Crude production is at all-time highs in the Bakken and the Niobrara, and the latest pipeline-capacity expansions out of both regions have been filling up fast. At the same time, producers in Western Canada are dealing with major takeaway constraints and are on the hunt for still more pipeline space. Midstream companies are trying to oblige, proposing solutions like a major Pony Express expansion or a new Bakken-to-Rockies-to-Gulf Coast fix — the Liberty and Red Oak pipelines — that could help address all of the above. The catch is that, with multiple producing areas funneling crude along the same general eastern-Rockies corridor and the outlook for continued production growth uncertain, how’s a shipper to know whether to sign a long-term deal for some of the incremental pipe capacity now being offered? Today, we consider the need for new takeaway capacity, the potential for an overbuild scenario, and what it all means for producers and shippers.
It’s tough enough to determine how best to increase pipeline capacity between one production area and one destination market — the Permian and Corpus Christi, for example, or the Permian and Houston. As we’ve seen recently, multiple pipeline projects in these distinct corridors were initially proposed, then a winnowing process of sorts has been occurring, with some projects advancing and others falling to the wayside. Things become even more complicated, though, when you’re dealing with a situation in which multiple producing areas are served by — and vying for space on — the same pipeline systems. Crude flows from one production area through (or nearby) another — and then another — on its way to a number of possible destinations. That’s the case along the eastern Rockies, where crude works its way down from Western Canada, the Bakken, and the Niobrara’s Powder River Basin (PRB) and Denver-Julesburg (D-J) Basin on its way to either the Midwest, the Midcontinent or the Gulf Coast. Put another way, Niobrara shippers are affected by production trends, pipeline capacity and pipeline utilization upstream and downstream of them — if pipes come down to Wyoming and Colorado filled to the brim, the opportunities to add PRB and D-J barrels to the systems diminish.
As we’ve discussed in a number of recent blogs, crude pipelines out of Western Canada are running close to full — even with mandated production cutbacks in Alberta — and producers and shippers there are looking for new ways out. North Dakota’s Oil & Gas Division just reported another record for Bakken crude production — January 2019 output averaged nearly 1.35 MMb/d — which is increasing volumes trying to move on the Dakota Access Pipeline (DAPL, now being expanded to 570 Mb/d) and other takeaway outlets. And production in the Niobrara has been setting new all-time high marks as well.