New pipeline projects
According to the North Dakota Pipeline Authority (or NDPA), there are 14 projects either online or that have been declared to begin operations by 2016 in the Williston Basin area. While some of them have been operational as far back as in 2007, some significant capacity additions are expected to happen in 2015 and 2016. Total pipeline system capacity is projected to increase from 583 thousand barrels per day to ~1.6 million barrels per day in 2016—an increase of 172% in three years. We’ll discuss some of the more noteworthy projects in this section and in the next sections in this series.
The Bakken Pipeline project of ETP
On June 26, 2014, Energy Transfer Partners (ETP) announced that it would start building an approximate 1,100-mile crude oil pipeline—the Bakken Pipeline—to transport crude oil from the Bakken and Three Forks production area in North Dakota to Patoka, Illinois. It will connect ETP’s existing Trunkline Pipeline, which is being converted from natural gas service to crude transportation service. From Patoka, crude oil can be transported to Midwest markets and East Coast markets by rail. Through the Trunkline Pipeline, crude oil can also flow to Sunoco Logistics Partners’ (SXL) crude oil terminalling facility in Nederland, Texas. The 30-inch diameter pipeline will initially provide 320,000 barrels per day of capacity, which can be further increased.
In the 10K of 2013, ETP wrote, “We’re currently developing plans to convert existing pipeline assets from natural gas transportation to crude oil transportation. These plans include the proposed abandonment of certain pipeline segments of Trunkline, which are currently operating in natural gas service, and the conversion of some or all of those segments of pipeline to crude oil transportation service. Trunkline’s application to abandon those segments of pipeline from natural gas service has been approved by the FERC. Subject to receipt of sufficient customer commitments for long-term transportation capacity and regulatory approvals, this project is expected to be in service by 2016.”
Sunoco Logistics may also join
ETP disclosed that it secured multiple long-term contracts with the shippers for the new pipeline. The company plans to complete the project including the conversion of the Trunkline project by the end of 2016. ETP has also disclosed that it was in discussions with SXL regarding equity participation by SXL in the Bakken pipeline project. SXL is a crude oil pipeline operator with significant operations in the Permian Basin. An exposure to Bakken Pipeline will also help it add a growth project in its asset portfolio. ETP holds the general partnership interest and 33.5 million SXL common units.
Why the Bakken Pipeline will help crude producers in the area
The development of crude rich areas in and around the Bakken will be placated by the construction of the Bakken Pipeline project. It will provide additional U.S. crude supplies to U.S. markets and refineries along the East and Gulf Coasts. A crude oil pipeline is generally more cost effective. It helps reduce the current utilization of rail and truck transportation as the predominant alternative to moving Bakken crude oil volumes to major U.S. markets.
Higher production at the Bakken Shale of the Williston Basin is encouraging for the midstream pipeline operators. Increased transportation requirements will be positive for crude oil pipeline suppliers in Bakken including Enbridge Energy Partners (EEP), Energy Transfer Partners (ETP), and Plains All American (PAA). These are master limited partnerships (or MLPs). They’re components of the Alerian MLP ETF (AMLP). Increased transportation capacity would also benefit oil producers like Oasis Petroleum (or OAS), Whiting Petroleum (or WLL), and Continental Resources (or CLR) through higher price realization. All of these are components of the SPDR S&P Oil & Gas Exploration & Production (or XOP).