Bakken crude seen as de-coupling from WTI: Barclays

Infrastructure constraints bedevil an oil boom

February 29, 2012

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Watch for Bakken crude to become de-coupled from West Texas intermediate (WTI) crude oil this year, Barclays Capital says.

Infrastructure constraints in the sprawling Midwestern formation – where production averaged above 400,000 barrels per day last year – have seen producers increasingly turn to railcars as a way to move crude oil to market, but some barrels are more “distressed” or stranded than others, says Paul Horsnell, head of commodities research for the London-based bank.

“We see the potential for Bakken volumes to be weak relative to WTI regardless of where WTI is in relation to [North Sea] Brent or other markers,” he told reporters as Barclays released its 2012 Global E&P Spending Survey. “Bakken isn’t just a case of you find oil and you produce it. You find oil and then you’ve got to find some way of getting it out at a reasonable cost.”

The infrastructure shortfall underpins growth plans put forward by a an affiliate of Calgary-based Enbridge Inc. Construction is expected to begin this spring on a $180-million pipeline proposed by Enbridge Bakken Pipeline Limited Partnership.

The 124-kilometer Bakken Pipeline Project is designed to move roughly 150,000 barrels of light crude oil north to connect with the Enbridge mainline system at Cromer, Manitoba, via a new pump station at Steelman, Saskatchewan.

The project won approval from the National Energy Board late last year, despite the fact that Enbridge had only secured shipping commitments to fill 68 per cent of the pipeline’s capacity.

In its approval, the board noted that “technological advancements in drilling and exploitation, as well as improved understanding of the resource potential” in the Bakken and the nearby Three Forks formation “have resulted in higher resource assessments and rapidly growing supply capability” in the region. A drilling boom is under way, in other words, and North Dakota needs as much infrastructure as it can get.

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