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Dakota Access Pipeline started up with 50,000-b/d more crude oil capacity

The long-awaited Dakota Access Pipeline entered into commercial service, with a 50,000-b/d addition in crude oil capacity driven primarily by growing shipper demand, operator Energy Transfer Partners said.

The 1,172-mile, 30-inch-diameter pipeline was initially targeted to have a throughout of 470,000 b/d. But that has now gone up to 520,000 b/d due to a supplemental open season held earlier this year, Energy Transfer said.

At a later stage, and depending on further shipper demand, capacity on the line can be expanded by another 50,000 b/d to 570,000 b/d, the operator said.

The pipeline was targeted for start up in January. However, heated protests by stakeholders, including several First Nation groups and a decision by the Army Corps of Engineers to withhold a final federal approval, came in the way.

The four-state Dakota Access originates in North Dakota and runs to a hub near Patoka, Illinois. It provides an outlet for crude oil producers in the Bakken and Three Forks areas of the Williston Basin to ship their barrels south under two options.

The first option is to deliver crude to a storage hub in Illinois, from where shippers will be able to access refineries in the US Midwest and the US East Coast.

The other is taking the barrels further south to Nederland, Texas through the Energy Transfer Crude Oil Pipeline where it can be run by local refineries or exported from the US Gulf Coast.

The 700-mile ETCO pipeline is operated by Energy Transfer and runs from Patoka to Nederland where it also owns a 26-million barrel oil storage terminal.

Energy Transfer did not indicate the number of barrels that were likely to be refined in the US, nor did it indicate how many barrels were destined for exports through the US Gulf Coast.

CHEAPER OPTION FOR USGC REFINERS

Jenna Delaney, senior analyst with Platts Analytics’ Bentek Energy, said the barrels being moved are light, sweet Bakken crude which has a tight specification with respect to its API number.

“That makes it a desirable barrel for being refined domestically,” Delaney said.

Bakken cracking yields on the US Gulf Coast averaged $57.12/b in May, a 65 cents/b premium to WTI, although a $1.67/b discount to Light Louisiana Sweet, Platts data shows.

It will cost uncommitted customers $7.50/b to move Bakken crude from one of several field points to Nederland, Texas, according to Energy Transfer’s tariff filed in mid-April filing with the US Federal Energy Regulatory Commission. That’s below the roughly $9/b cost of shipping by rail.

The uncommitted rate is $6/b to move Bakken crude from one of several field points to Patoka.

Shippers that sign a five-year agreement to move at least 5,000 b/d from the field to Illinois would pay $5.25/b, while seven-year committed rates from the Bakken field points to Nederland will range from $5.60/b for more than 90,000 b/d to $6.50/b for 5,000-29,999 b/d.

Ten-year committed rates from the Bakken to Texas range from $5.50/b for more than 90,000 b/d to $6.25/b for 5,000-29,999 b/d.

The shipping cost to move crude only on ETCO, from Illinois to Texas, is $1.85/b, according to the tariff filing.

EXPORT POTENTIAL

From the USGC, Bakken can be exported. Small batches of Bakken crude have already been exported to Asia, and possibly Europe, likely for testing.

Asian countries have been large consumers of US crudes lately. Companies such as GS Caltex and Hyundai Oilbank in Korea, as well as Chinese petrochemical refiners, recently have imported US grades including Eagle Ford, Mars, Thunder Horse and Southern Green Canyon.

US crude exports for the week ending May 26 reached a record high 1.303 million b/d, according to the US Energy Information Administration.

Several traders at South Korean refining companies have said Bakken is a distillate-rich low sulfur crude that could comfortably feed into Asian distillation units, but arbitrage economics had always been difficult due largely to hefty transportation and logistics costs.

BAKKEN PRICE SPREADS WEAKEN

Bakken price differentials were weakening Thursday. Bakken at Clearbrook, Minnesota, started the day trading at front-month NYMEX light sweet crude futures contract (WTI CMA) minus 40 cents/b, then was heard traded at minus 50 cents/b, and then minus 60 cents/b.

Bakken at the Beaver Lodge hub was heard offered Thursday at WTI CMA minus $2.75/b, from an assessment of minus $2.50/b Wednesday.

It was unclear what could be shifting differentials lower, although differentials had tightened since February on Dakota Access line fill as well as lower Canadian Syncrude production following a March fire at Syncrude’s Mildred Lake oil sands facility.

Suncor Energy, which has a majority stake in the Syncrude facility, expects production to return to full rates in June.

There are six direct injection points for Dakota Access in the Williston Basin at Stanley, Ramberg, Epping, Trenton, Watford City and Johnson’s Corner and regional crude traders expect differentials at most of the North Dakota hubs to slowly equalize and there should be little locational difference in prices as the pipeline starts up.

Bakken delivered in June to Patoka was last heard at a 60 cents/b premium to WTI CMA.

Deliveries to Nederland on ETCO are not expected for another couple of weeks. However, there have been a few indications on prices for Bakken in Nederland. It was last heard bid in Nederland at WTI CMA plus $1.25/b and offered at WTI CMA plus $1.50/b.

A producer in the Williston Basin, who did not wish to be identified, said Thursday start-up of Dakota Access will result in higher netbacks.

In 2014, the company had to sell its crude oil at a discount of about $9.6/b to the WTI. That narrowed last year to $4.13/b and today its $2.96/b, it said.

SAVAGE COMMISSIONS FEEDER LINE

North Dakota-based Savage Services Corp., which concluded an open season May 19 to add 10,000 b/d of light barrels into the Dakota Access, is planing to commission Thursday its 2-mile feeder pipeline that will deliver 10,000 b/d of crude from Trenton in the state, said spokesman Jeff Hymas.

“Our open season was a success and depending on operational schedule of the Dakota Access line we will nominate barrels,” he said.

Savage has capacity to feed 60,000 b/d of crude into the Dakota Access Pipeline and the remaining 50,000 b/d of non-committed capacity will be used to provide customers with flexibility and optionality to ship crude to the most economic markets, Hymas said.

TALLGRASS PIPELINE OPEN SEASON

Separately, fellow midstream player Tallgrass Energy launched Thursday an open season to ship additional light crude of API 47 to 57 degrees on its Pony Express System in the Denver area.

The pipeline has a capacity of 320,000 b/d and delivers crude from Colorado to Oklahoma, spokeswoman Phyllis Hammond said.

“We’ll use the results of the open season to size the expansion appropriately,” Hammond said in an e-mail.

Rockies shippers can move crude to Cushing today, she said.

“What we’re offering them through this open season is the ability to deliver their product to refineries directly connected to Pony Express, or they can ship all the way to Cushing, where they have greater connection optionality through Pony,” Hammond said.

The open season closes July 17.
Source: Platts

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