Denver-Julesburg-to-Cushing Crude Pipelines: Three Projects Enter, One Project Leaves

Researched by Industrial Info Resources (Sugar Land, Texas)--Oil production in the Niobrara Shale steadily increased from more than 113,000 barrels per day (BBL/d) in January 2007 to a peak of 463,000 BBL/d in May 2015, according to the U.S. Energy Information Administration (EIA). The growth in production led to multiple proposed pipeline projects to meet the region's increased demand for takeaway capacity.

During the days of $100-per-barrel oil, comparable projects found lots of success and were completed with relative ease. Since just prior to the drop in the price of oil, however, the three pipeline projects that were planned to bring crude oil from the Denver-Julesburg Basin in Colorado to Cushing, Oklahoma began to encounter some resistance and drop out of the race, until only one remained.

Of the three pipelines originally proposed as of third-quarter 2014, the last project standing is the Saddlehorn pipeline project. As originally conceived by Magellan Midstream Partners (NYSE:MMP) (Tulsa, Oklahoma), Saddlehorn would have had a capacity of 200,000 BBL/d.

Those projects that are no longer in the running include the 250,000 BBL/d Rockies South project by Saddle Butte Pipeline, a small company based in Durango, Colorado; and the 130,000 BBL/d Grand Mesa pipeline project, owned by NGL Energy Partners LP (NYSE:NGL) (Tulsa, Oklahoma), to be operated by Rimrock Midstream LLC (Plano, Texas).

In total, there was 580,000 BBL/d of takeaway capacity proposed to carry Niobrara crude oil to Cushing, Oklahoma.

The first player to drop out of the race was Saddle Butte, which scrapped its project and instead signed a letter of intent to jointly pursue the Saddlehorn project with Magellan. Saddle Butte and Magellan's partnership did not last. Instead, Plains All American Pipeline LLC (NYSE:PAA) (Houston, Texas) joined the Saddlehorn project, leaving only the Grand Mesa project and Saddlehorn.

After several months, with the price of crude oil showing no sign of rebounding, NGL Energy Partners bought Rimrock Midstream's share of the Grand Mesa project.

Recently, developers of Grand Mesa and Saddlehorn combined efforts to jointly develop a single, 340,000 BBL/d Saddlehorn pipeline that would include origin points from both the original Saddlehorn pipeline and the Grand Mesa pipeline.

Thus, the proposed new takeaway capacity from the Niobrara to Cushing has shrunk to only 340,000 BBL/d from 580,000 BBL/d.

Niobrara production numbers, meanwhile, have dwindled to less than 400,000 BBL/d as of September, according to the EIA.

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