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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Crude-oil producers in the Williston Basin will have an expanded range of outbound transportation options in the next few years, as billions of dollars of pipeline projects now under development become operational, speakers told an Oil & Gas Industry conference earlier this month in Denver. By about 2017, pipelines are expected to take market share from railroads, if all announced pipeline projects are built, the speakers projected. These projections, made October 1 at a conference sponsored by Information Forecast Incorporated (Infocast) (Woodland Hills, California), came as West Texas Intermediate (WTI) crude oil was selling for about $91 per barrel. It's not clear whether crude's $6 per barrel plunge since then will imperil any of those pipeline projects.
Crude-oil production costs are higher in the Williston Basin than in other formations, like the Eagle Ford Shale and the Permian Basin. Transporting Williston crude by rail costs more than using pipelines, though rail transport offers producers greater optionality and flexibility than pipeline transport. Back when WTI was selling for more than $100 per barrel, higher production and rail transport costs were offset by the high prices received by producers in the Bakken and Three Forks formations. But a 20% plunge in crude-oil prices since June could upend a lot of plans for producers, railroads and pipelines.
View Project Report - 300157615 300099105 300099101 300142666 300142620 300142621 300142646 300099113 300157788 300157742 300157765 300157650 300157798 300157631 300157633 300157653 300157749 300157754 300157770
Although there is a lot of investment capital flowing into the Williston Basin, speakers at the conference agreed investors and lenders could become skittish if WTI prices fell to about $85--their closing price last Friday. For more on that, see October 8, 2014, article - Bakken Production, Reserves Continue to Grow, but Price Concerns Bubble Up. As well, a proposed rule on crude-by-rail from the U.S. Department of Transportation (DOT) (Washington, D.C.) could limit the availability and competitiveness of rail transport, speakers at the Infocast conference said. For more on that, see October 9, 2014, article - DOT Draft Rule on Crude Oil Railcars Could Derail Shale Boom.
"The Bakken is relatively well-proved, which means the more conservative banks can invest and lend there with more confidence than they would in the Utica Shale," Neal Dingmann, managing director at the commercial and investment bank SunTrust Robinson Humphrey (Atlanta, Georgia), told conference attendees. "A number of banks and private equity firms are eager to invest in the Bakken. Midstream and transportation infrastructure are very big for us now."
Dingmann's views were echoed by David Simpson, managing director for the energy markets division of Macquarie Bank, a unit of Macquarie Group (New South Wales, Australia), and Ethan Bellamy, director and senior research analyst at Robert W. Baird & Company (Milwaukee, Wisconsin). "Banks are getting more aggressive in the types of deals they are funding," Simpson said. "Everyone's chasing the extra 100 basis points in return. It's extremely competitive."
Bellamy discussed the flood of investment capital into master limited partnerships (MLPs) and how many companies operating in the Williston Basin have become MLPs. MLPs operating in North Dakota have more than $60 billion of assets under management, up from only a few billion in 2010. The assets of oil-related MLPs operating in the Williston Basin have grown at a compound annual rate of 83% over the last three years, he told the Infocast conference: "Their growth in recent years has been exponential."
Bellamy and other speakers detailed several major crude-oil pipeline projects being developed to bring Bakken and Three Forks crude oil to markets, including:
"These new pipelines will take market share away from rails," Bellamy predicted.
But another speaker, Philip Bouillette, vice president of business development for crude and natural gas liquids at Crestwood Midstream Partners LP (NYSE:CMLP) (Houston, Texas), pointed out that none of these proposed pipelines extend go to PADD I or PADD V, where refiners are eager to process light sweet crude from the Williston Basin.
"I don't think you'll see a pipeline that will be built to PADD V, nor will a direct line to PADD I be built," he predicted. "The dearth of pipelines to PADD V and PADD I will continue to impose a price penalty on Bakken crude for the next few years. That's why crude by rail is here to stay. There's more than enough room for both pipes and rails."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
Crude-oil production costs are higher in the Williston Basin than in other formations, like the Eagle Ford Shale and the Permian Basin. Transporting Williston crude by rail costs more than using pipelines, though rail transport offers producers greater optionality and flexibility than pipeline transport. Back when WTI was selling for more than $100 per barrel, higher production and rail transport costs were offset by the high prices received by producers in the Bakken and Three Forks formations. But a 20% plunge in crude-oil prices since June could upend a lot of plans for producers, railroads and pipelines.
View Project Report - 300157615 300099105 300099101 300142666 300142620 300142621 300142646 300099113 300157788 300157742 300157765 300157650 300157798 300157631 300157633 300157653 300157749 300157754 300157770
Although there is a lot of investment capital flowing into the Williston Basin, speakers at the conference agreed investors and lenders could become skittish if WTI prices fell to about $85--their closing price last Friday. For more on that, see October 8, 2014, article - Bakken Production, Reserves Continue to Grow, but Price Concerns Bubble Up. As well, a proposed rule on crude-by-rail from the U.S. Department of Transportation (DOT) (Washington, D.C.) could limit the availability and competitiveness of rail transport, speakers at the Infocast conference said. For more on that, see October 9, 2014, article - DOT Draft Rule on Crude Oil Railcars Could Derail Shale Boom.
"The Bakken is relatively well-proved, which means the more conservative banks can invest and lend there with more confidence than they would in the Utica Shale," Neal Dingmann, managing director at the commercial and investment bank SunTrust Robinson Humphrey (Atlanta, Georgia), told conference attendees. "A number of banks and private equity firms are eager to invest in the Bakken. Midstream and transportation infrastructure are very big for us now."
Dingmann's views were echoed by David Simpson, managing director for the energy markets division of Macquarie Bank, a unit of Macquarie Group (New South Wales, Australia), and Ethan Bellamy, director and senior research analyst at Robert W. Baird & Company (Milwaukee, Wisconsin). "Banks are getting more aggressive in the types of deals they are funding," Simpson said. "Everyone's chasing the extra 100 basis points in return. It's extremely competitive."
Bellamy discussed the flood of investment capital into master limited partnerships (MLPs) and how many companies operating in the Williston Basin have become MLPs. MLPs operating in North Dakota have more than $60 billion of assets under management, up from only a few billion in 2010. The assets of oil-related MLPs operating in the Williston Basin have grown at a compound annual rate of 83% over the last three years, he told the Infocast conference: "Their growth in recent years has been exponential."
Bellamy and other speakers detailed several major crude-oil pipeline projects being developed to bring Bakken and Three Forks crude oil to markets, including:
- Dakota Access Pipeline, a $5 billion, 1,100-mile proposed pipeline connecting western North Dakota to Patoka, Illinois, where it will interconnect with other transportation options that can bring oil to the East Coast, Gulf Coast and Midwest. The pipeline, developed by Energy Transfer Partners L.P. (NYSE:ETP) (Houston, Texas), has commitments for 320,000 BBL/d of capacity, and is contemplating an expansion to more than 450,000 BBL/d. The first stage of the pipeline is scheduled to be operational in 2016.
- Bakken-to-Cushing Pipeline, a proposed 1,200-mile line from Stanley, North Dakota, to Cushing, Oklahoma, which could transport crudes from the Williston, Powder River, Denver-Julesburg and Mississippian basins. The 30-inch-diameter pipeline, with an estimated total investment value of $1.6 billion, is being developed by Enterprise Products Partners LP (NYSE:EPD) (Houston, Texas). It is expected to have an initial capacity of 340,000 BBL/d, with the potential to expand to more than 700,000 BBL/d. Depending on shipper commitments, the pipeline is expected to become operational in stages starting in late 2016.
- Sandpiper Pipeline, a $2.6 billion project under construction, is a 616-mile pipeline that will stretch from Tioga, North Dakota, through Clearbrook, Minnesota, and ending in Superior, Wisconsin. It is being developed by Enbridge Incorporated (NYSE:ENB) (Calgary, Alberta). When operational in 2017, the pipeline will be able to carry about 225,000 BBL/d from Tioga to Clearbrook, and 375,000 BBL/d from Clearbrook to Superior.
- Butte Loop Pipeline, which recently became operational, will transport up to 110,000 BBL/d from eastern Montana to Guernsey, Wyoming.
"These new pipelines will take market share away from rails," Bellamy predicted.
But another speaker, Philip Bouillette, vice president of business development for crude and natural gas liquids at Crestwood Midstream Partners LP (NYSE:CMLP) (Houston, Texas), pointed out that none of these proposed pipelines extend go to PADD I or PADD V, where refiners are eager to process light sweet crude from the Williston Basin.
"I don't think you'll see a pipeline that will be built to PADD V, nor will a direct line to PADD I be built," he predicted. "The dearth of pipelines to PADD V and PADD I will continue to impose a price penalty on Bakken crude for the next few years. That's why crude by rail is here to stay. There's more than enough room for both pipes and rails."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
