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Monday, December 20, 2010

Thoughts on Takeaway Capacity -- Bakken, North Dakota, USA

In the December, 2010, NDIC Director's Cut, it is reported that takeaway capacity continues to exceed productivity.

Hmmm.

Other data points from the same report:
75 percent of oil production is trucked from the pad
The amount of oil being shipped by train is increasing
The amount of oil being trucked to Canada is decreasing
Excessive flaring continues to be a problem
Daily production in November was impacted by snowstorms (trucks can't get to sites in inclement weather)
What does that suggest to me?
Takeaway capacity exceeds production only because production is impacted by infrastructure choke points, weather and the railroads' ability to scale up.
The two data points we don't have:
To what extent (in bbls/day) does takeaway capacity exceed production?
To what extent can railroads scale up? (physically and economically)
75 percent of productivity is impacted when trucks can't get to the site. But is inclement weather the only thing keeping trucks getting to the sites? Are there adequate number of trucks, adequate number of drivers on a daily basis to meet demand? How often are pumps turned off when on-site tanks are filled and trucks don't arrive on time?

By law / regulation, operators are not allowed to maximize oil production when natural gas is still being flared. Operators are putting in natural gas pipelines, it seems, as fast as they can to "get rid" of this problem. It's, of course, exacerbated by the fact that natural gas prices aren't all that great. So, if there's natural gas being flared at a site, you can bet that oil production is being choked back. Periodically on the monthly NDIC dockets you will see industry requests to waive the natural gas flaring rule.

With regard to price, I think it's becoming a wash whether rail or pipeline is better. Refineries pay less for North Dakota oil when it arrives by pipeline because it is mixed with less desirable heavy oil from Canada; refineries pay more for "pure" Bakken oil when it is shipped by rail, but it costs the producer more to ship it by rail.

For an individual mineral rights owner, the fact that he/she is not taking a loss on Bakken oil due to lack of takeaway capacity is good news.

But for the industry and for the state of North Dakota, having excess capacity is not good news. It highlights the fact that overall production is being held back, mostly due to lack of pipeline (oil and natural gas) infrastructure.

At least that's how I read it.

2 comments:

  1. more pipeline capacity would have to decrease the price spread between wti price and what is received in n.d.jj

    ReplyDelete
  2. That's the "party line."

    It will be interesting to see rail oil -- which is pure Bakken oil -- arriving at the refinery vs pipeline oil -- a mixture of Bakken oil and heavy oil from other sources arriving at the refinery -- play out.

    Cheaper to transport by pipeline, but if it's inferior oil, then pure Bakken oil shipped by rail has some benefit as noted by others, and previously posted.

    I would assume as railroads scale up, the cost per barrel will come down, albeit slightly.

    It will be interesting to see this play out.

    ReplyDelete

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