Pipeline & Rail Competition for Crude Transportation in North Dakota Presentation For: Natural Gas Energy Association Of Oklahoma January 9, 2014
Agenda» Crude Production Takes Off» Pipeline Constraints» Rail Developments» Competition between Rail and Pipeline 2
Conclusions» Increased Crude Production Overwhelms Existing Distribution System» Delays Cause Crude Delivery Logjam and Price Disruption» Rail Terminals Develop to Bypass the Logjam» North Dakota now has adequate takeaway capacity» Rail and Pipeline Compete Based On Crude Differentials 3
Mb/d U.S. Crude Oil Production 10.0 9.0 8.0 7.0 Lower 48 States Alaska 1.5 million b/d Increase from 2008 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Source: BENTEK and EIA 4
MMb/d Canadian Oil Production 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 5
MMB/d MMB/d U.S. & Canada Crude Oil Production 7.5 7.0 6.5 U.S. Crude Oil Production 4.0 3.6 3.2 Canada Crude Oil Production 6.0 2.8 5.5 2.4 5.0 2.0 6
Oil (million b/d) Permian, Williston, Eagle Ford 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Permian Williston Eagle Ford» The Eagle Ford, Williston and Permian have been responsible for almost all of the U.S. production growth since 2010» These are the plays with the highest rates of return for producers Source: BENTEK and HPDI 7
000s b/d U.S. Oil Production 10 MMb/d in 2018 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 3,500 2000-2007 2008-2011 2012-2018 Source: Bentek/RBN 8
Mb/d Bakken Production North Dakota 1,000 800 600 400 200 North Dakota Crude Production» North Dakota crude production increased 275% in the 3 years to Oct 13» Rate of increase slowing but still up 25 % in the past year 0 Jan-07 Jan-09 Jan-11 Jan-13 9
Forecast Increase in ND Production 0.6 MMb/d Increase» Base case production increase to 1.4 MMb/d by 2022» High Case increase to 1.6 MMb/d Source: North Dakota Pipeline Authority 10
Mb/d Pipeline Takeaway Capacity 1,400 1,200 1,000 800 North Dakota Crude Production and Takeaway Capacity Oil Production Pipeline Cap.» Pipeline capacity has not accommodated production since 2011 600 400 200 0 Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13 11
True 160 Mb/d Bakken Pipeline Takeaway» Pipeline takeaway capacity 515 Mb/d» Mandan Refinery 68 Mb/d» Total 583 Mb/d» Production 941 Mb/d» Additional constraints developed downstream Tesoro Mandan Refinery 68 Mb/d Source: BENTEK 12
North America Crude Oil Flows 13
System Overload! Canada West Coast No Pipeline Access Bakken East Coast No Pipeline Access Niobrara Permian Eagle Ford Gulf Coast Waiting for Pipeline Build out Source: Muse, Stancil & Co. 14
Differentials to WTI Cushing - 2012 New Mexico Cushing, OK WTI $0.0 Midland WTI - $4.0 Permian Basin LLS + $18.0 Texas Houston St James, Louisiana Brent + $18.0 15
Rail Transport Development» Bakken crude prices discounted by pipeline congestion» Coastal prices higher» Rail development cycle is short» Build out of rail loading in 2012 16
North Dakota Rail Build Out Unit Trains 100+ tank cars 66,000+ barrels per train Same origin and destination Usually same commodity and shipper 17
North Dakota Rail Terminals 2014 19
Mb/d North Dakota Takeaway Capacity North Dakota Crude Production and 1,400 Takeaway Capacity 1,200 1,000 800 600 Oil Production Rail Capacity Pipeline Cap.» Rail capacity more than makes up for pipeline gap» Rail provides shippers with better netbacks 400 200 0 Jan-07 Jan-09 Jan-11 Jan-13 20
Bakken Netback Analysis» Producers/shippers will choose markets that maximize netbacks» Netbacks are a function of (a) transportation costs, and (b) the differentials between destination crude prices» Brent (East Coast), LLS (Gulf Coast), WTI (Midwest), ANS (West Coast) 21
Bakken Netbacks 1/7/13 95 NW/R 95 G/R 80 C/R 84 C/P 99 G/P 94 E/R 109 NW NW by Rail,, 12 17-1 15 Gulf by Rail 8 92 Cush Gulf by Pipe 11 111 East -18 +1 110 Gulf 22
Bakken Netbacks 10/24/13 88 NW/R 83 G/R 84 C/R 88 C/P 87 G/P 91 E/R 102 NW NW by Rail,, 12 17 +4 15 Gulf by Rail 8 96 Cush Gulf by Pipe 11 108 East -2 +10 98 Gulf 23
Bakken Netbacks Summary 24
Mb/d Bakken Production And Rail Volumes 1000 900 800 700 600 500 400 300 200 100 0 Estimated Williston Basin Rail Export Volumes Crude Production Estimated ND Rail Export Volumes Rail volumes fall off in Q3 2013 due to lower differentials Source: NDPA (North Dakota Pipeline Authority) 25
Price/Netback Outlook NW Mid NW by Rail Gulf by Rail Cushing Weak Gulf by Pipe East Strong Gulf Very Weak 26
Conclusions» Increased Crude Production Overwhelms Existing Distribution System» Delays Cause Crude Delivery Logjam and Price Disruption» Rail Terminals Develop to Bypass the Logjam» North Dakota now has adequate takeaway capacity» Rail and Pipeline Compete Based On Crude Differentials 27
http://www./daily-energy-post Sandy Fielden 3333 Allen Parkway, Suite 1807 Houston, TX, 77019 sfielden@ @thatenergyguy 28