Random Fallout From The Keystone TKO -- November 7, 2015; More CBR Likely

Updates

November 12, 2015: "look west, not east" updated here. 
 

Original Post

 

Comment: normally I put my comments at the end of the story but I doubt many folks read that far down, so in this case, I'm moving the comments up here.

As you read the stories from the Minneapolis StarTribune and the Calgary Herald linked below, one wonders if folks are focused on an issue that no longer matters for North Dakota.

TransCanada never had any plans to include Bakken oil for the Keystone XL. The requirement to add an entry port in the Keystone XL for Bakken oil was made possible only through the action of the same Montana senator who coined the word "trainwreck" in describing ObamaCare. TransCanada reluctantly agreed, but one can bet that they never would have mixed Canadian heavy oil with Bakken light oil, except under great duress.

The Bakken operators are counting on two new pipelines, the Sandpiper and the Dakota Access, which go east, not south, both of which will probably suffer the same fate as the Keystone.

It doesn't matter. Bakken oil production will fall to 750,000 bopd (from current one million bopd) by the end of 2016 if things don't change, and at 750,000 bopd there is so much excess capacity, rail and pipe will be competing for any business.

Commentators are looking east when they should be looking west. The tea leaves tell me that California is in a world of pain when it comes to oil. The Bakken contributes a small amount, but a significant amount of oil, to California, but with the loss of the Keystone, and the likely loss (and definite delay) of the Sandpiper and the Dakota Access, this is an incredible opportunity for Enbridge CBR and Warren Buffett CBR to start looking at increased shipments to the Far West. Again, all things being equal, California is going to need more Bakken oil.

By the way, those popping sounds you heard last night were the corks flying out of champagne bottles in Omaha, NE, following the Keystone TKO.

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The Keystone TKO and CBR

The Keystone TKO will result in increased CBR, according to The Calgary Herald:

Rejection of the Keystone XL pipeline will complicate and add cost to getting western Canadian oil to U.S. markets but it isn’t expected to actually prevent any shipments reaching south of the border, observers say.

The decision announced Friday by U.S. President Barack Obama was greeted with disappointment by Calgary oil producers, industry insiders and local business people who observed that Canadian crude is being singled out by the United States with a trade impediment while other countries have free rein.

Suncor Energy Inc. president and chief executive Steve Williams said in a statement that the U.S. decision, made seven years after Calgary-based pipeline firm TransCanada Corp.’s initial application, hurts Americans as much as it does Canadians.

“Clearly we’re disappointed in today’s decision. Keystone XL is important infrastructure not only for producers in the U.S. Bakken (centred on North Dakota) and Canada as it would provide expanded connectivity to the Gulf Coast, but also for U.S. refiners as it would provide security of supply from a longtime energy provider and trading partner,” he said.

The Calgary-based company, Canada’s largest oil producer by market capitalization, says it has 600,000 barrels per day of current access to world markets, including 80,000 bpd of rail loading capacity, as an alternative to the 830,000-bpd Keystone XL.

Analyst Stephen Paget of FirstEnergy Capital said the rejection will lead to more crude-by-rail shipping, a transport mode which has expanded enormously over the past three years despite higher costs while KXL awaited the presidential permit required for a pipeline that crosses the Canada-U. S. border.

I assume many operators were waiting for the decision before making their own decisions regarding CBR. One can assume the Sandpiper and the Dakota Access will suffer the same fate. See below.

The Minneapolis StarTribune is reporting:

The rejection of Keystone XL is a setback for North Dakota’s oil industry, even though falling oil prices and the drop in Bakken drilling and oil production have lessened the immediate need for it.

“It is a good time to say ‘No, we don’t want a pipeline’ when you really don’t need it,” said Rudy Hokanson, a Minnesota-based oil analyst for Barrington Research.

But North Dakota officials believe that more Bakken pipelines still will be needed to carry future oil volumes.

Two proposed projects to transport North Dakota oil are under regulatory review — Enbridge Energy’s Sandpiper pipeline across North Dakota and Minnesota and Energy Transfer Partners’ Dakota Access line via South Dakota and Iowa.

Those projects, as well as Enbridge’s separate plans to replace and expand another Canadian oil sands pipeline through Minnesota, are facing opposition from an anti-pipeline activists who cheered President Obama’s decision Friday on Keystone XL.

One worrisome alternative to Keystone XL — an increase in oil trains from Canada through Minnesota — is not playing out. Canadian crude exports by rail have dropped by half in the past year after peaking at 165,200 barrels per day in the third quarter of 2014, according to Canada’s National Energy Board.

“Rail has never been a serious alternative to Keystone XL,” said Rep. Frank Hornstein, DFL-Minneapolis, who has worked on crude-by-rail safety issues. “That has been a talking point for pipeline advocates. It is not based on reality.”

That's good news that Frank is not worried about increased CBR. He can tell that to his constituents waiting in line at railroad crossings.

The AP says without Keystone, the oil industry must find new paths for oil. Really? I am not aware of any shortage in takeaway capacity; more Canadian oil than ever is reaching US refineries. Not only that but the general consensus is that US shale production is going to continue decreasing. All these stories are also stating that this will have an effect on the Bakken. The Keystone XL would have meant very, very little to the Bakken.

The Dickinson Press weighs in also. I did not read the editorial. My impression, probably wrong, is that the truth be told, the owners / editorial staff of organization that owns The Dickinson Press was against the Keystone XL from the beginning. I do not recall my original stance; readers can check the blog to see what my thoughts have been. I do know that from a common sense point of view, the whole issue was ridiculous. From a Bakken point of view, I never thought it was something that would help the Bakken. The risk was that a win for the faux environmentalists on this would spread to other pipelines, and it has. I think there is a very good chance that the Sandpiper and the Dakota Access will suffer the same fate. Fortunately, as I've said so many times, it really doesn't matter. When North Dakota production drops to 750,000 bopd there is going to be so much excess capacity, folks will wonder what all the fuss was about.