Crude realities for
Bakken oil as Shell ditches W. Coast rail plan
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[October 08, 2016]
By Liz Hampton
HOUSTON, Oct 8 (Reuters) - North Dakota oil
producers were dealt another blow this week when Royal Dutch Shell said
it would scrap plans to build an oil train terminal in Washington state
that would have taken over 400,000 barrels per week of Bakken and other
Shell's move on Thursday comes at a bad time for Bakken producers, who
have endured a two-year price rout and need new routes to move their oil
to coastal refineries.
Inland North American producers have seen four projects stymied since
September, owing to both environmental opposition and an oversupplied
global oil market that make it easier and cheaper to import cargoes than
transport inland crude thousands of miles on railcars.
On Wednesday, San Luis Obispo, California, city planners rejected a rail
terminal proposed by Phillips 66, two weeks after the city council of
Benicia rejected Valero Energy's proposed 70,000 barrel per day (bpd)
Not long before that, protests by Native Americans worried about
environmental impact prompted the U.S. government to halt work on the
470,000 bpd Dakota Access Pipeline (DAPL), which would take North Dakota
oil to the Midwest and Gulf Coast.
The potential loss of takeaway capacity on DAPL and a drop in West Coast
demand could spell more pain for producers in the Bakken, where output
has fallen by more than 15 percent on the prolonged rout in oil prices.
"This development (with Shell), along with the developments regarding
the DAPL, will hurt Bakken producers' netbacks," Sarp Ozkan, a senior
energy market analyst with Denver-based Ponderosa Advisors, said in
reference to profits.
Shell said the conditions of the global crude market and a tight capital
environment made its project uneconomic.
Shell's rail facility would have connected to an existing rail line and
supplied Shell's 145,000 bpd Anacortes refinery with light crude from
Phillips 66 this week said it is considering appealing the City Planning
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Current pipeline and refining capacity out of the Bakken is around 851,000 bpd,
and about 60 percent of its output leaves the region on pipeline, according to
the state's pipeline authority.
Nearly all of the rest goes by rail, which has loading capacity around 1.52
Despite the latest setbacks, Jonathan Garrett, a principal analyst at
consultancy Wood Mackenzie, said low prices are still a bigger concern for North
Dakota producers than transportation.
"The biggest challenge to the Williston Basin right now isn't transportation,
it's oil prices. Takeaway capacity is a concern but that's not going to be the
thing that makes the Williston Basin a difficult place to operate," he said.
Benchmark U.S. oil prices have jumped by more than $6 per barrel in the last
week following news that the Organization of the Petroleum Exporting Countries
(OPEC) has reached an agreement to curb supply, with West Texas Intermediate
(WTI) futures settling above $50 per barrel on Thursday.
Higher oil prices could unleash a wave of supply from the Bakken, which as of
June had more than 700 drilled-but-uncompleted wells, more than any other major
shale region in the United States, according to data from Wood Mackenzie.
Bakken discounts to WTI have narrowed sharply since 2013, and in early October
were at about $1 <WTC-BAK>.
That is good for Bakken producers, but makes paying for costly rail too
expensive for West Coast refiners.
Railed volumes entering the West Coast from the Midwest fell to around 106,000
barrels per day this summer, off 43 percent from a peak in November 2015,
according to the U.S. Energy Information Administration. (Reporting by Liz
Hampton; Editing by Terry Wade and Cynthia Osterman)
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