NDPA's Kringstad: Pipeline Point Man

NDPA's Kringstad: Pipeline Point Man
Adding oil pipeline capacity could make North Dakota's long and cold winters a bit easier to deal with -- at least for operating companies.

Adding oil pipeline capacity could make North Dakota's long and cold winters a bit easier to deal with -- at least for operating companies.

"This is an exciting time for North Dakota," said Justin J. Kringstad, Director of the North Dakota Pipeline Authority (NDPA). Indeed, the Peace Garden State is in the midst of an oil boom as exploration and production companies flock to the Bakken Shale Formation in the Williston Basin to extract its bounty of light sweet crude.

The U.S. portion of the Bakken play, located in the Williston Basin province that encompasses much of North Dakota and portions of eastern Montana and northern South Dakota, is believed to hold roughly 4.3 billion barrels of recoverable oil; out of this estimate, North Dakota's share may be 3.1 billion barrels. The U.S. Department of Energy's Energy Information Administration (EIA) last month announced that North Dakota had bypassed Louisiana as the fourth largest oil-producing state in the country. According to the EIA, North Dakota's oil production for June 2009 (the most recent available figure) was 6,452,000 million barrels; Louisiana produced 6,305,000 barrels of oil during the same period. (To be sure, the latter figure excludes production from Louisiana's section of the federally administered Outer Continental Shelf in the Gulf of Mexico.)

The chart below illustrates how North Dakota's monthly crude oil production has essentially doubled since 2006, with the Bakken-driven spike occurring within the past two years.

MONTHLY NORTH DAKOTA FIELD PRODUCTION OF CRUDE OIL
SOURCE: North Dakota Oil & Gas Division

Bakken oil producers increasingly need more efficient ways to ship new production to market. Kringstad, who has a degree in geological engineering and has held energy-related positions in the public and private sectors, is a key figure in facilitating improvements to the state's transmission and gathering infrastructure. He is working with industry, policymakers, regulators, and the general public to achieve that goal.

Crossing A Threshold

August 2008 marked a milestone for North Dakota's energy industry. During that month, oil production from the U.S. portion of the Williston Basin for the first time exceeded the region's pipeline takeaway capacity. North Dakota's crude oil is shipped via Enbridge's North Dakota pipeline system across the northern half of the state, to Tesoro's Mandan Refinery in the central region, and through True Co.'s Butte Pipeline system from the western part of the state to Wyoming via Montana.

In August 2008, oil production from the U.S. portion of the Williston Basin for the first time exceeded the region's pipeline takeaway capacity.

To alleviate the current deficit in pipeline capacity short-term, producers have resorted to other means to move the oil from the well site. "As North Dakota's crude oil production has continued to increase in the past year, rail cars and trucking operations have been utilized to transport incremental production," explained Kringstad, adding that increased reliance on other transport means has its limitations. "The winter of 2008-2009 was very hard on producers as trucking companies had a difficult time moving oil from the well sites."

Harsh winters are a given in North Dakota, and increasing transmission and gathering pipeline capacity is considered the best long-term shipping solution. "In order to meet the long-term forecasted oil production levels, North Dakota will need expanded transportation options," said Kringstad, adding that the NDPA was created by the state legislature in 2007 to facilitate the development of pipelines to support the production, transportation, and utilization of North Dakota energy-related commodities.

Boosting Takeaway Capacity

The Mandan Refinery's processing capacity is 58,000 barrels per day while the Butte Pipeline can export another 120,000 bopd. The Enbridge North Dakota System can ship approximately 110,000 barrels of oil per day (BOPD) out of the Williston Basin. However, the company's "Phase 6 Expansion" project is nearly complete and will raise total system capacity to 161,600 BOPD beginning next February. In addition, the independent oil and gas company and very active Bakken producer EOG Resources is building a rail car loading facility at Stanley, N.D. The Stanley facility will be able to load up to 60,000 BOPD for shipment to a second EOG rail facility at Cushing, Okla. It is expected to begin service by early 2010.

Given the rapid pace at which Bakken production is increasing, the U.S. Williston Basin's daily oil production may well exceed 450,000 b/d by the beginning of the next decade; North Dakota's share alone could exceed 350,000 b/d. Next year, the basin's total takeaway capacity is set to reach 399,600 BOPD.

In addition to its Phase 6 Expansion mentioned above, Enbridge is considering adding another 115,000 BOPD of capacity through its proposed "Portal Reversal Expansion Project" (PREP). The two-phase project would use existing 12-inch pipeline to transport North Dakota crude north into the Enbridge Saskatchewan system and back down to Clearbrook, Minn. Under the first phase, PREP 1, Enbridge would add 30,000 BOPD by as early as 2011. The following year, another 85,000 BOPD could become available to shippers following the "PREP 2" phase. Enbridge has not made a final decision on either PREP phase.

KinderMorgan Energy Partners also may provide new capacity for Bakken oil producers. In May of this year, the company launched an open season for its proposed Bakken Crude Project. The proposed project would use 30,000 BOPD of capacity in the company's existing Cochin pipeline to transport Bakken crude to delivery points in Minnesota, Michigan, and Ohio. Kinder Morgan has neither announced the results of the open season nor decided on whether to proceed with the project, which could begin service as soon as 2011.

With the addition of the PREP and Bakken Crude projects, North Dakota's oil takeaway capacity could nearly double in less than five years. The chart below illustrates how dramatically North Dakota's oil export capacity could increase based on the current and proposed growth plans.

With the addition of the PREP and Bakken Crude projects, North Dakota's oil takeaway capacity could nearly double in less than five years.

NORTH DAKOTA CRUDE OIL TAKEAWAY CAPACITY
SOURCE: North Dakota Pipeline Authority

Despite several unknowns regarding certain infrastructure projects, it is clear that the Bakken will have a dramatic impact on North Dakota's energy industry for decades to come. By virtue of his official role, Kringstad is helping to ensure that decisions made today will offer the state and its energy industry lasting benefits. "The Pipeline Authority works closely with existing and potential pipeline operators to help build a better understanding of what infrastructure will need to be in place to meet future production levels," concluded Kringstad, who welcomes inquiries from producers and others with a stake in getting Bakken crude to market. "The Pipeline Authority is always excited to provide support to companies interested in expanding the transportation or refining capacity in the Williston Basin."

Matthew V. Veazey has written about the oil and gas industry since 2000. Email Matthew at mveazey@rigzone.com

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