This 'Pony' Knows More Than One Trick - More Than a Bullet Line from Rockies to Cushing

Tallgrass Energy Partners’ Pony Express Pipeline provides capacity to move 230 Mb/d of Bakken crude oil received at Guernsey, WY all the way to the mega-hub at Cushing, OK, making it one of the most important pipeline corridors out of the Williston Basin. Possibly because of its moniker ‘Express’, it is often thought of as a bullet line, hauling barrels 760 miles in a straight shot across Wyoming, Colorado, Nebraska, Kansas and into Oklahoma. But there is much more to Pony, including a major outlet for Niobrara crude (the 90 Mb/d Northeast Colorado Lateral) and an expanding capability to deliver oil to refineries and other facilities on the way to Cushing. In Part 2 of our blog series covering pipelines out of the Bakken/Rockies region, we examine what the changes in crude production and flow patterns have meant to Pony Express and how this pipeline can be expected to respond to changes in regional crude oil supply and demand.

First, a quick recap. As we said in Episode 1, for years prior to the Shale Revolution, long-existing pipeline capacity out of the Bakken could handle the modest volumes of conventional oil being produced there. By 2011 though, Bakken tight-oil production had begun a steep, rapid rise, quickly outstripping available pipeline capacity (much of which had to be shared with crude heading south/southeast from western Canada). As a result, pipeline congestion and significant price discounting festered while Bakken producers and midstream companies scrambled to develop alternative routes to market. The solution was the development of rail loading terminals—they could be built quickly and at relatively modest costs, and they could use existing rail lines. Crude-by-rail (CBR) also allows for destination flexibility; in other words, if a producer could achieve higher netbacks (the crude sale price minus transportation costs from the wellhead) by railing its crude to the East Coast or the West Coast (neither of which is connected to crude producing regions via pipeline) instead of the Midwest or the Gulf Coast then, heck, rail it to the East or West Coast.

In all, 21 rail terminals were built in the Bakken, and their combined capacity is a fairly astonishing 1.5 MMb/d (compared to current Bakken production of just over 1 MMb/d—down from its December 2014 peak of 1.3 MMb/d). Moving crude by rail isn’t cheap, though, and as the Brent-West Texas Intermediate (WTI) differentials that drove the CBR boom went from fat to skinny, what the Bakken needed to remain competitive was new pipeline capacity that could move crude to market much more cost-effectively. Slowly but surely, new pipeline capacity was added, to the point that some are wondering whether new additions being planned are really needed.  But that’s another story.  Today we are focused on Pony Express, which is also called PXP.  The pipeline has quite a history.

Originally known as the “Wyoming-Missouri Line” and built as a crude pipeline in 1954, this line may still hold the record for being the fastest line construction as it galloped from conception to final weld in only 96 days. KN Energy (which became part of Kinder Morgan in 1999) converted the line to a natural gas system in 1997 and then, with the onset of Bakken production, Tallgrass converted the line back to crude service in 2014. The company went to great measures to assure the integrity of the original segments, including replacing approximately 60 miles of pipe, replacing all the river and stream crossings, and “smart-pigging” the line—that is, running a special device through it to assess the pipe’s integrity.

PXP was being developed by Kinder Morgan just as it was required to divest of certain assets in its acquisition of El Paso Corp. in 2012.  PXP was one of those assets acquired by Tallgrass at that time.  The Rockies Express (REX) natural gas pipeline (Walking Tall) was acquired by Tallgrass in the same transaction.  As shown in Figure 1, PXP does not extend all the way up to the Bakken, instead receiving barrels on a joint tariff basis (single rate) from the True Co.’s Bridger/Belle Fourche crude gathering systems from the Bakken. True Co.’s systems connect to PXP at Guernsey. PXP also provides joint tariff transport with the 84 Mb/d Double H pipeline from Dore, ND (originally developed by Hiland Crude—which is controlled by Harold Hamm, CEO of Continental Resources—and now owned and operated by Kinder Morgan).