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Linn Energy, LLC (LINE) Message Board

  • rlp2451 rlp2451 Nov 27, 2012 5:58 PM Flag

    Has Bakken Infrastructure Peaked? ONEOK Cancels Major Pipeline

    ONOEK Partners announced that it did not receive sufficient long-term transportation commitments during its recently concluded open season for the Bakken Crude Express Pipeline. As a result, the partnership has elected not to proceed with plans to construct the pipeline.

    "Despite the robust outlook for crude-oil supply growth in the Williston Basin in the Bakken Shale, we did not receive sufficient long-term commitments under the terms we needed to construct the Bakken Crude Express Pipeline."

    Although we have decided not to proceed with this project, we still have $4.2 billion to $4.8 billion of announced natural gas and natural gas liquids projects under way, many of which are in the Bakken Shale. Additionally, the partnership has a $2 billion-plus backlog of unannounced growth projects."

    ONEOK Partners had planned to invest $1.5–1.8 billion between 2012 and 2015 to build a 1,300 mile pipeline with the capacity to transport 200,000 bbl/d of crude oil from the Bakken Shale to Cushing, Oklahoma.

    ONEOK Partners decreased its 2013 capital expenditures estimate to $2.2 billion from $2.6 billion.

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    • Midstream player ONEOK Partners (NYSE: OKS ) announced that it was axing plans for its Bakken Crude Express pipeline because of a failure to secure long-term shipping commitments from producers. Given that the Bakken is bursting at the seams with oil right now, this may appear surprising at first blush. But a closer look at the reality of today's oil production may help explain what this is all about.

      Bakken Crude Express
      The ONEOK pipeline was meant to be a 1,300 mile line capable transporting 200,000 barrels per day out of North Dakota's Bakken Shale and down to the oil hub at Cushing, Okla. ONEOK planned to spend between $1.5 billion and $1.8 billion to have it up and running by 2015. That timeline would require producers to commit their oil to ONEOK, and more importantly Cushing, until 2025. It is something, apparently, not enough companies were willing to do.

      Anywhere but Cushing
      The oil hub down in Oklahoma is a pretty happening place right now. As of last week, there were 45.9 million barrels of oil stored at Cushing, 50% more than this time last year. With limited capacity coming out of the hub, the oil sits. And sits. That glut of sedentary oil drives down the price, and U.S. oil is now trading for a $20 discount to Brent, the world standard.

      Though things are bad at Cushing, they're actually worse in West Texas. Earlier this month Bloomberg reported that two different Texas oil grades, WTI-Midland and West Texas Sour, fell to historic lows against the West Texas Intermediate benchmark. The WTI crude delivered at Midland was trading at $13 per barrel discount to the same grade of crude delivered at Cushing. Why? Because oil is just sitting in Midland right now; all the pipelines out of town are full.

      There are places in the U.S. where oil can fetch a higher price, and if producers had more flexibility in their shipping options, they would do just that. Lately, the problem is being solved by one of the oldest transportation modes around: railroads.

      Railroad to riches
      Moving crude by railcar is more expensive than by pipeline, and you will never hear otherwise; but, it offers much more flexibility and the number of advantages rail brings to the table seems to grow on a daily basis. First, pipelines generally require 10 year shipping agreements, whereas the flexibility of rail allows companies to buy or lease railcars for a shorter period of time. Two more advantages just happen to include accessing non-traditional or underserved markets and preventing a buildup of supply.

      More markets
      Pipeline operators are hip to this trend. Plains All American (NYSE: PAA ) is increasing its number of railcars from 4,200 to 6,000 by the end of next year.

      More significantly, Enbridge (NYSE: ENB ) just announced it's partnering with Canopy Prospecting to build out a rail system to transport 80,000 barrels of oil per day from North Dakota to refineries in Philadelphia by the third quarter of 2013, though capacity could double by mid-2014 if need be. It should only cost $68 million.

      Railroads make sense for producers, but from the pipeline company's perspective, this is also a faster and cheaper alternative to putting pipe in the ground.

      The railroad industry looks poised to reap the profits of increased oil production. Even a cursory glance at Canadian National Railway and Union Pacific reveals the impact oil has already had on the industry. Petroleum and chemical shipments make up 16% of Canadian National's revenue, after accounting for 0% a mere two years ago.

      Likewise, Union Pacific's petroleum products shipments increased 95% year over year. The gains are happening across the industry. According to the Association of American Railroads petroleum and petroleum product shipments reached 20,906 carloads in October, a 54.5% increase year over year.

      Plains All American CEO Greg Armstrong intimated in a third-quarter conference call that the Bakken oil producers will probably depend on rail for the next five years. Enbridge seems to be of the same mind-set, and really, what this trend ultimately shows is that we should not be surprised to see railcar after railcar crossing the Canadian border in lieu of, or in addition to, TransCanada's Keystone XL pipeline.

      The surge in oil and natural gas production from hydraulic fracturing and horizontal drilling is creating massive bottlenecks in takeaway capacity. However, this problem for producers creates a massive and immensely profitable opportunity for midstream companies. Energy Transfer Partners helps alleviate the gluts in supply with 23,500 miles of transformational pipelines. One of the largest pipeline operators, EPD, has no pipelines in the basin, and has no plans to construct any.

      • 2 Replies to rlp2451
      • Railroad to riches
        Moving crude by railcar is more expensive than by pipeline, and you will never hear otherwise; but, it offers much more flexibility and the number of advantages rail brings to the table seems to grow on a daily basis. First, pipelines generally require 10 year shipping agreements, whereas the flexibility of rail allows companies to buy or lease railcars for a shorter period of time. Two more advantages just happen to include accessing non-traditional or underserved markets and preventing a buildup of supply.

        Everywhere oil is delivered regularly by train cars a pipe line needs to be built. But fewer and fewer companies are willing to make a 10 year commitment due to the irrational agenda of Obama and the Progressives in control of the Senate.

      • Posting what has been fully addressed.

        24/7 as nothing more than a social parasite.

    • Oneok Inc. (OKE), the company spending as much as $4.8 billion to expand its network, fell after a subsidiary canceled plans for a $1.8 billion pipeline connecting the Bakken shale formation to crude oil terminals in Oklahoma.

      Oneok, based in Tulsa, Oklahoma, declined 1.5 percent to $44.88 at the close in New York. Earlier, it fell 3 percent, the biggest intraday drop since Aug. 1.

      Oneok Partners LP (OKS), which is controlled by Oneok Inc., wasn’t able to sign up enough oil producers to justify building the Bakken Crude Express pipeline, President Terry Spencer said in a statement yesterday. The 1,300-mile (2,100-kilometer) pipeline would have given Oneok a toehold in the lucrative oil transportation business in Montana and North Dakota. The company already is one of the region’s largest natural gas processors.

      An “abundance of rail,” which allows producers to ship oil to higher-priced markets on the East Coast, probably made the project unviable, according to a research note from Tudor Pickering Holt & Co.

      The Bakken, part of the Williston Basin that stretches from Canada into North Dakota and Montana, holds an estimated 3.6 billion barrels of crude, according to the U.S. Energy Department. Production is expected to hit 1 million barrels a day in five years. A lack of pipelines to bring the oil to refiners has caused crude in North Dakota to trade at a discount to West Texas Intermediate, the U.S. benchmark.

      The Oneok pipeline would have carried as much as 200,000 barrels a day to the oil storage hub at Cushing, Oklahoma. The company is already building a pipeline to ship natural gas liquids such as propane and butane, which are produced in the Bakken.

      “While we are disappointed with the results of the open season, we remain committed to serving Williston Basin producers for their natural gas, natural gas liquids and crude-oil infrastructure needs,” Spencer said in the statement.

    • Got curious....so I went to take a quick look just to see the activity in ND.

      I counted 15 Current Pipelines being built in ND..

      ...so I guess the answer to your question "Has Bakken Infrastructure Peaked?" is probably not if there are FIFTEEN more Pipelines being built....currently.

      Maybe you should go take a look at the ND Pipeline Authority.

      You can see some details from their webpage for each one, or you can just give them a call, or fax, maybe write to them and ask:

      ND Pipeline Authority

      State Capitol 14th Floor
      600 E. Boulevard Ave. Dept. 405
      Bismarck, ND 58505-0840

      Phone: 701 / 220.6227
      Fax: 701 / 328.2820

    • Hostile Obamanomics is the reason and not the resource. Radical EPA regulations were delayed to get elected and despite excellent well ROI even our Bakken producers are looking at cost and risk reduction rather than going first for growth.

      All rational people understand this. Excellent for EPD and Seaway holdings.

      • 1 Reply to norrishappy
      • Is this part below there somewhere or did he just cut that out so it looks like he wanteed it to look....again?

        "While we are disappointed with the results of the open season, we remain committed to serving Williston Basin producers for their natural gas, natural gas liquids and crude-oil infrastructure needs.

        We still believe the Bakken Crude Express has a competitive advantage over other competing projects due to its proximity to the route of our Bakken NGL Pipeline currently under construction and other ONEOK Partners natural gas liquids pipeline corridors," Spencer added".

        That is part of the article....right?

        wow.
        Sounds like they just did not sign up enough companies......do you think the rail shipments into La or other markets or the flexibility of rail shipments might have had something to do with it?

 
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