Dakota Access pipeline gives Bakken producers outlet to Gulf refineries

Dakota AccessDakota Access will connect North Dakota to Energy Transfer Crude Oil Pipeline Project in Patoka, Illinois

Mid-continent US refineries will be most affected when the 470,000 b/d Dakota Access line starts up in Q4, according to a University of Houston energy economist.

Dakota Access

Dakota Access pipeline route.

Ed Hirs says those refineries currently buying Bakken crude oil get their supply via a winding route through the Rocky Mountains or the Midwest. Dakota Access provides producers a straight shot southeast to Gulf Coast refineries, which could cause problems for the mid-continent refineries.

“These refineries are facing fewer imports of Canadian crude due to lower production in the oil sands regions; lower production in the Niobrara shale play; and lower production in the Bakken,” Hirs said by email.

“These refiners may have to increase prices for their refined products or absorb costs as they are now competing for the Bakken oil with a lower cost outlet to the Gulf Coast refineries.”

Hirs says Dakota Access is just connecting nodes on the national system.  The real bottleneck had previously been the lack of pipe moving oil from Cushing to the Gulf Coast.  The reversal of Seaway and the opening of Seaway Twin relieved that issue, along with the southern leg of Keystone XL.

Dakota Access “may add a dollar or two for the producers in the Bakken who will not have to absorb the higher costs of transportation,” says Hirs.

Dakota Access, currently under construction, will connect western North Dakota to the Energy Transfer Crude Oil Pipeline Project (ETCOP) in Patoka, Illinois, then on to the Nederland and Port Arthur, Texas area, home to some of the country’s largest refineries. Shippers will be able to access a number of markets, including East Coast buyers, according to Energy Transfer Partners, L.P, the pipeline’s owner.

“That’s a better and cheaper path than going out West and down through the Rockies,” said Bernadette Johnson, managing partner at Ponderosa Advisors LLC, an energy advisory based in Denver told houstonenergyinsider.com.

The pipeline’s capacity could be as high as 570,000 b/d, which would be about half of  the Bakken production.

Hirs doesn’t expect Dakota Access to have much impact on East Coast refineries, which have relied upon light oil from OPEC and Nigeria, in particular.

“As we know, Delta’s refinery chartered Jones Act tankers to bring oil to Philly two years ago when the Bakken producers would not discount their oil enough to sell it,” he said.

Gulf Coast refineries will also see little impact, said Hirs: “These refineries were already the last buyers of any crude coming south and they could play that off of the OPEC crude that lands on the Gulf Coast. And no impact on Texas producers – they have much lower costs of transportation and are competing against OPEC directly.”

Dakota Access

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