The US District Court for the District of Columbia vacated the federal permit that allowed Dakota Access Pipeline (DAPL) to operate while the US Army Corps of Engineers conducted an extensive environmental impact study (EIS). While the pipeline closure is far from a certainty, after numerous actions by Energy Transfer to stay the decision, BTU Analytics has received plenty of inquiries about the downstream impacts of this closure. Without the main artery for moving Bakken crude, other routes out of the basin are expected to be exhausted, with the potential to impact pricing markets downstream. One of those markets is Guernsey, WY, which impacts pricing for PRB and DJ Basin production. While the Energy Bulletin BTU Analytics released to clients earlier this week primarily focused on the expected impacts to Bakken crude flows and pricing, Today’s Energy Market Insight will discuss how an expectation of higher pipeline flows into Guernsey could stress the existing pipeline infrastructure out of that market.
The map below details the pipeline routes that exist out of the Bakken. With DAPL ordered to close by August 5th, the remaining pipeline route out of the basin includes flowing on NDPL into Minnesota to connect with the Enbridge Mainline, north into Canada to also connect with Canadian pipeline infrastructure, and south to flow into Guernsey. NDPL has routinely flowed at capacity since 2015 and Bakken-to-Canada infrastructure is expected to flow below capacity given historically bottlenecked pipeline infrastructure out of Canada. This leaves Guernsey pipeline infrastructure the first route that is expected to fill if DAPL leaves service, before operators turn to rail and Bakken-to-Canada infrastructure for more expensive transport.
The charts below show historical and forecasted pipeline flows into Guernsey from the Bakken (left-side chart), as well as pipeline flows out of Guernsey (right-side chart) through the end of 2020. 2019 pipeline utilization to Guernsey out of the Bakken averaged 68%, implying about 100 Mb/d of spare capacity. This is far below sufficient to absorb all of the 570 Mb/d of Bakken crude that DAPL routinely flows. However, those additional flows to Guernsey lead to a significant increase in pipeline utilization out of that pricing market. This is especially true for pipelines like Platte which haven’t run near full capacity since 2018. After the expected closure of DAPL, BTU Analytics expects pipeline utilization out of Guernsey to reach 95% by the end of 2020. While these higher utilizations could certainly lead to wider pricing differentials, the pipeline network out of Guernsey is still enough to handle the initial impacts of the DAPL closure. However, this may be short-lived. An expansion from Bridger to construct its Equality and South Bend pipelines could deliver additional Bakken crude into the Guernsey market by mid-2021, when DAPL would still be waiting on the final results of its EIS.
BTU Analytics accounts for these potentials impacts in the Bakken, Guernsey, and DJ Basin pricing differential forecasts featured in the Oil Market Outlook. To see all our pricing forecasts, as well as forecasts for global supply-demand balances, request a sample of the report today.