Pipeline & Rail Competition for Crude Transportation in North Dakota
Presentation For: Natural Gas Energy Association
Of Oklahoma January 9, 2014
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Agenda
» Crude Production Takes Off
» Pipeline Constraints
» Rail Developments
» Competition between Rail and Pipeline
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Conclusions
» Increased Crude Production Overwhelms Existing Distribution System
» Delays Cause Crude Delivery Logjam and Price Disruption
» Rail Terminals Develop to Bypass the Logjam
» North Dakota now has adequate takeaway capacity
» Rail and Pipeline Compete Based On Crude Differentials
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U.S. Crude Oil Production
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Mb
/d
Lower 48 States Alaska
1.5 million b/d Increase from 2008
Source: BENTEK and EIA
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Canadian Oil Production
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5M
Mb
/d
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5.0
5.5
6.0
6.5
7.0
7.5
MM
B/d
U.S. Crude Oil Production
2.0
2.4
2.8
3.2
3.6
4.0
MM
B/d
Canada Crude Oil Production
U.S. & Canada Crude Oil Production
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Permian, Williston, Eagle Ford
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Oil
(mill
ion
b/d
)
Permian
Williston
Eagle Ford
Source: BENTEK and HPDI
» The Eagle Ford, Williston and Permian have been responsible for almost all of the U.S. production growth since 2010
» These are the plays with the highest rates of return for producers
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U.S. Oil Production 10 MMb/d in 2018
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
‘00
0s
b/d
2000-2007 2008-2011 2012-2018
3,500
Source: Bentek/RBN
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Bakken Production North Dakota
0
200
400
600
800
1,000
Jan-07 Jan-09 Jan-11 Jan-13
Mb
/d
North Dakota Crude Production » North Dakota crude
production increased 275% in the 3 years to Oct 13
» Rate of increase slowing but still up 25 % in the past year
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Forecast Increase in ND Production
» Base case production increase to 1.4 MMb/d by 2022
» High Case increase to 1.6 MMb/d
0.6 MMb/d
Increase
Source: North Dakota Pipeline Authority
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Pipeline Takeaway Capacity
0
200
400
600
800
1,000
1,200
1,400
Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13
Mb
/d
North Dakota Crude Production and Takeaway Capacity
Oil Production
Pipeline Cap.
» Pipeline capacity has not accommodated production since 2011
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Bakken Pipeline Takeaway
» Pipeline takeaway capacity 515 Mb/d
» Mandan Refinery 68 Mb/d » Total 583 Mb/d » Production 941 Mb/d » Additional constraints
developed downstream
Tru
e 1
60
Mb
/d
Source: BENTEK
Tesoro Mandan
Refinery 68 Mb/d
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North America Crude Oil Flows
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System Overload!
Source: Muse, Stancil & Co.
Bakken
Eagle Ford
Canada
Niobrara
Permian
East Coast No
Pipeline Access
West Coast No
Pipeline Access
Gulf Coast
Waiting for
Pipeline Build out
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Differentials to WTI Cushing - 2012
New Mexico
Permian Basin
Texas
Houston
Midland
Cushing, OK
St James, Louisiana
LLS + $18.0
WTI $0.0
WTI - $4.0
Brent + $18.0
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Rail Transport Development
» Bakken crude prices discounted by pipeline congestion
» Coastal prices higher
» Rail development cycle is short
» Build out of rail loading in 2012
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North Dakota Rail Build Out
Unit Trains • 100+ tank cars • 66,000+ barrels
per train • Same origin and
destination • Usually same
commodity and shipper
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North Dakota Rail Terminals 2014
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North Dakota Takeaway Capacity
0
200
400
600
800
1,000
1,200
1,400
Jan-07 Jan-09 Jan-11 Jan-13
Mb
/d
North Dakota Crude Production and Takeaway Capacity
OilProduction
RailCapacity
PipelineCap.
» Rail capacity more than makes up for pipeline gap
» Rail provides shippers with better netbacks
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Bakken Netback Analysis
» Producers/shippers will choose markets that maximize netbacks
» Netbacks are a function of (a) transportation costs, and (b) the differentials between destination crude prices
» Brent (East Coast), LLS (Gulf Coast), WTI (Midwest), ANS (West Coast)
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Bakken Netbacks – 1/7/13
8
84 C/P
80 C/R
12 17
94 E/R
+1
,,
95 NW/R
NW by Rail 109 NW
99 G/P
11 G
ulf b
y Pip
e
15
95 G/R
Gu
lf by R
ail
-18
92 Cush
110 Gulf
111 East
-1
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Bakken Netbacks – 10/24/13
8
88 C/P
84 C/R
12 17
91 E/R
+10
,,
88 NW/R
NW by Rail 102 NW
87 G/P
11 G
ulf b
y Pip
e
15
83 G/R
Gu
lf by R
ail
-2
96 Cush
98 Gulf
108 East
+4
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Bakken Netbacks Summary
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Bakken Production And Rail Volumes
0
100
200
300
400
500
600
700
800
900
1000
Mb
/d
Estimated Williston Basin Rail Export Volumes
CrudeProduction
EstimatedND RailExportVolumes
Source: NDPA (North Dakota Pipeline Authority)
Rail volumes fall off in Q3 2013 due to lower differentials
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Price/Netback Outlook
NW by Rail NW Mid
Gu
lf by P
ipe
Gu
lf by R
ail
Cushing Weak
Gulf Very Weak
East Strong
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Conclusions
» Increased Crude Production Overwhelms Existing Distribution System
» Delays Cause Crude Delivery Logjam and Price Disruption
» Rail Terminals Develop to Bypass the Logjam
» North Dakota now has adequate takeaway capacity
» Rail and Pipeline Compete Based On Crude Differentials
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Sandy Fielden 3333 Allen Parkway, Suite 1807
Houston, TX, 77019
[email protected] @thatenergyguy
http://www.rbnenergy.com/daily-energy-post