Dakota - Bakken Crude Gathering Systems In Tough Times

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Oil Production Sliding As New Networks Come Online


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The collapse of both crude oil demand and prices sent shock waves through the oil patch, the likes of which U.S. producers have only seen two or three times in the 21st century. COVID-related stay-at-home directives in most states — and much of the industrialized world — resulted in sharply lower consumption of motor gasoline and jet fuel, and the sudden end of the OPEC+ supply-management alliance in early March spurred a short-lived price war, including threats by both Saudi Arabia and Russia to increase their crude oil production precisely when refinery demand for crude was cratering. Cooler heads prevailed, and by mid-April a new, nearly global agreement to reduce production was reached. But the cuts were too little, too late, amounting as they do to less than half — and maybe only one-third — of the devastatingly large demand destruction at refineries.

There has been a sharp decline in Bakken crude production in the spring of 2020, which comes on the heels of what has been a significant build-out of crude gathering systems. Crude gathering pipelines play a critically important — but often overlooked — role in the midstream sector. The new crude gathering systems that have come online in the past two or three years are concentrated in a relatively small area, in this case four western North Dakota counties — McKenzie, Dunn, Williams and Mountrail — that together account for nearly 90% of the play’s total crude production. The systems were developed by producers, midstream affiliates of producers and independent midstreamers in anticipation of continued growth in Bakken crude production in 2020 and beyond –– growth that now seems highly unlikely to occur in the near- to mid-term. The question now is, what will that mean for the volumes flowing through the crude gathering pipes?

Key take-aways from the report include:

  • The COVID-related collapse in crude oil demand and prices is leading producers in the Bakken and other U.S. shale plays to cut their planned 2020 capital spending, slash their rig counts and shut in production.
  • The Bakken had been on a roll the past three-plus years, with production increasing by more than 50% from its late-2016 low.
  • Production gains spurred the development of new crude gathering systems in the Bakken, as well as the expansion of existing systems, all with the primary aim of reducing the cost of delivering oil from the lease to takeaway pipelines and crude-by-rail terminals.
  • Most of the new crude gathering capacity was built in four western North Dakota counties that have been the epicenter of drilling activity.
  • Still to be determined is the degree to which flows through these systems will decline during the current downturn.

Dakota is included in RBN Energy’s 2020 Drill Down report series, a suite of reports covering many of the key issues expected to impact the markets for crude oil, natural gas and natural gas liquids. Drill Down reports are part of RBN Backstage Pass™ premium resources that also include Blog Archive Access, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. By subscribing to RBN’s Backstage Pass™ Premium Services, you plug into our network and get direct access to our premium resources.

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