The prospects for sellers of Williston Basin/Bakken crude oil in what once was a prime growth market—the U.S. East Coast—have been dwindling fast, as have the volumes of Bakken crude being railed and barged to refineries along the Mid-Atlantic coast and the Canadian Maritimes. Today we look at how a combination of weak crude oil prices, declining production, high relative freight costs, and the lifting of the U.S. crude oil export ban have opened the door to more imports from West Africa, and left Bakken producers out in the cold.
For the first time since the start of the crude-by-rail (CBR) boom a few years ago, just as much crude oil is being transported by rail to PADD 5—that is, to states in the western U.S.—as to the Eastern Seaboard states in PADD 1. This primarily reflects the facts that 1) CBR deliveries from the Williston Basin/Bakken to PADD 1 continue to plummet and 2) refineries in the West remain reliable buyers of railed-in crude from the Bakken and Western Canada. Will CBR shipments to the East Coast continue to fall, or have we seen the worst of the decline? Today we take a look at recent trends in crude movements by tank car, and a look ahead.
Let’s face it — for producers, the last couple of years have stung, with low-slung energy prices allowing little-to-no returns on drilling investments in most parts of the major shale basins. A side effect of the low price environment in the past two years has been the shrinking geographic footprint of the Shale Revolution. About 50% of all onshore rigs in the Lower 48 currently are clustered in the top 20 counties for drilling activity. In effect, this also means a lot of the new production growth will come primarily from these same 20 counties, with the potential for all sorts of implications for infrastructure and regional price relationships. In today’s blog, we take a closer look at rig counts by county to see how much the geographic focus of the Shale Revolution has narrowed.
The group of 21 liquids-focused exploration and production companies we have been tracking plans to cut capital expenditures by half in 2016, after a 42% decline in 2015. However, capex for this “oil-weighted” E&P peer group is apparently bottoming out—their mid-year guidance was only 2% lower than their original 2016 estimates. Even with deep cuts in capital spending, the group expects production to fall only 7% in 2016, and those estimates have been revised higher from the initial 2016 guidance. Also worth noting: Pure Permian Basin players, the most optimistic companies in the peer group, are cutting capital spending by only 19% and are expecting a 12% gain in production. And with Apache Corp.’s announcement earlier this week of a huge discovery in the Permian’s Southern Delaware Basin, the market is definitely making a turn. Today we discuss 2016 capex and production for a representative group of E&P companies whose proved reserves are more than 60% liquids.
The 450-Mb/d Dakota Access Pipeline (DAPL) has broken away from the pack of out-of-the-Bakken crude takeaway projects. On August 2, Enbridge Inc., through its master limited partnership Enbridge Energy Partners, agreed to take a large stake in DAPL from Energy Transfer Partners (ETP) and Sunoco Logistics Partners (SXL), a move that suggests Enbridge’s own 225-Mb/d Sandpiper Pipeline may drop out of the race soon. Joining Enbridge in the $2 billion deal is Marathon Petroleum, its former joint venture partner and anchor shipper on Sandpiper. Today, we consider these recent developments in the long-running effort to transport North Dakota crude oil to market more efficiently.
In the past century and a half, Sarnia, ON has evolved into one of Canada’s leading refinery and petrochemical centers, and a major consumer of Alberta and Bakken crude and Alberta and –– more recently –– Marcellus/Utica natural gas liquids. Getting that oil and those NGLs to southwestern Ontario is the task of a small group of pipelines and a few rail facilities; other pipelines out of Sarnia help to move refined petroleum products to nearby demand centers. Today, we continue our comprehensive review of refinery and petchem-related infrastructure in and around Ontario’s Chemical Valley.
Tallgrass Energy Partners’ Pony Express Pipeline provides capacity to move 230 Mb/d of Bakken crude oil received at Guernsey, WY all the way to the mega-hub at Cushing, OK, making it one of the most important pipeline corridors out of the Williston Basin. Possibly because of its moniker ‘Express’, it is often thought of as a bullet line, hauling barrels 760 miles in a straight shot across Wyoming, Colorado, Nebraska, Kansas and into Oklahoma.
For the past five years, crude oil producers in the Bakken have depended on railroads to transport a significant share of their output to market—there simply hasn’t been enough pipeline capacity out of the tight-oil play. Now, construction of the long-awaited, 450 Mb/d Dakota Access Pipeline (DAPL) is finally poised to begin, and a late-2016 online date for DAPL is planned. DAPL’s capacity would enable producers to further reduce their use of crude-by-rail, but with Bakken production on the decline, will DAPL really be needed? And what about additional out-of-the-Bakken takeaway capacity being planned? Today, we consider the challenges and pitfalls of developing midstream infrastructure in fast-changing markets, focusing on Bakken crude.
A few years back, crude-by-rail (CBR) emerged as the go-to fix that enabled pipeline-constrained shale regions to move fast-increasing volumes of oil to market. A total of 178 rail terminals were built or significantly expanded, with 99 loading terminals and 79 unloading terminals developed in the U.S. and Canada. But changes in the market -- lower oil prices, slowing/declining production, new pipeline capacity -- have been challenging and undermining CBR. Only about 20% of U.S. nameplate capacity is being used, and further declines in CBR volumes are expected, prompting serious questions about CBR’s future role. Today, we discuss RBN Energy’s latest Drill Down Report, which examines CBR’s pros and cons, its evolution, and its current status and prospects.
Although California refineries initially met the criteria that spurred development of crude-by-rail (CBR) shipments to other coastal regions (lack of pipeline infrastructure and wide crude price differentials between stranded inland supplies and coastal alternatives) neither rail shipments or terminal build outs have made much of a dent in the Golden States’ crude supply. At their height in December 2013 CBR shipments into California reached 36 Mb/d – just 2% of the State’s 1.9 MMb/d refining capacity and they have since dwindled to a trickle. Today we examine the low pace of shipments.
Most of the crude by rail (CBR) shipments to 4 refineries in Washington State are ex-North Dakota from where rail freight costs are over $10/Bbl. Bakken crude from North Dakota competes at Washington refineries with Alaska North Slope (ANS) shipped down from Valdez, AK. Back in 2012 ANS prices were more than $20/Bbl higher than Bakken crude – easily covering the rail cost. In 2016 so far the ANS premium to Bakken has averaged well below the $10/Bbl freight cost making CBR shipments uneconomic. But as we discuss today - Northwest refiners are still shipping significant volumes of crude from North Dakota.
If East Coast refiners bought their crude at the wellhead in North Dakota during February 2016 they would have paid average prices of about $4.90/Bbl below U.S. Benchmark West Texas Intermediate (WTI) at Cushing, OK – which works out at about $26.25/Bbl (price estimates from Genscape). If they shipped that crude by rail to refineries in Philadelphia, PA on the East Coast they would have paid about $14/Bbl rail freight - meaning the delivered cost of crude would be $26.25 + $14 or $40.25/Bbl. Alternatively they could have simply imported Bakken equivalent light sweet crude priced close to international benchmark Brent for an average $34/Bbl – saving a minimum of $6.25/Bbl. Today we describe how these economics have had a detrimental impact on crude-by-rail (CBR) shipments to the East Coast.
For the past, year many shale oil producers have defied the expectations of many and kept output at or near to record levels in the face of falling oil prices and much tougher economics. Improvements in productivity, cost cutting and a concentration on “sweet spot” wells that generate high initial production (IP) rates have all helped cash strapped producers survive. But with oil prices so far in 2016 stuck in the $35/Bbl and lower range and with the worldwide crude storage glut still weighing on the market – producers are finally pulling back. Today we look at how increased pressure on North Dakota producers is putting the brakes on Bakken crude production.
Crude prices are hovering around $30/Bbl making crude–by-rail (CBR) transport an expensive option for hard pressed producers looking to conserve cash – especially where pipeline alternatives are available. The crude price differentials that once justified shipping inland crude to coastal destinations by rail have all but disappeared. In November, 2015 pipeline shipments exceeded rail out of North Dakota for the first time since 2011 and by 2017 available pipeline capacity out of the region should exceed producer’s needs. In the circumstances, rail shipments would appear to be living on borrowed time but as we describe today - some North Dakota rail shipments are continuing in spite of the poor economics.
The 20 Mb/d Dakota Prairie refinery commenced operation on May 4, 2015 – becoming the first brand new U.S. crude processing plant to startup in nearly 40 years. The rationale behind this refinery and plans for others like it was surging demand for diesel driven by the shale oil boom in North Dakota. However the market conditions that prompted interest in building refineries in the Bakken region have changed considerably in the past year and led to an unprofitable first quarter for Dakota Prairie. Today we explain why the new refinery made sense at one time and what has changed in the past year.