The need for the multi-billion-dollar parallel Sandpiper Pipeline addition was questioned Tuesday by a Minnesota refinery and customer of the existing North Dakota Pipeline Co. (NDP) oil pipeline from the Bakken Shale.
In a filing at FERC, St. Paul Park Refining Co. is challenging NDP's contention that demand on the existing pipeline consistently exceeds its capacity. The company is supporting an earlier filing by potential shippers on the new pipeline link from Beaver Lodge, ND, to Clearbrook, MN, that are asking for additional legal discovery on NDP's claims that demand exceeds capacity on the existing 210,000 b/d pipeline into Minnesota with a further interconnection into Wisconsin to serve Midwest markets and beyond.
At stake in the case is the question of whether the widely accepted assumption that there is a shortage of takeaway capacity in the Bakken is real. St. Paul Refining alleges that a pipeline opened a year ago (Bakken Portal Expansion) by an NPD affiliate has had less than 3% of its capacity used through January.
It is the refiner's contention that there "is and will continue to be adequate takeaway capacity serving the Williston Basin for the foreseeable future."
The $2.6 billion Sandpiper Pipeline bids to transport light crude oil from the Bakken Shale and Western Canada by 2016, and it would expand the takeaway capacity of NDP system by 225,000 b/d, to a total of more than 400,00 b/d (see Shale Daily, Nov. 26, 2013). Houston-based Marathon Petroleum Corp. is funding 37.5% of the Sandpiper project in exchange for an approximate 27% stake in the North Dakota feeder system out of the Bakken.
In asking the Federal Energy Regulatory Commission (FERC) to intervene, St. Paul Refining is joining shippers -- Concord Energy LLC, Enwest Marketing LLC and WPX Energy Marketing LLC -- in questioning whether there is any truly independent shipper interest in the proposed expansion. Along with the shippers, St. Paul is asking FERC to demand more discovery in the case.
They challenge a study submitted by NPD done by Muse Stancil & Co. that outlines the "market prospects and benefits analysis" for Sandpiper, concluding that the proposed pipeline would operate at its full capacity for its projected useful life.
"NPD relies on the Muse study, and on its claim that the existing pipeline is subject to prorationing [because of excess demand], as a basis for requiring existing shippers to pay an expansion surcharge designed to recover the cost of the new pipeline," St. Paul's attorneys told FERC.
In attached testimony, St. Paul crude oil trader Justin Amoah disputes the claim that demand for space on the existing pipeline has consistently exceeded capacity. By the end of the third quarter this year, full nameplate capacity of 210,000 b/d should be available, according to Amoah, adding that "even with the temporary reduction in available capacity, prorationing in 2013 was intermittent, not sustained."
Amoah contends that before Sandpiper's projected start in 2016, there will be 2.25 million b/d of takeaway capacity from the Williston Basin in place. He also disputes the Muse study's estimation of the rail capacity available to ship Bakken light sweet crude to "premium markets" on the West, East and Gulf coasts.