U.S. Markets closed

Why the Bakken needs new oil pipeline infrastructure

Avik Chowdhury

Why new pipeline infrastructure is critical for Bakken production (Part 2 of 8)

(Continued from Part 1)

The need for new oil pipeline infrastructure

Crude oil production in the Bakken Shale play in North Dakota has increased very rapidly over the past few years. Daily oil production in the state skyrocketed from 266,000 barrels in January, 2009, to ~1.1 million barrels in March, 2014—more than a three-fold increase. The latest data released in 2013 by the United States Geological Survey estimated that technically recoverable oil in the Bakken and Three Forks formation in North Dakota is approximately 7.4 billion barrels.

With that kind of dramatic growth, there’s an ever increasing requirement for transportation capacity to ship the produced oil to market. To meet the need, major investments are being made in pipeline systems that could increase North Dakota’s daily pipeline export capacity by 172% by 2016. In addition, projects are in place to expand rail transport system that’s expected to have a capacity of 1.3 million barrels per day by 2016, according to the North Dakota Pipeline Authority (or NDPA).

According to IHS Capital estimates, $37.8 billion would be invested in U.S. crude oil pipelines between 2014 and 2025, with the majority being invested by 2020.

Some of the projects that have planned to become operational in the future are Enbridge Energy’s (EEP) Sandpiper project, Energy Transfer’s (or ETP) Bakken Pipeline, Plains All American’s (PAA) Bakken North pipeline, Enbridge Energy’s Bakken pipeline extension, and the Butte Pipeline project. We’ll discussed some of the projects in detail in the next sections in this series.

Higher production at the Bakken Shale of the Williston Basin is encouraging for the midstream pipeline operators. Increased transportation requirements will be positive for crude oil pipeline suppliers in the Bakken including EEP, Summit Midstream Partners (SMLP), and PAA. Some of these are master limited partnerships (or MLPs). They’re components of the Alerian MLP ETF (AMLP). SMLP is a component of the Junior MLP ETF (MLPJ).

Continue to Part 3

Browse this series on Market Realist: