Bakken Oil Production Sees Largest Monthly Increase Ever In June - 50,000+ b/d

Bakken Oil Production Forecast - NDPA

Genscape is predicting that North Dakota's monthly Bakken production data will show an increase of 54,000 b/d June. The jump surpasses the record of 41,000 b/d set in February of this year and will drive North Dakota oil production above 860,000 b/d.

June will represent only the third time North Dakota production has increased more than 40,000 b/d in a single month (Jul 2011, Feb 2013, Jun 2013).

“Revised August 15, 2013: NDIC reports Bakken oil production grew a little more than 10,000 b/d from May to June.”

Read more in the article Bakken Oil Production Sets Record At More Than 750,000 b/d In June

May Was A Record Month In The Bakken Too

Production climbed to a record of more than 810,000 barrels per day in May even though it was the wettest month on record in the Bakken. The delays caused by weather primed June to be a good month for production.

Genscape estimates 70% of production moved by rail during the month and that North Dakota production will grow another 68,000 b/d to more than 920,000 b/d by year-end 2013.

Railroads Are Moving 70% Of Bakken Oil Production

Bakken Rail Export Volumes

Railroads are moving almost 70% of the oil produced in North Dakota. That represents volumes of more than 600,000 b/d, which is up from less than 100,000 b/d in 2011.

The importance of rail has increased as Bakken production surged over the past few years. The North Dakota Pipeline Authority estimates pipeline capacity out of the region will total 565,000 b/d and rail capacity will total 865,000 b/d at year-end 2013.

If the Bakken is going to truly surpass production of 1,000,000 b/d, additional pipelines will be needed. Even if the pipelines don't come quickly, operators benefit from ample rail capacity.

Bakken Oil Continues Moving To The Pacific Northwest

Bakken Crude Rail Costs

We've noted Bakken Oil can get premium prices on the West Coast before and more crude is making its way that direction. Most of the oil is moving by rail, but it is not being railed all the way to California.

Most of the oil is unloaded at ports in the Pacific Northwest, put on barges, and sent south to refineries. Some is consumed locally.

• Tesoro ships oil from the Bakken to its refinery in Anacortes, Washington.
• Tesoro & Savage are building a 120,000 b/d rail to marine facility in Vancouver, Washington.
• A mothballed ethanol plant that is being used as a Bakken oil terminal in Oregon.

There are other projects that might come to fruition as well. Oil moving west is likely going to be a mainstay in North Dakota and Montana.

In total, there are 10 rail terminals planned or under construction in Washington and Oregon. One Tesoro facility has been completed in Anacortes, WA. Others include:

• 2 in Anacortes, WA
• 2 in Ferndale, WA
• 1 in Tacoma, WA
• 3 in Hoquiam, WA
• 1 in Vancouver
• 1 in Clatskanie, OR

It's an interesting development to watch.

While pipelines are the cheapest, safest, and most efficient way to move crude, rail has become competitive due to price differences around the country and barriers to building pipelines. Pipelines face significant regulatory scrutiny and high initial capital costs.

Bakken Oil Terminal Started From Mothballed Ethanol Plant in Oregon

Crude Oil Train Passing Mountain

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.

Global Partners is using the facility for crude oil transloading and could restart the ethanol plant if market conditions improve.

The facility is in the Port of St. Helens' Port Westward industrial park near Clatskanie, OR. The facility began accepting crude oil by rail deliveries late in 2012.

It's the first major crude oil terminal to begin operations in the area in decades.

Delaware City Refinery Taking More Bakken Crude

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.

“Better lucky than smart,” PBF Chairman Thomas D. O`Malley said. “We were lucky when we bought the Delaware City Refinery. They came with a large quantity of cornfields, soybean fields - in essence a surplus of about four-and-a-half thousand acres of land, and most of it was level. So we were able to put this (rail terminal) in.”

The company is also adding capacity to take more heavy oil from Canada. Once complete, the facility will have the capacity to unload 100,000 b/d of Bakken crude and 80,000 b/d of Canadian crude oil.

The Delaware City Refinery is just one of several on the East and West Coasts that are bringing in Bakken crude by rail in favor of waterborne crude from other parts of the world.

As of May 23, Bakken crude was trading below $90/bbl, WTI was trading at ~$93/bbl, and Brent (international) crude was trading above $101/bbl.