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Pipelines Now Preferred Transportation for Bakken Oil, North Dakota Official Reports

Pipelines have passed rail tank cars as the preferred means of shipping Bakken oil from North Dakota to markets on the three U.S. coasts, according to statistics released Friday.

In November, 52% of Bakken sweet crude oil was shipped by pipeline, compared with 41% by rail, according to Justin Kringstad, head of the North Dakota Pipeline Authority. Another 6% was refined in the state and the remaining 1% was transported by truck.

After several years of rail dominance, the switch back to pipes has been driven by elimination of the usual price gap between European and U.S. prices.

Currently, the price difference between North Sea-based Brent crude and West Texas Intermediate (WTI) is only 12 cents/bbl, Kringstad said. "There has been a significant shift in the last couple of months, and it has been primarily driven by market conditions," Kringstad said. When the Brent-WTI spread is narrow, particularly with the announcement of the lifting of the U.S. export ban, pipelines are the choice for transportation, he reiterated.

Kringstad said that shipments from North Dakota are still being moved somewhat equally to the East, West and Gulf Coasts.

The percentage of Bakken crude being shipped by rail had already declined from more than 70% of shipments to the 50%-60% range (see Shale Daily, July 16, 2014).

There has been increased regulatory scrutiny at the federal and state levels as oil rail transportation expanded in North America in the past five years (see Shale Daily, April 30, 2015).

Kringstad said that historically Brent and WTI prices went "hand-in-hand, and it wasn't until more recent years that the spread widened." More recent oversupplies in the west Texas and Cushing, OK, hub, helped to compress WTI prices, he said.

Eliminating bottlenecks and other steps have helped U.S. oil, but it wasn't until the recent lifting of a U.S. ban on exporting crude oil that the Brent-WTI gap has been essentially closed, Kringstad said.

Kringstad said he is unaware of any rail terminal plans being impacted by the switch.

"North Dakota will continue to see infrastructure buildout in the coming years as companies work to connect wells to new gas processing plants, disposal wells, and crude oil gathering," said Kringstad in response to a question from Shale Daily.  "Prices are going to drive activity levels going forward and the midstream sector is expected to follow with appropriately sized and timed projects." 

Regarding flaring, Kringstad reported that the building of new gathering pipelines in November outpaced the number of new wells coming online, which helps in efforts to capture more gas.

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