How Bakken Crude Wellhead Valuation Influences Transport

Increase in Bakken Crude Transport by Rail Creates Industry Demand for Price Valuations Closer to Wellhead
Bakken Rig

Bakken Rig |Click to Enlarge

Since 2012, Bakken crude transport by rail has grown significantly – today nearly 70% of all crude produced is transported to the consumer by rail.

Although pipeline transport is still critical in the Bakken, much of the movement has shifted to rail due to its overall cost effectiveness, and experts anticipate this growth to continue.

In response to this increase in rail transport, Platts, an energy news and price publisher, began offering its subscribers an assessment of value nearest the Bakken crude wellhead in late April of 2014. Platts Editorial Director Sharmilpar Kaur said in a written statement that crude transport by rail has influenced industry demand for crude value assessments closer to the wellhead.

“Given the rapid growth in the transportation of crude oil by rail, the industry was in need of Bakken Shale oil value at North Dakota terminals with the operational capacity to move crude by rail or by rail/pipeline, said Kaur.

The service captures the value of Bakken crude at the point where there is transportation flexibility either by rail, or rail/pipeline. This assessment ultimately provides industry with greater intelligence before the decision is made on using truck, rail and/or pipeline to deliver the crude to customers.

Founder of BakkenShale.com and industry veteran Kenny DuBose, commented, “It is important to attempt to establish pricing points as close to the wellhead as possible, in order to separate and distinguish between the commodity value and any transportation expenses.”

According to Platts, in 2016, more pipelines are expected to come online in the Bakken, which should ultimately offer industry more transportation flexibility in the region. The first Platts’ Bakken price assessment was 91.93 per barrel on April 23, 2014.

U.S. Senators Appeal to Senate Appropriations Committee for Railway Safety Funding

~950 bbls Oil Spilled in Casselton, ND Train Collision in Dec. 2013
Crude Oil Train Passing Mountain

Crude Oil Train | Click to Enlarge

Approximately 70% of the oil produced in North Dakota is transported by rail. Safety concerns mounted after an incident where two BNSF operated trains carrying Bakken crude collided and derailed near Casselton, ND, in late December 2013. The National Transportation Safety Board (NTSB) said about 400,000 gallons or ~950 bbls of oil were spilled. Now, Senators from across the country are appealing to the Senate Appropriations Committee for railway safety funding this month.

In early April of this year, North Dakota Republican Senator John Hoeven, who sits on the Senate Appropriations Committee, called on fellow members to support railway safety measures and a push for more rail inspectors. Specifically, Hoeven would like to see funding go to the Federal Railroad Administration (FRA) and the Pipeline and Hazardous Materials Safety Administration (PHMSA).

Read moreAre More Pipelines and Rail Safety Measures Needed in Bakken – Senator John Hoeven – Video

In January of this year, PHMSA issued a safety alert for Bakken crude due. The alert reinforced the need to test, characterize, classify, and where appropriate de-gassify the crude oil before transportation. PHMSA is also working on new regulations for double hulled tankers.

Read more: Department of Transportation’s PHMSA Issues Bakken Shale Oil Shipping Safety Alert

On a related note, several U.S. Senators appealed to the Senate Appropriations Committee in Washington D.C. for rail safety funding in a joint-letter on April 4th. The letter was signed by 16 U.S. Senators, and highlighted the “Safe Transportation of Energy Products Fund”.  

“A Safe Transportation and Energy Products Fund would provide U.S. Department of Transportation new flexibility to address emerging issues related to the transportation of Bakken crude and other energy products – including, but not limited to: more expeditious rulemakings, technical studies, increased rail and energy product inspections, safety mitigation and response planning, first responder training, and community outreach. Additionally, the Fund would provide needed additional resources to complete Operation Backpressure, a study of the qualities and characteristics of crude oil in the United States. Completion of this study is an important step because its results will inform future regulatory action.”

A Senate Appropriations Subcommittee hearing will take place this week, Wednesday, April 9th, to examine the level of federal resources that should be allotted for railway safety. North Dakota Democratic Senator Heidi Heitkamp will be in attendance at the hearing to ask questions of the scheduled witnesses.

“The derailment in Casselton and other recent rail crashes have rightly kept this issue on the minds of many in Washington and across the country. And I’m continuing to push for the issue of rail safety to remain front and center, said Heitkamp”

Read more at hoeven.senate.gov

Read more at heitkamp.senate.gov

Read more at franken.senate.gov

Wood Mackenzie Forecasts $15 Billion on Bakken Drilling and Completions – 2014

Estimated Production at 1.7 Million b/d of Oil in 2020
Wood Mackenzie Bakken and Three Forks Map

Wood Mackenzie Bakken and Three Forks Map

According to the oil and gas research and consulting firm Wood Mackenzie, $15 billion will be spent on drilling and completion in the Bakken in 2014, second only to the Eagle Ford Shale. This year, oil production is expected to reach the 1 million b/d mark, and grow markedly beyond that figure over the next 5 – 6 years.

Read more: Bakken Production Sets Another Record – More Than 10,000 ND Wells Producing

[Read more...]

Hess, Marathon, and Whiting Face Fines for Bakken Oil Classifications

PHMSA Could Issue Fines That Total $93,000
Oil Rail Car Image

Crude Oil Rail Car | Click to Enlarge

Hess, Marthon Oil, and Whiting Petroleum all face potential fines from the Pipeline and Hazardous Materials Safety Administration (PHMSA). The fines are being pursued as a result of PHMSA’s investigation into the transportation of Bakken oil.

Oil taken from cargo tanks en route to rail facilities in the region was not properly classified. PHMSA took 18 samples from cargo tanks, storage tanks, and pipelines. In all, 11 of the 18 samples were not classified properly.

Hess faces fines of more than $50,000, Marathon Oil faces ~$30,000 in fines, and Whiting faces $12,000 in fines.

Also read: DOT’s Arm Issues Bakken Sahle Oil Shipping Safety Alert [Read more...]

Is Bakken Oil More Flammable?

Light-Sweet Crude Is Flammable Like Gasoline
Plains Crude By Rail Costs

Plains All American Rail Costs | Click to Enlarge

Bakken oil is produced at a high quality that makes it easier to refine into commercial products and makes it easier to ignite.

There is nothing new about oil being flammable. The science has been the same for well….forever. At a point a few decades ago, light-sweet crude (WTI) was the dominate oil quality in the U.S.

Light oil production growth in the Bakken, Eagle Ford, and Permian isn’t something the industry has never seen or handled, but it is an unforeseen boom bigger than anyone expected. [Read more...]

Department of Transportation’s PHMSA Issues Bakken Shale Oil Shipping Safety Alert

Low Flash Point For Light Sweet Crude Makes Accidents More Dangerous
Oil Rail Car Image

Crude Oil Rail Car | Click to Enlarge

The Department of Transportation’s (DOT) Pipeline and Hazardous Materials Safety Administration (PHMSA) has issued a safety alert for Bakken crude.

PHMSA issued the alert to reinforce the need to test, characterize, classify, and where appropriate de-gassify the crude oil before transportation. [Read more...]

Bakken Oil Terminal Started From Mothballed Ethanol Plant in Oregon

Columbia Pacific Bio-Refinery Is Storing & Shipping Bakken Oil

Crude Oil Train Passing Mountain

Crude Oil Train | Click to Enlarge

An Oregon ethanol plant that went bankrupt within a year of opening is now being used to store and ship Bakken crude oil.

The plant was built at a cost of $200 million and was supported by $36 million in green loans and tax credits. The plant was purchased by Global Partners of Massachusetts in February for $94.2 million. [Read more...]

Delaware City Refinery Taking More Bakken Crude

Bakken Oil Prices More Favorable Than Waterborne Brent Prices

PBF Energy’s Delaware City Refinery is taking more and more Bakken crude. The company announced earlier in the month the refinery’s rail facilities have the ability to unload as much as 100,000 b/d, 30,000 b/d more than expected in February. [Read more...]

Tesoro & Savage Building Crude Unloading & Marine Loading Facility – Vancouver, WA

Vancouver Washington Facility Will Have A 120,000 b/d Capacity

Tesoro and Savage Companies plan to build a 120,000 b/d crude-by-rail unloading and marine loading facility in Vancouver, Washington. The facility will be a likely destination for crude from Western Canada and the Bakken. the marine loading facility will provide access to multiple refineries along the West Coast.

The facility is expected to cost between $75 and $100 million, with an in service date of some time in 2014. Initial capacity will be 120,000 b/d, with expansion capability up to 280,000 b/d. Approximately 40,0000 b/d of Bakken crude is already moving to refineries in Washington. [Read more...]

Slower Bakken Production Growth in 2013 – Core Labs

Rig Count Down & Production Growth Slower Over Past Five Months

Bakken Well Pad

Bakken Well Pad | Click to Enlarge

Core Labs’ CEO, David Demshur, expressed a belief that the Bakken will grow slower in 2013 on a conference call this past week.

He noted the rig count has been down five consecutive months and that production growth has slowed compared to earlier in 2012. [Read more...]

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