Here We Go Again, Part 2 - Is the Bakken Heading Towards a Crude Pipeline Overbuild?

Crude oil production in Western Canada and the Bakken is ratcheting up ­— in the Niobrara too — but pipeline takeaway capacity to key markets south of there is an issue. For a couple of years now, egress out of Alberta has been problematic, due in large part to delays in the development of the Enbridge Line 3 replacement, the Trans Mountain Expansion (TMX) and Keystone XL. Things got so bad last winter that Alberta’s provincial government ordered production cutbacks, though they are now easing. Rising Bakken production is quickly filling any remaining space on the Dakota Access Pipeline, and pipes out of the Niobrara’s Powder River and Denver-Julesburg (D-J) basins are approaching their capacities as well. In response, midstream companies have proposed a number of fixes, some very incremental in nature and others big and impactful. As typically happens, though, too much capacity may be on the drawing board. Today, we consider the ongoing competition to build new capacity down the eastern side of the Rockies.

The Niobrara production area in the Rockies is a complicated place to determine crude oil supply and demand balances. It’s at the crossroads of a number of supply areas, with volumes coming in from Canada and the Bakken, as well as locally from the Powder River and Denver-Julesburg basins. And in terms of destinations, there are well-established local markets, or you can send the molecules to Salt Lake City, or southeast to the Cushing, OK, hub and beyond. The Niobrara is one of the few growth areas we look at where there is substantial pipeline capacity for inflows and outflows, with the option to service multiple markets. Now, there are a couple of new pipeline projects ramping up in the Rockies, and given the region’s interconnectivity, it’s a good bet that the status quo in the Niobrara is in for some big changes. Today, we recap the new pipeline projects and then dive into what it could mean for the midstream balance in the Powder River and D-J.

Since the mid-2010s, MPLX has been developing a far-reaching pipeline system for delivering heavier natural gas liquids and field condensate from the Utica and “wet” Marcellus plays to Midwest refineries for gasoline blending and refining, and to the Alberta oil sands for use as diluent. The multi-year, multi-project effort, which has involved the construction of new pipelines, the repurposing of existing pipes, and the development of new storage capacity, will reach another milestone next month, when MPLX starts batching normal butane and isobutane through most of the pipeline system. And further enhancements are on the horizon. Today, we provide an update on the master limited partnership’s long-running strategy for moving Marcellus/Utica-sourced liquids to market more efficiently and at a lower per-barrel cost.