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Shadow of DAPL Hanging Over Bakken Oil Prices, Flows

Anemic crude oil prices are sticking around even as operations ramp up on the Dakota Access Pipeline (DAPL)  to carry Bakken Shale supplies out of North Dakota, but the state's chief oil and natural gas regulator doesn't expect that to continue in the longer term.

During a monthly webcast Tuesday to discuss the latest production statistics in North Dakota, Lynn Helms, director of the Department of Mineral Resources, said the added competition that DAPL represents "doesn't appear to have kicked in yet.” He thinks as increased supplies flow through the $3.78 billion, four-state system,  more competition may develop and the price differential with West Texas Intermediate will increase.

DAPL ramped up June 1, and Helms said it is still too early for any firm conclusions about its impact. He said there is one operating issue related to vapor pressure tariff requirements imposed by the state’s Industrial Commission.

"The type of vapor pressure constraints that DAPL has in its tariffs will help take the pressure off the Industrial Commission rules," said Helms. He doesn't think they will affect the amount of oil supply shipped by rail.

"There is some pretty innovative technology coming to the oil patch to help with the vapor pressure problem," he said. Earlier this month, Helms said he witnessed a demonstration of the technology at an experimental unit slated to be deployed this summer. "It looks like a very innovative way of doing it." The North Dakota Oil and Gas Research Council has looked a ways to treat the oil in the post-production process to keep down vapor pressures, and Helms said he thinks that  is the direction the industry is going.

Since DAPL first began flowing supplies in March, there has been a debate among industry analysts about the pipeline’s ability to displace almost all the rail shipments and further shrink regional price differentials and improve netbacks for Willston Basin producers.

Separately during the webcast, North Dakota Pipeline Authority Director Justin Kringstad said there is no public information available as to when DAPL may reach full maximum capacity of up to 570,000 b/d.

"The nameplate capacity is 520,000 b/d, and it is not uncommon for a pipeline company to stagger volumes committed to it, so the company or a shipper may have their volumes stagger in, depending on how the contracts are written," Kringstad said. "The operator and shipper usually keep pretty private what the actual flowing volumes are."

It may take six months or longer to determine if DAPL helps raise crude oil prices from the Williston, he said.

"I think it will take at least six to 12 months before we see what the 'new-normal' is within the Williston Basin," Kringstad said. "This is the first time North Dakota has had really adequate pipeline capacity since the Bakken pipeline was built within the state itself, so it is going to take awhile for the market to adjust because this is a new environment for the refining, shipping and producing communities."

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