Busting Bottlenecks in the Bakken

fedgazetteFEDERAL RESERVE BANK OF MINNEAPOLIS APRIL 2013 Regional Business & Economics Newspaper minneapolisfed.org More on Energy Transportation … WORKING ON THE RAILROAD Busting bottlenecks —AND PIPELINE page 6 Energy transport stimulates job growth. in the Bakken DEALING WITH GAS page 9 Natural gas undergoes its own infrastructure boom. …………………………………………….. IN SOUTH DAKOTA, WE TRUST page 12 The state has niche in growing market for trust companies. MONEY, AND MORE MONEY page 14 Public and private trust companies both growing. THE RISE OF THE WEST: MORE THAN JUST AN OIL STORY page 15 Relative earnings in western district In the district’s oil patch, massive states rising even before the oil boom. investment in transportation facilities is easing the flow of energy to market By PHIL DAVIES BOOMING SALES Senior Writer PHOTO COURTESY OF ENBRIDGE IN NORTH DAKOTA page 18 harlie Roehm and his crew is owned by Canadian oil transporter ing the need for producers to truck oil Oil activity boosts taxable sales were waiting for an oil train Enbridge, one of the largest pipeline 50 miles or more. Once completed— and purchases. at a rail loading facility in Ber- companies in North America. shipments were slated to begin this thold, N.D. The BNSF Railway Enbridge built the rail facility last year spring—the large, hangar-like building Ctrain from Minot was behind schedule, to help ease a bottleneck on its large, will enable Enbridge to offload oil from DATA MAP page 20 but everything was in place to begin nearby pipeline that carries oil eastward its main pipeline into tank cars, boost- pouring Bakken crude into 90 identi- through North Dakota into Minnesota. ing Berthold’s rail capacity eightfold cal tanker cars. At 15 cars a day, it would The roughly 70,000 barrels of oil loaded and freeing up capacity on the pipeline. take a week to fill the unit train, whose on each unit train bypass the pipeline, The current truck-loading facility “is payload comes from innumerable trucks headed to oil terminals and refineries just temporary, to get us going,” Roehm driving from oil wells to the west, lined all over the country. “We can only pump said. “Phase two is the real deal, because up at Berthold to disgorge their loads. out so much,” said Roehm, supervisor of that’s where we’re moving a lot of oil.” So much oil is being produced in Enbridge’s rail operations. “What we’re Enbridge has spent $160 million on the western North Dakota and eastern Mon- doing is optimizing the use of our facili- entire facility. tana that it’s turning competitors—rail- ties by bringing in more oil and putting As has been well chronicled (includ- Follow the fedgazette online ... roads and pipelines—into partners in it onto rail instead of the pipeline.” ing by the fedgazette), oil and gas produc- minneapolisfed.org the vast enterprise of transporting that A second phase at the site will con- tion in the Bakken has surged over the fedgazette Roundup blog energy. The Berthold rail hub, an on- nect pipeline nodes in the heart of the past seven years. Getting that product Twitter ramp to BNSF’s nationwide rail network, Bakken to the Berthold facility, eliminat- to far-away markets is no less important @fedgazette Continued on page 2 @RonWirtz Page 2 fedgazette ENERGY TRANSPORTATION APRIL 2013 Bottlenecks from page 1 price than other flavors of domestic oil, Chart 1 The Quick Take trimming producers’ profit margins and Oil output to exceed pipeline tempering their enthusiasm for further In recent years, oil production in the oil investment. capacity until 2015 Bakken region of western North Da- Energy firms have responded vigor- Oil production and transportation capacity in the Williston Basin* kota and eastern Montana has out- ously to market demand. Oil and gas 2,200 Pipelines Rail hubs** Oil production stripped the infrastructure needed producers, pipeline operators and rail- 2,000 to move it to refineries across the roads have invested billions of dollars 1,800 country. in new or expanded infrastructure to 1,600 Because of pipeline bottlenecks, relieve bottlenecks and move fossil fuels 1,400 els per day High Bakken crude oil has often trad- rr as quickly and cheaply as possible from 1,200 Forecast ed at a discount to other types of Low wellhead to market. 1,000 domestic oil, and natural gas pro- Everywhere in the region, contrac- 800 ducers also face transportation tors are laying pipeline, erecting giant 600 constraints. Energy transportation storage tanks and building rail hubs like 400 firms have invested billions of dol- the Berthold facility that are proving a Thousands of ba lars in new or expanded pipeline lucrative—but probably temporary—al- 200 and rail infrastructure to relieve ternative to shipping oil by pipeline. 0 bottlenecks and move crude oil Ongoing efforts to increase capacity to 2008 2009 2010 2011 2012 2013 2014 2015 and gas efficiently from wellhead move energy commodities are crucial to * Comprising 17 counties in western North Dakota and 12 counties in eastern Montana to market. Energy transport has ** Listed capacity (may be less than actual capacity) fully developing the Bakken’s energy re- Source: North Dakota Pipeline Authority also created jobs and increased tax sources, the engine of the region’s robust revenues in the region. But match- economic growth. But matching supply ing supply to demand in energy to demand in energy transport will be Long-established, major conduits for different transport challenges. Natural transport will be a challenge due a challenge as the Bakken continues to oil include the Enbridge System, which gas, for example, flows freely on dedicat- to uncertainty about how high Bak- break records for energy production. delivers oil to refineries in the Twin Cit- ed pipelines carrying gas to utilities and ken production will ultimately rise. The market for shipping hydrocar- ies and Chicago via pipeline connec- other users in the Twin Cities, Chicago Producers and transportation firms bons is dynamic and fluid; producers tions in Minnesota and Wisconsin, and and beyond. But hundreds of miles of are trying to gauge future capacity and transportation firms are trying to Tesoro Corp.’s High Plains system, the smaller pipelines are needed to collect and are experimenting with differ- gauge how much capacity is needed and main route for Bakken oil bound for gas from wells, and increased gas process- ent transport modes to reduce risk are experimenting with different trans- North Dakota’s only refinery in Man- ing in the region is driving demand for and maximize profit. port modes to reduce risk and maximize dan. For natural gas, two main pipeline transport for natural gas liquids (NGLs) profit. In addition, the path is not com- systems funnel Canadian gas and coal derived from gas. (See a separate analy- pletely smooth for energy transporta- bed methane from the Powder River sis of natural gas production, processing and similarly complicated, but given tion projects in the region. Obstacles to much less attention. In recent years, oil basin in Montana and Wyoming toward and transportation on page 9.) rapid development include tightened Midwest population centers, picking up Constraints on crude oil transport are production has outraced the infrastruc- federal environmental rules and rising ture to move it to refineries across the gas from northeastern Montana and more straightforward, and more urgent, costs of securing pipeline right of way western North Dakota on the way (see because oil is by far the most valuable country, with predictable results. from landowners. “Bottlenecks are occurring at all lev- map, page 4). product of Bakken wells. Long-distance els,” said Lynn Helms, director of the Pipelines are by far the cheapest and oil pipelines can no longer handle the North Dakota Department of Mineral Re- The pig in the python safest way to move oil and the only prac- region’s output. According to data com- ticable method of transporting gas. But piled by the NDPA, oil pipeline capacity sources (DMR). The transport kinks arise Transporting energy within the Bakken at well sites, where there aren’t enough the capacity of this transportation sys- in the Williston Basin—a broad area of region and beyond to markets across the tem began to be tested in the late 2000s, western North Dakota and eastern Mon- small pipelines to gather oil (and natural country used to be straightforward. Large gas produced as a byproduct), as well as as production of shale oil and associated tana that includes oil-producing areas pipeline systems carried crude oil and gas from the Bakken and Three Forks outside the core Bakken region—was on big interstate transmission pipelines natural gas mostly from western Canada such as the Enbridge system. Because formations soared to new heights after about 300,000 bopd short of total oil into the United States, and the mod- the Great Recession. production in the Basin as of last Sep- of tight capacity on long-haul pipelines, est amounts produced in Montana and Bakken crude has often traded at a lower North Dakota is now the nation’s tember. Based on two scenarios for drill- North Dakota just went along for the ride. second-biggest oil-producing state, after ing activity and well output, the NDPA Texas. Statewide oil output surpassed projects that crude oil production in the 750,000 barrels of oil per day (bopd) in Basin will exceed pipeline capacity at FEDERAL RESERVE BANK OF MINNEAPOLIS December, more than twice the produc- least until 2015 (see Chart 1). fedgazette Regional Business & Economics Newspaper tion of two years earlier. As oil produc- Rail—a transportation option up to ISSN 1045-3334 tion has climbed, so has the volume of three times more expensive than ship- North Dakota gas bubbling out of the ping by pipeline—has allowed produc- Subscriptions are available without charge.

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