Expansion projects improve Bakken takeaway capacity

By Lisa Fattori

Pipeline construction west of Beaver Lodge Pump Station. Photo courtesy: Enbridge North Dakota.

Pipeline construction west of Beaver Lodge Pump Station. Photo courtesy: Enbridge North Dakota.

As Bakken oil production reaches one million barrels per day (bpd), sufficient takeaway capacity and access to preferred markets continues to be a priority among shippers. Expanded crude-by-rail services, combined with new pipeline infrastructure, are together working to meet the current demand and will ramp-up to accommodate what some analysts predict will be 1.3 million bpd by the end of 2015. Other influences, including a decision about the proposed Keystone XL project and new safety guidelines for the delivery of crude by rail, will help oil producers to adopt transportation strategies that are available today and in the future.

According to the North Dakota Pipeline Authority, 71 percent of oil transported out of the Williston Basin in November 2013, was by rail, which is an increase of seven percent from the year before. Transportation by pipeline fell from 27 percent in 2012 to 22 percent in 2013. By the end of October 2013, North Dakota rail export volumes reached 800,000 bpd.

BNSF Railway Company reported an increase of 12 percent in the shipment of industrial products in the first three quarters of 2013, over the same period in 2012. This is primarily due to increased shipments of petroleum products, driven mainly by increased crude unit-train loadings. Canadian National (CN) has also seen significant increases. In 2012, the railway moved more than 30,000 carloads of crude oil to various North American markets, and more than doubled that business in 2013. In 2012, Canadian Pacific (CP) shipped 53,500 carloads of crude oil, and moved 90,000 carloads across the railway’s network in Canada and the U.S. in 2013.During CP’s fourth quarter results announcement on January 29th, 2014, CP executive VP and chief marketing officer Jane O’Hagan commented on the railway’s increased volumes. “Our Q4 RTMs (Revenue Tonne Miles) were up 20 percent due to gains in crude oil and increases of frac sand originating from mines that continue to ramp-up their volume,” she said. “As I look to the outlook, our crude oil customers have confirmed they continue to value rail service and facility development, and the expansion is evidence of their commitment.”

Unlike the rollout of new rail infrastructure, pipeline expansion must undergo a more lengthy process of securing approvals and permits. Pipeline capacity is expanding, however, and has already made an impact in the Bakken. In March 2013, Enbridge Energy Partners L.P. completed its Bakken Pipeline Expansion Project, which provides 145,000 bpd of capacity for oil produced in the Bakken and Three Forks formations. The scope of work included reversing and expanding an existing pipeline from Berthold, N.D. to Steelman, Sask. and constructing a new 16-inch pipeline from a terminal near Steelman to the Enbridge mainline terminal near Cromer, Manitoba.

Valve-turning celebration event at the Berthold Rail Facility in March 2013. The facility includes a looped rail track capable of holding three unit trains, offering an export capacity of 80,000 bpd by rail. Photo courtesy: Enbridge North Dakota.

Valve-turning celebration event at the Berthold Rail Facility in March 2013. The facility includes a looped rail track capable of holding three unit trains, offering an export capacity of 80,000 bpd by rail. Photo courtesy: Enbridge North Dakota.

Another milestone in Enbridge’s Bakken Expansion Program was the completion of the company’s Berthold Rail Facility, also in March. The facility includes a looped rail track capable of holding three unit trains, offering an export capacity of 80,000 bpd by rail. In August, Enbridge announced its plans to build a new 610-mile pipeline from the company’s Beaver Lodge Station, south of Tioga, N.D. to an existing terminal in Superior, Wisconsin. The ambitious Sandpiper Project will start construction at the end of 2014 and is expected to be in service in 2016.

“This is a $2.6-billion project that will add 225,000 bpd of capacity,” says Katie Haarsager, community relations advisor for Enbridge North Dakota. “It’s the largest project that we’ve undertaken to move oil out of the Bakken to coastal markets. Enbridge is excited to invest these funds in North Dakota and Minnesota, and Wisconsin will benefit as well.”

A green light to the proposed Keystone XL project would give Bakken oil producers another option in transporting crude to the Gulf Coast. In 2010, TransCanada announced plans to construct the Bakken Marketlink Project, which would provide an on-ramp for Bakken crude at Baker, Montana. The receipt facility could transport up to 100,000 bpd of crude oil from the Williston Basin to Cushing, Oklahoma, where it would then travel to Nederland or Houston refineries via the Gulf Coast Pipeline. Construction of the facility would cost $140 million and would coincide with the construction of Keystone XL from Hardisty, Alberta to Steel City, Nebraska. Preliminary work on the project, including acquiring land and engineering work, has started and TransCanada has already secured contracts for 65,000 bpd from the Baker facility.

“When we envisioned the original Keystone XL, Bakken shale oil production was just in its infancy,” says Corey Goulet, VP of Keystone Operations for TransCanada. “The Baker terminal is set up to accept up to 100,000 bpd of Keystone’s total capacity of 830,000 bpd. Bakken producers have shown a lot of interest and, if the opportunity arises, we’ll work with shippers to see if there is a need for future expansion.”

TransCanada’s recent completion of its Gulf Coast Pipeline is alleviating bottle-necking at Cushing, and the addition of the lateral pipeline to Houston next year will offer Bakken shippers even more markets for their crude. The Cushing to Nederland pipeline went into service in January and will transport, on average, 520,000 bpd in 2014. Crude oil delivery is expected to ramp-up to over 800,000 bpd as the demand for capacity increases.

“There has been a lack of takeaway capacity from Cushing, so producers should see better pricing now that we no longer have this constraint,” Goulet says. “Construction of the Houston lateral leg started last year and should be complete by the second quarter of 2015. This last 50-mile segment to Houston gives shippers a lot more options in the refineries to which they can ship.”

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Photo courtesy: BNSF Railway.

The tremendous growth of pipeline and rail services in the transportation of crude oil has also given rise to new concerns about environmental stewardship and rail safety. In the last nine months, four train derailments and explosions—in Lac-Mégantic, Quebec; Alabama; North Dakota; and New Brunswick—has prompted regulators to examine current safety standards to see if new measures need to be taken to handle highly flammable Bakken crude. In January, the Transportation Board of Canada (TSB) and the U.S. National Safety Board (NTSB) made recommendations that include better route planning, away from populated areas, for trains carrying dangerous goods; enhanced standards for all Class III tank cars; and the requirement that shippers of hazardous materials have an Emergency Response Assistance Plan in place.

In 2011, the rail industry voluntarily implemented new tank car standards, with improved designs including the installation of high-flow capacity values and more robust bottom outlets that won’t open in the event of an accident. Regulators have not ruled out retrofitting older tank cars, as well as those manufactured since 2011, with new safety features, including outer steel jackets and thermal protection for tanks cars, head shields and high-flow-capacity pressure valves. Retrofits would be a huge undertaking for the 100,000 rail cars in circulation that ship flammable liquids and the roll-out of new designs would have a significant impact on the timeliness of getting Bakken crude to market.

“In 2011, railroads and tank car makers toughened standards for stronger cars and, by the end of 2015, we expect over 50,000 of those cars will be in the fleet,” says Thomas Simpson, president of the Railway Supply Institute. “There is already a backlog of 55,386 cars on order, but not yet delivered. It takes industry time to spec and build these cars and, if there’s a new design, it will take even longer. We’ve adopted more stringent standards, but are prepared to go further, including making modifications to the existing fleet. We’re waiting for the government to report on the composition of Bakken oil, which will give us some direction.”

 

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