Pipeline-constrained shale companies see new life in the Bakken region
Ian Dundas expects to see far fewer oil trains rumbling across the sprawling farmlands of North Dakota in coming years.
Dundas is the chief executive of Calgary-based Enerplus Corp., one of the first companies to enter the Bakken, an oilfield spanning southern Saskatchewan, North Dakota and Montana.
In the absence of available pipeline capacity, companies operating in the region had for years moved oil on an existing rail network in Canada and the United States. As production boomed, producers began investing more in oil-by-rail terminals, paying a premium to get their product to market.
But the completion of the highly contentious Dakota Access pipeline in June, a major oil conduit carrying some 570,000 barrels per day of crude from North Dakota to Illinois, has upended the region’s dependence on rail.
The pipeline has dramatically reduced shipping costs for Bakken firms, bringing overall costs in line with other U.S. shale producers, like those in the prolific Permian Basin in Texas and New Mexico.
“It’s going to be a pretty powerful advantage that we haven’t had for the past six or seven years,” Dundas said Thursday.
Production in the Bakken began to rocket upward around 2009, growing from roughly 200,000 barrels per day to more than one million bpd in less than five years. The rapid growth did not come alongside an equally fast expansion of pipelines, however, and the pipeline system in the region quickly became congested.
By 2014, Bakken producers were shipping around 500,000 barrels per day of crude by rail car, nearly half of the 1.2 million bpd total production.
Before Dakota Access, about 25 per cent of the oil shipped out of the state travelled by rail. Now that figure is closer to seven per cent, according to recent data.
The higher availability of pipeline capacity has translated into much lower shipping costs for producers, giving companies more value for every barrel of oil.
In early 2014, for example, Enerplus was receiving a US$13 perbarrel discount for its oil compared to West Texas Intermediate, a benchmark price for U.S. crude traded in Cushing, Okla. Most of this was tied to higher shipping costs (moving crude by rail costs around US$10-14 per barrel, compared with about US$5-6 on Dakota Access).
By last year, that total discount had shrunk to US$7, and is expected to fall as low as US$3.50 in the second half of 2017, Dundas said.
“These are pretty dramatic moves when you talk about the lower margins that everyone is struggling with in a $50 oil world,” Dundas said.
The Dakota Access pipeline, owned by a consortium of companies led by Dallas-based Energy Transfer Partners, was loudly opposed by environmental groups and First Nations groups living along the proposed route.