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Tallgrass CEO 'not sure' if Bakken production profile supports more large pipe takeaway capacity

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Tallgrass CEO 'not sure' if Bakken production profile supports more large pipe takeaway capacity

The giant Bakken Shale oil reservoir, mostly sited in North Dakota, has been setting production records this year, for the first time since the 2014 downturn, but it is an open question whether more large pipeline expansions are needed for that play, a top midstream executive said late Thursday.

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In the last couple of months particularly, a new Bakken pipeline and expansion of an existing pipeline were proposed by top midstream providers. And while David Dehaemers, CEO of Tallgrass Energy, declined to address those specific project proposals, as a general market issue he expressed doubt that the play's production outlook warrants more large-capacity pipes.

"I think the question everyone has to ask themselves is ... long-term, at $50/b-$60/b oil, will the Bakken become that 2 million-plus b/d market it needs to be, to support everything that is being talked about but not yet built?" Dehaemers said. "I don't think we've seen the answer to that."

Crude prices are more robust than three years ago when the average prices of NYMEX crude futures were around the mid-$40s/b. But both in recent weeks and year-to-date, the average price of crude has been above $56/b.

"I'm not confident it will stay at that $50-$60/b level," Dehaemers said. "I'm not sure it will support that kind of growth."

The recent proposed pipeline capacity announced last month involved two lines for crude oil originating in the Bakken. One is a proposal to nearly double by early-2021 the existing 570,000 b/d, 1,172-mile Dakota Access Pipeline, or DAPL, that runs to Patoka, Illinois; and the new 350,000 b/d, $1.6 billion Liberty Pipeline, to move Rockies and Bakken production to Corpus Christi, Texas.

DAPL's expansion, by owner Energy Transfer Partners, would bring total capacity to about 1.1 million b/d. Liberty is proposed by Phillips 66 and Bridger Pipeline, and would be placed in service by late-2020.

PRODUCTION HAS RECOVERED FROM 2016-2017 LOWS

Dehaemers noted Bakken production has recovered from low oil prices that dipped from above $100/b in mid-2014 to around half that level by early-2015 and largely stayed there on average for the next few years.

North Dakota Bakken production reached its initial peak in December 2014 at 1.22 million b/d -- close to 50,000 b/d from the Montana Bakken. But lower prices at that time, which lingered for the next two years, caused the play's production to dip near 900,000 b/d in late-2016 and early-2017 before higher prices spurred more activity in North Dakota and reversed the decline.

The most recent production figure from North Dakota for May, released earlier this month, was 1.39 million b/d.

Lynn Helms, director for North Dakota state's Department of Mineral Resources, noted in the most recent state monthly production webinar last week that exploration and production companies are struggling to attract capital amid "soft" oil prices.

For that reason, significant, sustained growth is unlikely for the Bakken, which accounts for 89% of North Dakota's production, Helms said.

"We're not going to see any type of rapid production growth," Helms said.

He added operators have forged plans that reduce the state's rig count for the rest of this year by two to five fewer rigs, based on oil prices, capital availability and infrastructure constraints.

North Dakota's June rig count averaged 63, down from 65 in May, but had dropped to 58 on the day of the webinar, July 16.

--Starr Spencer, starr.spencer@spglobal.com

--Edited by Norazlina Juma'at, newsdesk@spglobal.com