The Bakken crude price at Clearbrook, MN, has widely disconnected from the light sweet grade’s value near the wellhead, while shippers vie for limited available takeaway pipeline capacity.
Though the tariff for Enbridge’s 210,000 bpd North Dakota pipeline system is $1.48/bbl between Beaver Lodge, ND, and end point at Clearbrook, the spread between the two pricing points has been more than twice the tariff.
Beaver Lodge is a storage and gathering hub located in close proximity to North Dakota crude oil production where a spot market has formed. Spot prices at Clearbrook are usually bid up by regional refiners who purchase barrels at the longstanding locational benchmark hub for Bakken crude. From Clearbrook, Bakken barrels can be shipped to refineries in the U.S. Midwest and U.S. Gulf Coast via Enbridge’s Mainline system and adjoining pipes.
Meanwhile, the Bakken price at the Beaver Lodge hub more closely reflects the value at nearby North Dakota production fields. The Bakken price there is also pressured lower by limited entrance onto the Enbridge North Dakota pipeline system due to capacity constraints.
Volumes on Enbridge’s North Dakota pipeline have averaged at or near-capacity for years, according to Genscape data.
As of May 16, 2016, volumes on the North Dakota pipeline have averaged 201,008 bpd so far this year, just slightly above the 194,779 bpd the line averaged in 2015. Flows on the pipeline have averaged 174,791 bpd since Genscape began monitoring the line in June 2011.
Just 10 percent of the Enbridge North Dakota pipeline capacity is allotted to new shippers, while the rest is reserved for historical shippers, which are predominately Midwestern refiners, sources said. The pipeline is significantly over-nominated by shippers, sources said. Enbridge was not immediately available for comment.
The price for Bakken at “Clearbrook is just a reference point – it’s not attainable. I can’t get there. No one would let me, except for a [relatively expensive] price,” one Bakken market participant said.
Alternative takeaway pipeline options for Bakken crude are also relatively expensive, another source said.
Though capacity is coveted on the Enbridge North Dakota pipeline, an active and liquid spot market for secondary line space has not developed like it has on other pipelines, such as TransCanada’s Gulf Coast and the Enterprise-operated Seaway crude lines, which both run from Cushing, OK,-to-Texas.
In a secondary line space deal, a buyer pays the owner of the line space for the right to use it, and the owner directly schedules the loading and receipt of the product with the pipeline operator, in consultation with the buyer. A secondary line space deal on the North Dakota pipeline system would reflect line space availability demand, which would likely take into account the arbitrage value between Beaver Lodge and Clearbrook.
But, there are a multitude of alternative transportation options from Beaver Lodge with pipeline connectivity to Tesoro’s Mandan, ND, refinery and several North Dakota crude-by-rail loading facilities including Hess’ Tioga, EOG’s Stanley and Crestwood’s Epping.
The Bakken shale boom that spurred the growth in midstream infrastructure several years ago in North Dakota contributed to the fall in global crude prices, which caused narrowing key arbitrage spreads and put the brakes on crude by rail. A narrower NYMEX light sweet crude-ICE Brent futures contracts spread forced coastal refiners, which railed-in price advantage Bakken crude, to opt for foreign waterborne crudes instead.
As trading for June-injected barrels comes to a close, the market for Bakken crude at the Beaver Lodge hub in North Dakota maintained a discount to Bakken benchmark price in Clearbrook, MN, according to market sources.
The Bakken price at Beaver Lodge was assessed by Genscape on May 16, 2016 at WTI CMA minus $4.45/bbl, as trading for June-injected barrels came to an end. The Bakken at Clearbrook market was assessed at WTI CMA plus $0.10/bbl.
Looking at Genscape's weekly price assessment data, at minus $4.55/bbl, the spread between Bakken at Beaver Lodge and Clearbrook on May 16, 2016 was its widest since April 18, 2016, when it was minus $5.05/bbl, according to Genscape. The widest spread between the two pricing points was $5.75/bbl on March 21, 2016, and the spread has never been narrower than $3.00/bbl since Genscape began assessing the Bakken price at Beaver Lodge on March 7, 2016.
Pricing dynamics for Bakken at Beaver Lodge could soon change after Energy Transfer Partners’ Dakota Access pipeline comes online by the year’s end.
The 450,000 bpd pipeline, which will run to the storage hub of Patoka, IL, will originate near Stanley, ND, and run through Beaver Lodge, leading it to become much more “of a Dakota Access-type market,” one source said.
About 390,000 bpd of North Dakota crude production shipped via rail in March 2016, according to the most recent data from the North Dakota Pipeline Authority. So far this month as of May 15, 2016, 318,501 bpd has loaded in North Dakota, up from 265,093 bpd in April 2016, but down from 474,329 bpd in May 2015, according to Genscape.
Much of the rail shipments will shift to Dakota Access once it’s online, which will “take away reliance on train (shippers) as an outlet,” a source said. Producers will “only rely on (train shippers) based on the price that they pay. … DAPL [will] ship almost the equivalent amount that moves on trains today.”
As part of the PetroRail Report, Genscape assesses Bakken Beaver Lodge and North Datoka Bakken Raihead crude grades based on market intelligence gathered daily through traditional price-reporting methods. Genscape market reporters contact market participants, gather bid, offer and trade information and assess each market based on the tradable value at 4 p.m. EDT/3 p.m. CDT. To learn more, click here and request a free trial of the PetroRail Report.