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.
We’ve said it often, because it’s true: the Permian always gets the most attention, whether the topic is production growth, price-spread wackiness or takeaway constraints. But there’s a lot going on in other North American production areas too, including the Western Canadian Sedimentary Basin (WCSB), the Bakken, the Powder River Basin (PRB) and the D-J Basin — all of which need (or will need) more crude oil pipeline capacity to move supply south. We most recently discussed the WCSB’s takeaway conundrum a few weeks ago in How Long. There, we reviewed efforts by the provincial government of energy-rich Alberta to mitigate the sometimes painful effects of having too little pipeline capacity to move crude oil to market. We also provided updates on the three big pipeline projects out of Western Canada — the Line 3 replacement, TMX and Keystone XL — that have been under development for years but remain in either major or minor limbo. We considered the unique, interconnected takeaway concerns facing the Bakken, PRB and D-J in our “Commitment” series. In Part 1 a few months back, we noted that it’s particularly tough to assess how much incremental pipeline capacity might be needed along the pipeline corridor along the eastern Rockies, which picks up crude from a variety of production areas along the way — not just in western North Dakota and Wyoming and Colorado but in the WCSB too. Another point: there’s a palpable fear among shippers that they could enter into, say, a 10-year deal to move 100 Mb/d of crude on Pipeline X from Point A to Point B, only to see production growth slow and a pipeline overbuild situation emerge. Last month, in Part 2, we noted that there’s been a bit of a break in the project logjam; among other things, Phillips 66 and its partners have decided to proceed with the construction of both the Liberty Pipeline, from the Bakken and Niobrara to Cushing, and the Red Oak Pipeline, from Cushing to Houston and Corpus Christi via Wichita Falls, TX.
Since then, additional pipeline projects designed to help move crude oil south to Cushing and the Gulf Coast have been proposed, raising the same issues now facing the Permian, namely, how much is too much and, are we facing a potential overbuild situation? The big cheese of these projects is a newly announced plan by the co-owners of the Bakken Pipeline System — which comprises the Dakota Access Pipeline (DAPL; orange line in Figure 1) from the Bakken to Patoka, IL, and the Energy Transfer Crude Oil Pipeline (ETCOP; yellow line) from Patoka to Nederland, TX — to nearly double DAPL’s capacity, from the current 570 Mb/d to as much as 1.1 MMb/d. Regular readers of our blogs will recall that DAPL was a game-changer for what had long been a takeaway-constrained production area. When DAPL came online in June 2017 (with an initial capacity of 525 Mb/d), it eliminated those constraints overnight, slashed the need for crude-by-rail, and significantly increased the prices Bakken producers receive for their barrels (see Take My Crude Away). With Bakken production still rising and DAPL starting to fill up, the pipeline’s co-owners (led by operator Energy Transfer) in November 2018 announced plans to increase DAPL’s capacity by 45 Mb/d to 570 Mb/d — that expansion, which followed an open season, already is online. Then, on July 15, 2019, Energy Transfer said that it has launched a supplemental open season to expand DAPL’s capacity to as much as 1.1 MMb/d — enough to transport about three-quarters of the Bakken’s current production (about 1.4 MMb/d). The ultimate capacity will be determined by shipper response to the open season.