Pipeline capacity constraints are nothing new to producers in the Bakken. Prior to the completion of the Dakota Access Pipeline (DAPL) in mid-2017, market participants had been pushing area pipeline takeaway to the max. When DAPL finally came online following a lengthy political and legal battle, producers and traders were able to breathe a sigh of relief. But with Bakken production steadily increasing over the past 18 months — and primed for future growth — new constraints are on the horizon. Over the next year or so, Bakken output could overwhelm takeaway capacity and push producers to find new market outlets. The questions now are, which midstream companies can add incremental capacity, how much crude-by-rail will be necessary, and is there a chance a major new pipeline gets built? Today, we forecast Bakken supply and demand, discuss some upcoming projects and lay out the possible headaches for Bakken producers heading into 2019.
We discussed the history and impact of DAPL in our Take My Crude Away blog, but here’s a quick recap. Prior to the commercial start-up of the new pipeline to Patoka, IL, in June 2017, Bakken producers had long battled with takeaway constraints. As far back as 2012, production (blue area in Figure 1) had outpaced the modest amount of pipeline capacity available (green line) and producers and traders resorted to moving excess production via crude-by-rail (CBR). CBR isn’t inherently bad, and does provide the ability to reach multiple markets, but it’s expensive, logistically challenging, and slow (compared to a pipeline). When DAPL came online, producers were faced with a new market dynamic — excess pipeline takeaway capacity. Bakken crude began to trade at a premium to West Texas Intermediate (WTI) at Cushing, as take-or-pay shippers were forced to compete with one another and pay up to incentivize barrels to move their way. Currently, Bakken barrels at the Clearbrook hub are trading at a $8/bbl discount to WTI at Cushing, influenced by market dynamics related to those also causing wide differentials for Canadian barrels, which we discussed in Part 1 of this blog series.