The battle between Bakken and Western Canadian natural gas supplies for the Chicago market seems to be advancing toward a final showdown of sorts. Associated gas production from the crude-focused Bakken has been rising sharply, but capacity on the Bakken’s two gas takeaway pipelines — Northern Border and Alliance, also utilized by Western Canadian Sedimentary Basin (WCSB) supplies — has been maxed out for a few years now. The result is that Bakken gas is increasingly encroaching on — and pushing back — imports from the WCSB. Bakken gas flows already overtook Canadian gas receipts on Northern Border a year ago. Since then, the gas-on-gas competition and the resulting pipeline constraints have escalated, and things are likely to get worse. Today, we break down the forces at play in the competition for market access.
We first wrote about rising Bakken gas production and the impending battle with Canadian gas for pipeline takeaway capacity in a July 2012 blog, Border Wars. Since then, Bakken gas output has climbed nearly four-fold, from 0.7 Bcf/d to an average 2.7 Bcf/d in the first four months of 2019 (blue area in Figure 1), according to the latest data available from the North Dakota Industrial Commission (NDIC). However, about 20% of that volume is being burned off due to persisting processing and pipeline constraints. The Bakken is, of course, an oil-rich formation, where drilling activity has largely focused on crude oil production. However, its wells have always also yielded significant quantities of associated natural gas, which has proven problematic, given the area’s limited gas and NGL infrastructure. Moreover, as we discussed in Shotgun Rider a couple of years ago, drilling activity has tended toward oil wells with higher gas-to-oil ratios, which has the effect of accelerating gas production growth and worsening the shale play’s processing and pipeline constraints. That, in turn, has led to the large volumes of gas being flared (yellow line). In response, significant numbers of new gas gathering systems and processing plants were built. Bakken natural gas processing capacity increased from 1.3 Bcf/d in early 2014 to 2.5 Bcf/d by mid-2019, and more is on the way later this year and beyond. (ONEOK just last week announced plans to expand gas processing capacity by 200 MMcf/d at its existing Bear Creek facility in Dunn County, ND, by the first quarter of 2021.) Nevertheless, for now, Bakken producers continue to struggle with oversupply conditions.