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Released April 01, 2014 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Crude oil production in the Denver-Julesburg (D-J) Basin is expected to outstrip outbound transportation capacity for the next few months, but a variety of factors suggest the disconnect will be relatively mild, speakers told the Fourth Annual Niobrara Infrastructure Development Summit, held last month in Denver. "Right now, congestion is a limiting factor at all points along the D-J's transportation infrastructure, including trucking, railcar transloading and pipelines," John Eagleton, vice president of business development for Tallgrass Energy Partners LP (NYSE:TEP) (Overland Park, Kansas), told the conference, which was sponsored by Information Forecast Incorporated (Infocast), (Woodland Hills, California).
"Today, there is a disconnect between production and takeaway capacity. But production growth in the D-J Basin will not be as extreme as in the Bakken," Eagleton told the audience of about 100 on March 5. That means the D-J Basin, located about 50 miles north of Denver, will not go through the dramatic growing pains experienced in the Bakken formation, where a rapid run-up in production overwhelmed outbound transportation capacity a few years back.
In an interview at the conference, Eagleton added, "The disconnect is natural, necessary and manageable-- that's how the market tells us more transportation capacity is needed." Moreover, D-J Basin crude-oil pipeline and rail facilities now under construction are expected to catch up with crude-oil production in the next few months.
Crude-oil production in the D-J Basin has increased about 300% to about 200,000 barrels per day (BBL/d) this year, from about 50,000 BBL/d in 2010, according to BENTEK Energy (Denver). Production gains are expected to taper off in the next few years: By 2019, crude oil production from that formation is expected to reach about 350,000 BBL/d, an increase of about 75% over 2014 production levels, the consulting firm said. For more on BENTEK's predictions about production gains in the D-J Basin, see March 12, 2014, article - Oil Production Growth in Colorado: How Far and How Fast?
Click on image at right to see BENTEK Energy's predictions for crude oil production growth in the D-J Basin and Powder River Basin.
Crude-oil production in the Bakken Formation, by contrast, has more than tripled since 2011, to about 1 million BBL/d. Dramatic production growth and a largely undeveloped transportation infrastructure swamped producers and logistics companies in that formation in 2011 and 2012. Back then, delays in getting the crude to market imposed price penalties, sometimes significant ones, on producers in North Dakota. Today, inadequate midstream and gathering system capacity in the Bakken is forcing producers there to flare about 33% of the natural gas they produce.
Eagleton and other speakers stressed their view that the D-J is not expected to go through the pronounced transportation problems experienced in the Bakken a few years back. They noted recent sharp production gains in the D-J Basin were made on top of a small base of about 50,000 BBL/d in 2010. And they noted that, unlike the Bakken, which lacked a transportation infrastructure as production surged in 2011-13, the D-J Basin has an established transportation infrastructure. The challenge in the Bakken in 2011-13 was building a transportation infrastructure, but the challenge in the D-J Basin is expanding its existing infrastructure.
Other speakers shared Eagleton's views about the manageability of production growth in the D-J Basin. "Oil wells in the D-J Basin have high initial rates of production, and the infrastructure today is not able to handle those high IP rates," said Travis Hutchinson, a process and project engineer with Halker Consulting (Englewood, Colorado). "There is room for further optimization up and down the oil supply chain, from production to transportation."
"I'm very bullish on the D-J," Adam Bedard, senior director of strategic planning and analysis for High Sierra Energy LP (Denver, Colorado), a subsidiary of NGL Energy Partners LP (NYSE:NGL) (Denver, Colorado), told the Infocast conference. "I'm a little more bullish than BENTEK--I have the D-J production hitting about 400,000 BBL/d about 18 months before BENTEK does, by sometime in 2017."
Two crude oil pipelines under construction--the Pony Express and the expansion of White Cliffs--will add nearly 300,000 BBL/d of outbound takeaway capacity from the D-J when they are brought online later this year, BENTEK energy analyst Erika Coombs told the Infocast conference. And crude-oil rail-loading capacity is projected to grow from 656,000 BBL/d in 2013 to 912,000 BBL/d in 2019, she added. There are numerous existing rail terminals in Colorado and Wyoming that are being built or expanded, Coombs said.
The largest oil pipeline under construction is the Pony Express project, which will convert an existing natural gas pipeline into a crude-oil pipeline. It stretches about 430 miles from Guernsey, Wyoming, to Cushing, Oklahoma. The $662 million project is scheduled to be brought online in the fourth quarter of 2014. It will be able to transport about 230,000 BBL/d. A second phase could add another 90,000 BBL/d.
The White Cliffs Crude Oil Pipeline Loop will add about 90,000 BBL/d in outbound transportation capacity from Colorado to Cushing, Oklahoma. That $170 million project is scheduled to be completed in the next few weeks.
Click on the image at right for a graphic showing current and historical crude-oil production and takeaway capacity for the D-J Basin.
"Rail and new pipeline projects provide sufficient takeaway capacity" for crude oil produced from the D-J Basin, she told the conference. And rail provides D-J producers additional optionality to reach West Coast markets, she added.
Crude-oil rail loading capacity is projected to surge from about 27,000 BBL/d to about 133,000 BBL/d, estimated Tallgrass Energy's Eagleton: "Rail facilities are quick to build. But what takes a lot longer is extending the electric infrastructure. It can take 24 months to build a step-down transformer that connects with high-voltage electric transmission lines in the area. Because of that, we're seeing a lot of stopgap measures like bringing in diesel generators instead of taking electricity off the lines running overhead. People don't understand that it takes time to build these things. They want something done in three months that takes two years."
View Plant Profile - 1058521 1072506 3072543
View Project Report - 300047153 300110456 300090187
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine 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.
"Today, there is a disconnect between production and takeaway capacity. But production growth in the D-J Basin will not be as extreme as in the Bakken," Eagleton told the audience of about 100 on March 5. That means the D-J Basin, located about 50 miles north of Denver, will not go through the dramatic growing pains experienced in the Bakken formation, where a rapid run-up in production overwhelmed outbound transportation capacity a few years back.
In an interview at the conference, Eagleton added, "The disconnect is natural, necessary and manageable-- that's how the market tells us more transportation capacity is needed." Moreover, D-J Basin crude-oil pipeline and rail facilities now under construction are expected to catch up with crude-oil production in the next few months.
Crude-oil production in the D-J Basin has increased about 300% to about 200,000 barrels per day (BBL/d) this year, from about 50,000 BBL/d in 2010, according to BENTEK Energy (Denver). Production gains are expected to taper off in the next few years: By 2019, crude oil production from that formation is expected to reach about 350,000 BBL/d, an increase of about 75% over 2014 production levels, the consulting firm said. For more on BENTEK's predictions about production gains in the D-J Basin, see March 12, 2014, article - Oil Production Growth in Colorado: How Far and How Fast?
Click on image at right to see BENTEK Energy's predictions for crude oil production growth in the D-J Basin and Powder River Basin.Crude-oil production in the Bakken Formation, by contrast, has more than tripled since 2011, to about 1 million BBL/d. Dramatic production growth and a largely undeveloped transportation infrastructure swamped producers and logistics companies in that formation in 2011 and 2012. Back then, delays in getting the crude to market imposed price penalties, sometimes significant ones, on producers in North Dakota. Today, inadequate midstream and gathering system capacity in the Bakken is forcing producers there to flare about 33% of the natural gas they produce.
Eagleton and other speakers stressed their view that the D-J is not expected to go through the pronounced transportation problems experienced in the Bakken a few years back. They noted recent sharp production gains in the D-J Basin were made on top of a small base of about 50,000 BBL/d in 2010. And they noted that, unlike the Bakken, which lacked a transportation infrastructure as production surged in 2011-13, the D-J Basin has an established transportation infrastructure. The challenge in the Bakken in 2011-13 was building a transportation infrastructure, but the challenge in the D-J Basin is expanding its existing infrastructure.
Other speakers shared Eagleton's views about the manageability of production growth in the D-J Basin. "Oil wells in the D-J Basin have high initial rates of production, and the infrastructure today is not able to handle those high IP rates," said Travis Hutchinson, a process and project engineer with Halker Consulting (Englewood, Colorado). "There is room for further optimization up and down the oil supply chain, from production to transportation."
"I'm very bullish on the D-J," Adam Bedard, senior director of strategic planning and analysis for High Sierra Energy LP (Denver, Colorado), a subsidiary of NGL Energy Partners LP (NYSE:NGL) (Denver, Colorado), told the Infocast conference. "I'm a little more bullish than BENTEK--I have the D-J production hitting about 400,000 BBL/d about 18 months before BENTEK does, by sometime in 2017."
Two crude oil pipelines under construction--the Pony Express and the expansion of White Cliffs--will add nearly 300,000 BBL/d of outbound takeaway capacity from the D-J when they are brought online later this year, BENTEK energy analyst Erika Coombs told the Infocast conference. And crude-oil rail-loading capacity is projected to grow from 656,000 BBL/d in 2013 to 912,000 BBL/d in 2019, she added. There are numerous existing rail terminals in Colorado and Wyoming that are being built or expanded, Coombs said.
The largest oil pipeline under construction is the Pony Express project, which will convert an existing natural gas pipeline into a crude-oil pipeline. It stretches about 430 miles from Guernsey, Wyoming, to Cushing, Oklahoma. The $662 million project is scheduled to be brought online in the fourth quarter of 2014. It will be able to transport about 230,000 BBL/d. A second phase could add another 90,000 BBL/d.
The White Cliffs Crude Oil Pipeline Loop will add about 90,000 BBL/d in outbound transportation capacity from Colorado to Cushing, Oklahoma. That $170 million project is scheduled to be completed in the next few weeks.
Click on the image at right for a graphic showing current and historical crude-oil production and takeaway capacity for the D-J Basin."Rail and new pipeline projects provide sufficient takeaway capacity" for crude oil produced from the D-J Basin, she told the conference. And rail provides D-J producers additional optionality to reach West Coast markets, she added.
Crude-oil rail loading capacity is projected to surge from about 27,000 BBL/d to about 133,000 BBL/d, estimated Tallgrass Energy's Eagleton: "Rail facilities are quick to build. But what takes a lot longer is extending the electric infrastructure. It can take 24 months to build a step-down transformer that connects with high-voltage electric transmission lines in the area. Because of that, we're seeing a lot of stopgap measures like bringing in diesel generators instead of taking electricity off the lines running overhead. People don't understand that it takes time to build these things. They want something done in three months that takes two years."
View Plant Profile - 1058521 1072506 3072543
View Project Report - 300047153 300110456 300090187
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine 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.
