Crude-by-rail shipments are expected to increase from North Dakota in coming months due to the Organization of Petroleum Exporting Countries’ (OPEC) recent decision to curtail oil production and an easement denial for Energy Transfer Partners’ (ETP) 470,000 bpd Dakota Access crude pipeline.
The decision by OPEC to cut crude output starting in January 2017 by 1.2 million bpd to 32.5 million bpd provided an immediate lift to global crude prices in recent weeks. U.S. benchmark West Texas Intermediate crude opened November 30, 2016 - the day of the OPEC decision - at $45/bbl and closed at more than $49/bbl. The price reached higher than $54/bbl by December 12, 2016, following news that non-OPEC nations also expect to cut production.
Following the OPEC decision, Genscape’s Bakken production forecast for North Dakota and Montana was revised up 15,000 bpd to 944,000 bpd for output in December 2017.
Bakken production is projected to be 1.016 million bpd for December 2017, according to Genscape data. Pipeline and local refinery capacity in North Dakota is currently about 878,000 bpd, meaning that nearly 140,000 bpd of output is left to move on rail. The DAPL pipeline would bring pipeline takeaway and local refining capacity to 1.348 million bpd. The pipeline was originally expected online in the fourth quarter, but the startup was delayed to first quarter 2017, ETP said before the easement denial.
Until DAPL comes online, the disparity of Bakken barrels may be sent via crude-by-rail.
Bakken production reached a peak of 1.307 million bpd in December 2014, Genscape data showed.
Market players took advantage of the higher prices after the OPEC decision as “the spike in WTI means a temporary spike (in production) as producers hedge at $50-plus per barrel prices,” according to a Bakken market source.
The OPEC decision came amid an uncertain time for Bakken shippers. The North Dakota-to-Patoka, IL, Dakota Access pipeline remains in limbo after the U.S. Department of the Army denied the easement necessary for the pipeline to cross under Lake Oahe in southern North Dakota, said the Army’s Assistant Secretary for Civil Works, Jo-Ellen Darcy, in a statement on December 4, 2016.
DAPL Easement Decision Another Delay: Sources
The easement for the proposed pipeline was initially revoked on September 9, 2016, while the department reconsidered previous decisions regarding the crossing. On November 14, 2016, it was delayed again for an “additional discussion and analysis,” said the department. In the December 4, 2016, release, Darcy said the decision was based on a need to explore alternative routes for the pipeline, which “would best be accomplished through an Environmental Impact Statement with full public input and analysis.”
The pipeline’s easement denial is seen as a delay by many market participants. President-elect Donald Trump has expressed support for completing the project.
“My guess is that it will be just a temporary thing, but rail in January and February (2017) should be revived,” a crude-by-rail source said.
Producers Benefit from Bakken Breakevens
As DAPL remains in flux and the OPEC decision continues to provide support for WTI, Bakken producers and shippers will benefit more from relatively low breakeven prices.
The rail loading terminals where volumes have persisted amid the downturn in crude-by-rail are in counties where the breakeven prices have declined over the last year. Counties without rail terminals have higher breakevens, making shipping crude-by-rail uneconomic.
Breakeven prices dropped during 2016 at Bakken wells near Crestwood’s 160,000 bpd COLT terminal in Epping, Savage’s 175,000 bpd Trenton and Hess’ 140,000 bpd Tioga facilities in Williams County, ND. Production was economic at $24/bbl in the third quarter of the year, down from $43/bbl in the fourth quarter of 2015, according to the most recent data provided by North Dakota’s Department of Mineral Resources.
Typically, most of the crude coming into the rail terminals is sourced locally, although “customers truck-in from the lease whatever makes sense price-wise for them,” one crude-by-rail source said.
Mountrail County, ND, where Dakota Plains’ 80,000 bpd New Town terminal resides, had a breakeven mark of $29/bbl in the third quarter. That is a decline from $41/bbl at the end of Q1, and $53/bbl in the Q4 of 2014, the Department of Mineral Resources’ data showed.
An outlier is the Tesoro-owned BakkenLink Fryburg terminal, which sits in Billings County, ND, at the southern part of the state and away from most of the production in the Bakken basin. Billings County wells had a breakeven point of $47/bbl last quarter, according to the Department of Mineral Resources.
Most of the crude coming into the Fryburg terminal comes from McKenzie County, ND, via Tesoro’s High Plains Pipeline or the BakkenLink pipeline, according to a market sources. McKenzie County wells’ breakeven was $17/bbl in Q3.
Rail Terminal Activity Reacts to DAPL Delay
North Dakota rail terminals had an activity boost due to Bakken barrels sold into the market recently that had been stored in anticipation of a November line fill, Genscape data showed.
Musket’s 60,000 bpd terminal in Dore, ND, had loadings in the week ending November 4, 2016, for the first time since in the week ending June 10, 2016, and for the three following weeks, Genscape data showed. Similarly, loadings at the 200,000 bpd Lario facility in Dickinson, ND, were 75,000 bbls on November 1, 2016, marking the first loadings at the terminal since September 27, 2016.
The 150,000 bpd Tesoro-owned BakkenLink Fryburg, ND, terminal averaged 59,136 bpd in November 2016, up from its yearly average of 54,367 bpd, according to Genscape data.
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