Given that oil through a new pipeline travels at a snail’s pace, North Dakota’s Bakken Shale supplies now traveling through the controversial $3.68 billion Dakota Access Pipeline (DAPL) won't reach a market hub in south-central Illinois until mid-May, but it’s still unclear what 370,000 b/d* via pipeline will mean to domestic and export markets.
Flows began last month even as protests and legal action to halt operations continues.
Ultimately slated for delivery to East and Gulf coast markets, with emphasis on the latter, DAPL is being characterized by some analysts as a price dampener because the Bakken crude would be headed to already over-supplied Gulf Coast refineries.
There are also assumptions that the ability to displace almost all the rail volumes may further shrink regional price differentials and improve netbacks for Bakken producers.
Morningstar analyst Sandy Fielden pointed out that DAPL comes online two years after Bakken production peaked at 1.3 million b/d and now is at the 1 million b/d plateau after dipping under it a few months ago. Fielden has argued since last fall that the need for DAPL dissipated with the reduced production that accompanied the commodity price crash in 2014.
The new pipeline, Fielden said, will "create a surplus in already adequately supplied refining markets in the Midwest and Gulf Coast," resulting in "bearish consequences for light crude prices."
BTU Analytics LLC analysts said DAPL's operations are expected "to change the retail and pipeline dynamics in the Bakken," as the prospective shipping rates of $5.50/bbl-7.50/bbl are competitive with existing pipeline and rail charges.
"Comparing Bakken netbacks for rail compared to DAPL shows that the best netback to a coastal demand market is on DAPL, and rail routes to Washington [state] are competitive at the margin," said BTU.
If most of the Bakken crude flowing through DAPL ultimately ends up on the Gulf Coast, its economic impact should be relatively positive, according to PetroNerds LLC’s Trisha Curtis, an analyst and co-founder of the Denver-based consultant. "At that point, I think prices will discount even if all that crude oil just ends up at Nederland, TX” in a storage terminal, Curtis told NGI's Shale Daily on Wednesday.
As an offshoot of the Bakken supplies hitting the Gulf Coast, Curtis sees more Texas crude being exported from the region. What could be problematic is if the DAPL supplies are backed up into the Midwest, which has plenty of supplies, which could dampen crude prices for a short-term period in the region.
"I don't think there will be any dampening of prices in Wyoming and North Dakota, though," she said. "This is a new era for pipelines, and I think competition will get stronger."
There may be no need in the foreseeable future for another major oil pipeline from the Bakken, though.
"Right now, we're not completely full on pipeline capacity in terms of flows, and given the significance of the protests over DAPL, I think it would be pretty difficult to build another major pipeline out of that region," said Curtis.
The prospects for completing the northern portion of the Keystone XL pipeline, which is carrying crude to the Gulf Coast, along with DAPL, precludes the need for another major line.
"If you have those two pipelines, you're in pretty good position for current and future production," Curtis said. She doesn't think that rail will continue to be much of an option other than for relatively small volumes to the West Coast.
DAPL in general puts the Bakken and Wyoming production "on a much more competitive footing,” relative to the Permian Basin and other competing plays, she said. "Overall, it bodes very well for the Bakken; I think we forget that years ago there was ample crude pipeline capacity and crude had optionality on how it moved."
The transportation helps producers with their wellhead pricing, and Curtis thinks by the end of this year DAPL's impact will be felt in the wellhead values in the Bakken.
"I think it really does help the Bakken become a little more competitive," she said, adding that it is unlikely that oil prices will "surge" upward anytime soon.
*Correction: In the original article, NGI's Shale Daily incorrectly referred to a capacity for DAPL of 370 "million" b/d. The capacity is actually 370,000 b/d. NGI regrets the error.