Last week we reviewed prospects for oil production from the Niobrara shale formation in Colorado and Wyoming (see Bananarama in the Rockies). Despite early promise the Niobrara has proven complex to drill successfully but recent optimism from Noble Energy,Anadarko and others suggest that the tide may be turning. Today we take a look at growing takeaway capacity in the Rocky Mountains.
School of Energy – Hot Hot Hot Stuff
RBN Energy is again offering an intense curriculum of energy market fundamentals analysis covering the whys and hows of the most important developments in the crude oil, natural gas and NGL markets. For more information, see http://www.rbnenergy.com/school-of-energy
Niobrara crude production estimates are put at 170 Mb/d for January 2013 – from the Denver-Julesberg (DJ) and Powder River Basin (PRB). The current production hot spot is the Wattenberg field in Weld County, CO but production is also expected to increase in the southern part of the PRB.
Crude flows out of the Niobrara go one of two directions. They either head west on local pipelines to feed refineries in Wyoming, the Salt Lake City, UT area and Denver, CO or they connect up with major pipelines bringing crude from Western Canada or North Dakota into the Midwest. Whether destined for local consumption or joining the flood of Bakken and Canadian production headed east, all the crude flows through one or more of three regional pipeline hubs – Caspar, WY, Guernsey, WY and Platteville, CO. These three hubs are at the intersection or starting point of the main takeaway pipelines and we will cover each in turn. The map below shows all the hubs and pipelines that we will refer to in the narrative. Existing pipelines are shown as solid lines and proposed or to-be-completed pipelines are dotted lines. The small train emblem indicates a crude rail loading terminal location.
Source: RBN Energy (Click to Enlarge)
Casper is the closest pipeline hub to Niobrara production in the southern PRB. The major pipeline bringing crude into Casper from Canada is the Spectra Express Platte system that originates in Hardisty, AB and terminates in Wood River, IL (green line on the map). The Express Platte (previously owned by Kinder Morgan) carries up to 280 Mb/d of Western Canadian crude, some of which is diverted at Casper onto the Frontier and Sinclair pipeline systems to feed refineries in Salt Lake City and Wyoming. The smaller Western Corridor pipeline system (light green line) brings crude from various gathering systems in Canada, Montana and Wyoming into Casper. Crude truck and pipeline gathering systems in the PRB Niobrara shale region also feed into Casper. Genesis Energy is developing a terminal northeast of Casper at Douglas, WY that will unload crude trucks from the Niobrara PRB into storage for onward distribution to Casper by pipeline. Genesis also owns a small (4 Mb/d) topping plant refinery at Antelope that they can feed from the same pipeline system. The Genesis terminal and pipeline connection to Casper is expected to be in operation by the end of 2013.
Guernsey is the pipeline crossroads of the Rockies. The Express Platte comes in from the northwest via Casper en route to Wood River. The True Company Bridger/Butte crude gathering systems from the western Bakken feed down into Baker Montana (Maroon color line on the map). Belle Fourche (also True Co’s) are in the process of building a direct 50 Mb/d pipeline from Baker to Guernsey (dotted maroon line) to connect with the Pony Express pipeline (more on that in a minute). Smaller pipelines out of Guernsey feed refineries in Salt Lake City, Cheyenne, WY and Denver. Guernsey is the origination point of a major crude pipeline expansion out of the Rockies - the Tallgrass Pony Express (purple dotted line on the map). The Pony Express project is a repurposing of a natural gas pipeline to flow 230 Mb/d of crude from Guernsey to Ponca City, OK (where Phillips 66 has a refinery). Tallgrass are adding an extension from Ponca City to Cushing, OK. The pipeline has received FERC approval and is expected in service October 2014. The Pony Express will be fed at Guernsey by the Belle Fourche system from the Bakken as well as a new 50 Mb/d Hiland Partners (formerly Banner) Double H pipeline that will run from Dore, ND to Guernsey carrying Bakken crude (orange dotted line on the map). The Pony Express already has 206 Mb/d of secured shippers to Cushing.
Guernsey has pipeline connections to Wood River via the Platte Express and will have a direct pipeline to Cushing once the Pony Express is complete. However, both these pipelines direct crude into the Midwest (Cushing or Wood River). That market is over supplied at the moment because of rapidly increasing Canadian and Bakken crude production that exceeds local refining capacity and has few pipeline outlet routes to the Gulf Coast. That logjam has caused large price discounts for the Cushing benchmark West Texas Intermediate (WTI) versus crudes sold in coastal markets that are priced against the international benchmark Brent. Those WTI discounts to Brent exceeded $20/Bbl at times and averaged over $17/Bbl during 2012. Because of this supply logjam, crudes sold at the pipeline in the Rockies (e.g. at Guernsey) are being discounted against WTI.
Regular RBN blog readers will be familiar by now with the narrative that producers shipping crude production into the Midwest and Cushing pipeline systems are receiving lower prices than those that find a way to deliver to the East and West Coast or the Gulf Coast. As Bakken producers discovered during 2012 the solution is to ship crude by rail to bypass the Midwest logjam and get to the coasts. As we learned in our ongoing crude by rail series, one of the regions that is developing crude by rail loading terminals is the Niobrara (see Load Terminal Craze Sweeps the Nation). The largest midstream player at Guernsey, True Company, is behind one of the crude by rail loading terminal projects currently being developed. True Company subsidiary Eighty-Eight Oil Co is building a unit train terminal that will load 60 Mb/d of crude from trucks or the pipeline system and is expected to be online by the end of 2013. The Eighty-Eight BNSF facility will give producers from Canada, the Bakken, Niobrara and other Rockies plays the option to get off the pipeline and deliver to Gulf or West Coast destinations.
Platteville Station, Colorado
The main takeaway capacity out of the Niobrara DJ basin play in Weld County, CO is on the 70 Mb/d Semgroup White Cliffs pipeline that runs from Platteville to Cushing, OK (red line on the map). The pipeline runs direct to Cushing and unlike the pipelines flowing through Guernsey to the north it does not have to share space with Canadian and Bakken production. Semgroup is expanding the White Cliffs pipeline to 150 Mb/d and the new capacity will be online in 2Q 2014. Current White Cliffs capacity is mostly dedicated to Anadarko and Noble – the two largest operators in Weld County. Semgroup are also constructing the Wattenberg oil trunkline that will extend 37 miles north from Platteville to the Noble Energy production system in the Wattenberg Niobrara hotspot. That gathering system will be completed by the end of 2013.
Further south in the DJ basin another new 70 Mb/d crude takeaway pipeline has been proposed by NuStar Energy LP. The Niobrara Falls pipeline project is a conversion of an existing refined products line running from Denver, Co to McKee in the Texas Panhandle and then to Wichita Falls, TX where it intersects with the Sunoco Logistics (Energy Transfer) West Texas Gulf pipeline system that runs south to Nederland on the Gulf Coast (see dotted blue line on map). The Niobrara Falls project proposal also includes new lateral pipelines from Platteville and Watkins in the DJ Basin. NuStar has completed an open season on Niobrara Falls and is still determining whether to proceed with the project. The original proposed in-service date was 1Q 2014.