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.
The apparent demise of Sandpiper could potentially change the outlook for the future balance between Williston Basin production and takeaway/in-region refining capacity. In our recent With or Without You – Could the Bakken End Up with Too Much Pipeline Capacity?, we noted that during the run-up in Bakken production earlier in this decade a lot of new crude-by-rail capacity was built, as were incremental additions to pipelines. Midstream companies also made big plans for more takeaway capacity, but some of those plans were reconsidered after the plunge in oil prices that started two years ago. As a result of that price decline, Bakken production fell from 1.3 MMb/d in December 2014 to an estimated 998 Mb/d in July 2016, according to the Energy Information Administration’s (EIA’s) Drilling Productivity Report. Based on our production economics analysis, it looks like the decline in production will be continuing until prices get back above $50/bbl netback to the basin. In the meantime, some producers are taking drastic action. For example, we hear that Continental Resources will be shutting in (yes, you read that right, shutting in) about 20 Mb/d of Bakken production in September. No doubt declines in production are one reason for the pullback in new pipeline takeaway projects, leaving only about 500 Mb/d of incremental pipeline and regional refining capacity on the drawing board. But that is still a big number. If it all gets built, pipeline takeaway/refining capacity in the Bakken would total 1.35 MMb/d (excluding rail capacity). So the big question remains, is that still too much?
Dakota Access Pipeline (DAPL) is the most critical factor in all of this. As shown in Figure 1, DAPL will carry at least 450 Mb/d of crude (it’s expandable to 570 Mb/d) from the heart of the Bakken 1,124 miles to the Patoka Hub in Illinois. From Patoka, Bakken crude will be able to move south on the planned Energy Transfer Crude Oil Pipeline (ETCOP) –– a reversal of an existing 30-inch-diameter natural gas pipeline that is part of the Trunkline system, plus 66 miles of new connecting pipe –– to Sunoco Logistics’ terminaling facilities in Nederland, TX. DAPL and ETCOP are the two primary element of the Bakken Pipeline system, which is currently owned by a joint venture (JV) of ETP/SXL (with a 75% stake) and Phillips 66 (with 25%). As we said, Enbridge and Marathon announced August 2 that they have formed a 75-25 JV of their own that has agreed to buy a 49% share of ETP/SXL’s 75% stake in Bakken Pipeline. For those without a calculator handy, that will divvy up the new Bakken Pipeline ownership pie like this: 38.3% ETP/SXL, 27.5% Enbridge, 25% Phillips 66, and 9.2% Marathon.