It’s no secret that the Bakken shale formation is successful. In June, the formation produced over 660,000 barrels per day of oil just in North Dakota. Its natural gas output is even higher.
Production is continuing to increase. As this happens, more and more crude will need to be shipped from the wells to refineries. And there isn’t enough pipeline capacity to support this.
Once it receives approval, which many expect it will, TransCanada’s (NYSE: TRP) Keystone XL pipeline will support this transportation. But it hasn’t received approval. And once it does, it needs to undergo construction, which will take a year or two.
From The Street:
TransCanada said in a press release in May that it “expects to begin construction of Keystone XL in the first quarter of 2013, with completion slated for late 2014 or early 2015.”
And that’s the problem with relying on pipelines in general for the Bakken. Production in North Dakota doubled in less than two years. It will take a lot longer than that to construct the pipelines required for that sort of growth.
Currently, around 62% of Bakken crude oil is shipped through pipelines, while roughly 25% is shipped by rail. And since pipelines will be difficult to rapidly increase, rail lines will be picking up the slack.
This week, Berkshire Hathaway’s (NYSE: BRK.A) BNSF Railway Co. said it will increase its North Dakota rail capacity to one million barrels per day of crude oil.
It has already increased its capacity 25% this year, the company said, with an investment of $197 million. It will further expand its capacity to include trains with 118 tanks instead of 100, an additional 560 Bakken employees, two new terminals, and 121 miles of replaced rail.
The company has increased its capacity exponentially since it began shipping, with 7,000% growth from five years ago and an increase in capacity of 87.6 million barrels since 2008. This year, BNSF expects to have shipped 88.9 million barrels of crude from the Bakken.
From Bloomberg:
“We see this trend continuing,” Dave Garin, BNSF group president for industrial product, said in a statement.
And as it continues, pipelines won’t be able to support it. There are a number of pipelines planned for the Bakken, but they won’t be constructed quickly enough to support the Bakken’s rapid growth.
Rail lines, on the other hand, will. And companies are starting to turn to them more.
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Tesoro Corp. (NYSE: TSO), Phillips 66 (NYSE: PSX), and Statoil ASA (NYSE: STO) all have rail cars by which they can ship their crude. And other rail companies, like Canadian Pacific Railway (NYSE: CP), are upping their involvement in shale.
And it’s a smart move, as the EIA released a report in June anticipating the doubling of U.S. shale oil prospects in just 24 years.
Rail lines will likely become increasingly more involved in the shale oil process. Unlike pipelines, they don’t require years for approval and construction – they’re already there. All that’s needed is the commitment of the rail lines and the involvement of the drilling companies.
That’s all for now,
Brianna Panzica
@brianna_panzica on TwitterEnergy & Capital’s modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends.
