The Bakken Natural Gas Story Gets Bigger And Bigger

Disclaimer: I do not understand natural gas all that well. There may be errors in the way I describe things below, but this is how I understand the natural gas situation in the Bakken.

A reader sent me a new natural gas item from ArgusMedia with regard to ONEOK. The story was dated December 3, 2013, so it is fairly current.

The information below in red is from the new article; my own notes remain "in black."

Recall that ONEOK recently announced another $700-million natural gas gathering/processing plant in the Bakken.  If I'm reading the ArgusMedia report this is just the tip of the iceberg, as they say. From the report:

The Bakken line expansion comes in addition to a $2bn-3bn backlog of unannounced projects, according to Oneok executives. 

This is sort of like, according to our sources, ONEOK will soon announce another investment of $2 - $3 billion in the Bakken. One word: wow. 

Some data points from the report, some are well-known to regular readers but some of the data is new. I think I will start with the basics and the "old" and move to the "new." Again, the new stuff from the ArgusMedia article is in red.

1. Unlike crude oil, natural gas must be processed before it is put into "the regional/national pipeline system."

2. Unlike crude oil, natural gas is pretty much dependent upon pipelines and processing plants before it can be moved to where it is needed. A lot of Bakken crude oil makes its final destination on trucks, rail, barge, in addition to pipeline.

3. The North Dakota Bakken is an oil play. It is not a natural gas play. Natural gas is, in the big scheme of things, a hassle for the operators.

4. Unlike Texas, North Dakota did not have a robust infrastructure for handling the "little bit of natural gas" thought to be present when the boom began back in 2007.

5.  Although there was limited natural gas processing capacity in North Dakota prior to the boom, it was ONEOK that saw the potential.

6. Prior to the boom, North Dakota had several natural gas processing plants with a total capacity of about 230 million cubic feet per day. Between 2007 and this year, ONEOK built five and expanded one natural gas processing plant (each about 100 million cubic feet per day capacity) and recently announced a 7th, the Lonesome Creek plant which will have capacity of 200 million cubic feet per day as part of the recently announced $700 million project. With this project, ONEOK will have capacity for 800 million cubic feet per day of natural gas processing under its belt.

7. It appears the "region" in the Bakken that most needs natural gas processing capacity is the reservation; the tribal chiefs are considering building a natural gas processing plant on their land.

8. ONEOK gathers that processed natural gas and ships it south on its Oneok Partners' new Bakken shale y-grade NGL pipeline. That pipeline is running at roughly half of its 60,000 b/d initial capacity as producers in the region wait for new gas processing plants and other infrastructure to be completed. 

9. The ONEOK Bakken Shale Y-Grade NGL Pipeline delivers natural gas to is Overland Pass NGL line in northern Colorado for onward delivery to fractionators at Conway, Kansas. That pipeline is currently running at 30,000-35,000 bbls/d. [Does anyone yet see the problem here?]

10. As noted above, the current Bakken Shale Y-Grade NGL Pipeline has a capacity of 60,000 bbls/day. The BSYNGLP will need a capacity of 135,000 bbls/day by the end of 2014 (one year from now) and up to 160,000 bbls/day by the end of 2015, two years from now to accommodate just Lonesome Creek. [Could one come up with a 200 million cubic feet/day = 160,000 bbls Y-grade natural gas as a conversion factor? A factor of 1250? If so, ONEOK will have 800 million cubic feet of natural gas processing which converts to 640,000 bbls. The Overland Pass NGL line is currently running at 30,000 to 35,000 bbls/day. Hmmm.....]

11. Oneok is planning the next phases of its Bakken y-grade line expansion, which will boost capacity to 135,000 b/d by the end of 2014 and to 160,000 b/d by 2015 to accommodate Lonesome Creek. Here is the quote from the ArgusMedia article:

“We need the 135,000 b/d to be on line by the end of next year, because the 60,000 b/d is not enough. We will not fill that when it comes on line, but that is just the next incremental expansion,” Sheridan Swords, senior vice-president of Oneok's NGL segment, said.

“The 160,000 b/d will need to be on line to capture the Lonesome Creek [production] when it comes on line.”

But there is more. 

That 160,000 bbls/day will need to be on line to capture the Lonesome Creek production when it comes on line, but..... but .... but... the Lonesome Creek won't reach full capacity until 2018. 

The article ended with this:

Oneok continues to seek opportunities in crude transportation and logistics, despite an unsuccessful open season last December for a proposed crude line from the Williston basin to Cushing, Oklahoma.

“Acquiring our way into crude is certainly a possibility and something we are considering,” said Terry Spencer, Oneok's president and chief executive-designee, noting that the company is primarily interested in pipelines and storage facilities.

Hmmmm....acquiring our way into crude oil.....

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Here are the locations of the natural gas processing plants in North Dakota, prior to the boom (a PDF will open).