MDU Places Dakota Natural Gas Pipeline on Hold

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--A proposed pipeline to transport natural gas from the Bakken Shale to the Upper Midwest has been placed on hold by its developer, MDU Resources Group Incorporated (NYSE:MDU) (Bismarck, North Dakota). The Dakota Pipeline project, announced at the start of 2014, was expected to cost about $650 million to build. Assuming all permits were obtained, construction was scheduled to kick off in early- to mid-2016, and the pipeline was scheduled to be operating by November 2017.

The 24-inch diameter pipeline was planned to extend for about 375 miles from western North Dakota to Emerson, Minnesota, on the Canadian border, where it would interconnect with pipelines operated by Great Lakes Gas Transmission Limited Partnership (Houston, Texas); Viking Gas Transmission Company, which is part of ONEOK Partners (NYSE:OKS) (Tulsa, Oklahoma); and potentially TransCanada Pipelines Limited (NYSE:TRP) (Calgary, Canada) in northwest Minnesota.

MDU had an open season for shippers to make capacity commitments for the pipeline, which was planned to have an initial capacity of 400 million cubic feet per day (MMcf/d), with the potential to expand to 500 MMcf/d. The open season ended in May. Shipper interest and terms apparently were not in alignment with MDU's expectations.

"We continue to market the pipeline and are working with producers and end users to secure the necessary capacity commitments required to move forward with the project," MDU spokesman Tim Rasmussen told Industrial Info. "Through those discussions, we continue to refine the project, but until we receive the necessary commitments, the project is on hold."

Rasmussen stressed that the Dakota Pipeline is not dead. "Our marketing group is still working on it," he said in an interview. He declined to provide further details.

In announcing the open season for the pipeline project on January 30, David L. Goodin, president and chief executive of MDU Resources, said: "The Dakota Pipeline offers another avenue to move Bakken-produced natural gas out of the area and complements our other ongoing activities to build connections to several natural gas processing facilities. The increase in natural gas pipeline capacity out of the region will provide additional transportation opportunities for new production as it comes online, as well as more capacity for natural gas captured through the industry's efforts to reduce the flaring of this valuable resource."

When interviewed by a Reuters reporter two months later, Goodin said: "We're encouraged by the reaction of the marketplace, but I'd be getting ahead of myself if I said we're ready to build. We need some binding commitments. A little bit of the challenge here is for the market to look" out to the project's 2017 in-service date.

Producers and regulators in North Dakota have been working to reduce the amount of natural gas that is flared. New regulations reducing the amount of gas that can be flared went into effect October 1. On a national basis, most oil & gas producers flare about 1% of all gas they produce. But the lack of gathering systems and processing plants in North Dakota has forced producers there to flare an average of about 30% of the gas they produced there this year through September. Flaring in North Dakota has come down during 2014, as the effective date for the new flaring limits approach.

North Dakota produced about 1.4 billion cubic feet of gas per day (Bcf/d) in September, a new record, according to the North Dakota Industrial Commission (Bismarck, North Dakota). The commission also reported about 24% of that gas was flared, which equates to about 347 million cubic feet of gas per day (MMcf/d)--less than the initial design capacity of the Dakota Pipeline.

Rasmussen said the proposed pipeline was not envisioned as the single cure-all for flared gas in the state. "Flaring is a function of production," he said. "In North Dakota, the gas is very wet. You need gathering systems and processing facilities to move and process the wet gas" before it can go into a pipeline. He suggested the challenge facing pipeline developers continues to be insufficient gathering systems and processing capacity.

"The Dakota Pipeline seemed to have a lot going for it--plentiful gas in the Bakken, demand for gas in the Upper Midwest, and state regulations mandating the reduction of flared gas," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "Maybe it's a question of the local infrastructure not being in place, because to outside observers this one looked like a winner. Hopefully, it can move back to the 'active' phase soon."

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.