Building the Long Way is Easier than Permitting the Short Way for Pipeline Routing

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Researched by Industrial Info Resources (Sugar Land, Texas)--Market access for oil from the Bakken Shale is an ongoing issue as rail safety is questioned and pipeline build-outs take time. Getting that crude to the Gulf Coast refinery hub via Cushing, Oklahoma, is the goal, but there are no existing pipeline right-of-ways (ROWs) between North Dakota and Oklahoma.

However, recently completed pipeline projects linking Wyoming to Cushing, and the Bakken to Wyoming, have provided a workaround solution, albeit one that takes the pipeline itself on a detour of more than 400 miles. In spite of this, multiple pipeline builders are choosing to build along this route or near it, rather than build a shorter line that crosses virgin land, which would present a higher regulatory hurdle. That hurdle has stymied many potential pipelines, delayed others, and increases project costs as further environmental studies are conducted and time is spent away from moving crude oil out of the Bakken.

Hiland Partners (Enid, Oklahoma) is in the final stages of commissioning its 75,000-barrel-per-day (BBL/d) Double H Pipeline between Dore, North Dakota, and Guernsey, Wyoming. This pipeline is to connect to Tallgrass Energy Partners' (NYSE:TEP) (Leawood, Kansas) Pony Express Pipeline (PXPL) at Guernsey, which will carry the crude oil all the way to Cushing following its ongoing reversal. By connecting these two ROWs, a direct link from the Bakken to Cushing--and thus, by extension, to the Gulf Coast--is formed.

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By bypassing South Dakota and central Nebraska, this link adds upward of 300 miles of additional pipe necessary to make the journey. From Dickinson, North Dakota, to Cushing, Oklahoma, measures roughly 830 miles in a straight line. The Bakken-to-Cushing pipeline proposed by Enterprise Products Partners (NYSE:EPD) (Houston) is expected to roughly follow the ROW of the Double H/PXPL pipelines and require about 1,240 miles of pipeline.

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Assuming construction costs of $1.5 million per mile of mainline pipeline, and accounting for the fact that even a direct route would encounter some turns that would increase its length, the planned route would increase costs by roughly $500 million, compared to constructing the pipeline in a more-or-less straight line. Before any pipeline can be built, a feasibility study must be conducted, evaluating the most economical approach to constructing the line.

From the route choice of Enterprise's pipeline, the inferred price tag on permitting a pipeline to run directly south between North Dakota and Cushing is greater than $500 million. Considering the risk that a company's pipeline project could be put on ice indefinitely, racking up engineering and regulatory lawyer fees all the while, such a price tag is not inconceivable.

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.