Tag Archives: RBN Energy Analytics

Bakken crude: Could pipelines replace the need for oil-by-rail?

Repost from Marcellus.com
[Editor: Significant quote by Rusty Braziel, analyst with RBN Energy: “By 2017 there should be enough pipelines to carry all North Dakota’s crude to market.”  See also “ND shipping only 47% of Bakken crude by train in June” – RS]

Bakken crude: Could pipelines replace the need for oil-by-rail?

By Zach Koppang, August 14, 2015
Image: Mary Schimke / Shale Plays Media
Image: Mary Schimke / Shale Plays Media

The transportation of Bakken crude is beginning to shift away from the railways and into pipelines as production levels off in the wake of last year’s price collapse and more oil and gas pipelines are brought online.

Rusty Braziel, analyst with RBN Energy, explained, “Since 2012 a combination of rail and pipeline has given Bakken producers ample crude takeaway capacity, but pipelines alone have not had sufficient capacity on their own.” Though, as production maintains a consistent rate, pipeline capacity is beginning to catch up. Braziel added, “By 2017 there should be enough pipelines to carry all North Dakota’s crude to market.”

Last week Continental Resources reported that it now ships over two-thirds of its Bakken crude by pipeline, reports Reuters. In the second quarter 2015, the company, North Dakota’s second-largest producer, pushed approximately 160,000 barrels of crude per day through Kinder Morgan owned pipelines. For comparison, it shipped nearly all of its oil by train in 2014. During a conference call, Continental CFO John Hart said, “Approximately 70 percent of our Bakken production is now delivered to market via pipeline.”

Director of RBN Energy Analytics Sandy Fielden said, “As soon as price differentials – especially between domestic benchmark West Texas Intermediate (WTI) and international benchmark Brent – narrowed, then barrels shifted back to pipelines to take advantage of their cheaper tariff rates. Yet significant crude volumes continued to be transported to market from North Dakota by rail because pipeline capacity could not handle the demand.” Recently, however, the planning and construction of new pipelines throughout the region has substantially increased overall shipping capacity, threatening the once booming business of BNSF Railway and others.

The trend is becoming more common as oil producing states, North Dakota included, begin to rely more heavily on pipelines rather than rail transport, which is vulnerable to weather, construction delays and bottlenecks. Transporting oil-by-rail has also become heavily scrutinized following a series of explosive, and sometimes deadly, oil train derailments. The most notable incident occurred in Lac-Megantic, Quebec, where a runaway oil train derailed and killed 47 people. The frequency and severity of derailments has led to increased scrutiny and regulation, much to the dismay of the rail industry.

As reported by Reuters, oil-by-rail shipments have decreased throughout the country by 13 percent in the past year, according to the latest American Association of Railroads data. Also indicative of the decreased interest in crude-by-rail shipments, and the far-reaching effects of the oil price decline, are the recent job cuts at one of the state’s largest rail transloading facilities.

However, Fielden explains, “Just because pipeline capacity is available doesn’t necessarily mean producers will prefer to use that capacity instead of rail.” Over 1 million barrels of oil per day continue to ride U.S. railways en route to refineries on the east and west coasts. Tesoro and BP, for example, opt to receive oil via rail due to the flexibility of the supply contracts when compared to pipeline shipments.

The RBN analysis reports that in theory, as new pipeline projects come online, all Bakken crude could be shipped to market via pipeline. Projects due to begin operating by the end of 2016 and throughout 2017 will expand takeaway capacity by 680,000 barrels per day. Fielden said, “The planning and buildout of a series of new pipelines out of North Dakota that (if they are all built) should increase capacity enough to provide space for all the barrels currently traveling to market from North Dakota by rail.”