governor is also looking into the legalities of a pipeline running through several states and, by way of asking for contracts unreasonable for independent oil producers, not allowing oil from that state’s capacity.

Last week, Schweitzer sent a letter to the Montana Public Service Commission asking for clarification on the state’s laws of imminent domain. In other words, can Montana force its oil onto TransCanada’s pipeline?

So far, nothing has been found, but it seems this fight for pipeline room is still in its beginning stages. Since the central force setting TransCanada, government officials and producers in motion is economics, it’s a fight that no party will drop easily.

Already, the rhetoric on the American-side, by government and producers, has taken on patriotic overtones. That truly being the pressing factor by either the government or businessmen is unlikely. Money is involved so there are business decisions.

“We should have access to market,” Hume said. “We’re not asking for a free ride. We’re willing to pay.” Continental and other producers say that right now they are just asking for a way to get on the Keystone XL. “Is it fair to make unrealistc commitments for independent American oil and gas producers?” Hume asks, and then answers in the negative.