The ONEOK Bakken Crude Oil Express: Tectonic Changes In Domestic Energy

Some dots to connect regarding the announcement that ONEOK did not get the commitments needed to go ahead with their proposed crude oil pipeline from the Bakken to to Cushing.

• the recent RBN energy stories regarding crude oil pipelines
• ONEOK's failure to get commitments for a proposed Bakken Crude Oil Express pipeline
• Delta Airlines refinery near Philadelphia
• the recent story out of Tacoma, Washington -- first unit train bringing Bakken oil to that particular port
• killing of the Keystone XL
• Enbridge strategic business plan 
• Cushing: glut, mixing, location

Comment that a reader sent in regarding ONEOK's failure:

The problem with this pipeline seemed two fold:

The quality of Bakken crude is so high - premium crude for refining - that the premium is lost after mixing. A pipeline to the Gulf Coast from Cushing has to be dedicated to maintain that premium, and there are few Cushing outlet pipelines sized for that rate.

The pipeline doesn't go to an end user location, and maintain integrity, without additional modes of transport.

For that matter, mixing Bakken crude with Canadian oil sand has the same loss of quality issue.

From the WSJ, October, 4, 2012, via RBN Energy, "Bakken crude prices rising, as railroad reach grows":

"Rail terminals are enabling shipments to St. James [Louisiana], East Coast and West Coast terminals, avoiding the traffic jam" at Cushing, said Rusty Braziel, president of energy consulting firm RBN Energy. "This has pulled some barrels out of the pipelines and resulted in an overall tightening of the supply-demand balance."

Idle chatter.

With all the data points above, and then the comment, almost nothing else needs to be said. It is pretty obvious what is occurring.

With regard to Keystone XL, it certainly appears timing is everything: in addition to simply bad luck with political timing, it now appears tectonic shifts in the nation's crude oil pipeline system were also occurring just as the thing was beginning to be built.

"Cushing" is now synonymous with "glut." And more oil is coming to the region. Enhanced oil recovery (EOR) in an old basin, the Permian, and Bakken-fracking in a new basin, the Eagle Ford, is going to bring even more oil to Cushing and/or to the refineries along the Gulf coast.

It goes without saying that this region does not need even more oil from Canada and North Dakota.

So, what's a Bakken producer to do? Necessity is the mother of invention. In this case, the "invention" is the 100-car-unit-train concept to haul crude oil out of the Bakken. 

It was serendipitous that about this same time three refineries in the Philadelphia were slated for closure. Delta Airlines saw an opportunity. And now, unit trains to the west coast, also.

I thought the ONEOK crude oil pipeline was a slam dunk. Not. It appears that rail is offering operators flexibility and better pricing.