Associated natural gas production from North Dakota’s oil-focused Bakken Shale is rising as rigs are being added in the region. Bakken gas output reached a record 1.18 Bcf/d this past May. The incremental gas production in the area is intensifying competition with imports from the already-beleaguered Western Canadian Sedimentary Basin (WCSB), which share the same pipeline capacity and target the same Midwest demand markets. The trend also is prompting calls for more pipeline capacity out of the Bakken. How much more capacity is needed and by when? Today, we look at existing natural gas takeaway capacity and flows out of the Bakken.
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. At the time, crude oil was trading at upwards of $80/bbl. Oil production from North Dakota’s Bakken Shale had just climbed above 600 Mb/d. Associated gas volumes, including the natural gas liquids content, were just barely approaching 700 MMcf/d, and nearly 40% of that gas was being flared because of midstream capacity constraints, allowing little more than 400 MMcf/d of dry gas to hit the pipelines. But at $80/bbl, oil production was slated to climb rapidly, and with it came increasing volumes of associated gas. By late 2014, Bakken oil output had doubled to 1.2 MMb/d, dry gas volumes were approaching 900 MMcf/d, North Dakota implemented new restrictions on gas flaring to be phased in over a few years and consequently the market was becoming concerned about pipeline takeaway capacity. But about that time, the 2014 oil-price collapse took a severe toll on rig counts, Bakken crude output declined slowing the growth in associated gas volumes, and for a little while concerns about the possibility of insufficient gas takeaway capacity were deferred — at least until now.
Today, oil prices are in mild recovery and rig counts are rebounding. While Bakken crude production volumes in the region have yet to bounce back to anything near pre-collapse levels, they are holding steady just above 1.0 MMb/d. Of particular interest to midstreamers is that the volume of gas associated with that increased drilling activity is rising faster than the oil it’s targeting. As we noted in Part 1 of this series, there are two key reasons for that: 1) the oil-price collapse and rig count contraction led producers to concentrate their remaining rigs in the best, most productive acreage, which happened to have a higher gas-to-oil ratio than other drilling locations in the region; and 2) midstreamers have expanded gathering and processing capacity. That, along with those new regulations introduced by North Dakota to limit flaring, has meant that flaring has dropped to around 10%, so that more of the produced gas is now hitting the pipelines. Bakken gas volumes rose to a single-day high of 1.247 Bcf/d in early May and averaged 1.18 Bcf/d that month, which was also a record. Volumes came down from that record in June and July, but remain slightly higher year-over-year. Moreover, given current production economics and drilling activity in the region, we would expect that Bakken gas production growth over the next five years could range anywhere from a nominal 100 MMcf/d if crude prices remained at $50/bbl to more than 600 MMcf/d if crude prices were to rally back to $80/bbl. Thus, unless crude falls below $50/bbl, there likely is upside for Bakken gas volumes. So the question then is, how much Bakken gas supply can grow before it needs more takeaway capacity. Next, we look at the existing transportation routes and available capacity.
To access the remainder of Shotgun Rider - Bakken and Western Canadian Producers Wrangle for Gas Takeaway Capacity you must be logged as a RBN Backstage Pass™ subscriber.
Full access to the RBN Energy blog archive which includes any posting more than 5 days old is available only to RBN Backstage Pass™ subscribers. In addition to blog archive access, RBN Backstage Pass™ resources include Drill-Down Reports, Spotlight Reports, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. If you have already purchased a subscription, be sure you are logged in For additional help or information, contact us at [email protected] or 888-613-8874.