Bakken production outstrips pipeline capacity

Bakken crude priced at Minnesota's Clearbrook terminal recently dropped 33% year to date to close near US$ 71/bbl. Canadian heavy crude from oilsands experienced a similar fall.

Both rebounded shortly afterwards, after Canadian Natural Resources halted its Horizon oilsands operation. The 110 000 bpd facility could be offline two to three weeks, offering some relief to the region's supply glut.

The Bakken shale, centred mainly under North Dakota and Canada's oilsands, has helped curb a long-term decline in North American oil production. The Bakken has also fuelled optimism that the deluge of natural gas production from shale plays, which has forced gas prices to decade lows, might translate to a similar excess in oil.

Bakken producers including Continental Resources, EOG Resources and Northern Gas & Oil have helped boost the region's production from 2000 bpd a decade ago to more than 600 000 bpd today.

Adam Bedard, Senior Director with Bentek Energy notes how Bakken crude prices began to fall in January, just as regional pipeline and rail capacity fell behind production.

Canadian oilsands oil has been feeding an oversupply in Cushing, Oklahoma, for more than a year. That surplus has held down the West Texas Intermediate price, the main US benchmark, priced at the Cushing terminal.

Canadian and Bakken oil prices have fallen in concert, because the two compete for much of the same pipeline capacity.

Simmons International & Co. on Tuesday forecast some relief for the Bakken congestion in May, when Enbridge and Enterprise Products Partners will store 2 – 3 million bbls in a pipeline in preparation for its start-up.

Hess plans to open a 54 000 bpd rail facility at the end of the month. But Bedard said that addition provides only a short-term fix. "That will fill up pretty quickly," he said, "(The Bakken's) production ramps up fairly quickly to fill any capacity."

Published on 09/02/2012

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