In last week’s MLP Investing Insider, I discussed my recent trip to the Bakken formation. The Bakken is part of the Williston Basin, which lies under parts of North and South Dakota, Montana, southwestern Manitoba and southern Saskatchewan — and it is the region I consider to be the epicenter of the shale oil boom in the U.S. The shale revolution that unlocked huge new supplies of oil and gas in the region created a number of challenges and opportunities for companies doing business in the area.

Early on, there wasn’t enough housing to accommodate the oil workers migrating to the Bakken. This sparked a construction boom, but just about anyone with a spare room to rent was able to make a few dollars off this temporary opportunity.

The same was true for many other service industries. A lot of money flowed through the economy, and after workers finished paying the steep costs for limited housing, they spent much of what was left in the many new restaurants and stores that sprang up to serve the growing population.

The railroad industry was also one of the early beneficiaries. The Bakken wasn’t historically a major oil or gas-producing region, so there wasn’t a lot of infrastructure for moving these commodities to market. This resulted in a lot of flaring of natural gas that was a byproduct of oil production — which I discussed in last week’s issue. Flaring has diminished as natural gas pipelines have been built, but there are still numerous flares like this one dotting the Bakken:


The rapid expansion of crude oil production also allowed the railroads to become the transport option of choice for moving oil to distant markets. In less than three years railroads including Berkshire Hathaway’s (NYSE: BRK-A) BNSF Railway increased crude shipments by over 700,000 bpd.

This year, however, the volume of oil being moved by rail has fallen by about 200,000 bpd. Some of this can be explained by flattening oil production as a result of the price crash, but the other major factor is that pipeline infrastructure is finally beginning to catch up.  

Rail loading facilities and pipeline capacity in the Bakken have both experienced explosive growth in recent years. In just the past two years, rail loading facilities have added 625,000 bpd of capacity, bringing the total to nearly 1.5 million bpd. Over that same time frame, pipeline capacity increased by nearly 250,000 bpd to reach 827,000 bpd. The North Dakota Pipeline Authority projects that over the next two years pipeline capacity will balloon to 1.53 million bpd with major projects from Enbridge (NYSE, TSE: ENB) and Energy Transfer Partners (NYSE: ETP).

Of the current pipeline capacity, 68,000 bpd feeds Tesoro’s refinery in Mandan, North Dakota. The Butte Pipeline, operated by Bridger Pipeline LLC, is a 260,000 bpd crude oil pipeline system from Baker, Montana to Ft. Laramie and Guernsey, Wyoming.

Enbridge’s North Dakota mainline moves 210,000 bpd from the Williston Basin to a terminal in Clearbrook, Minnesota.  Enbridge’s Bakken Pipeline Expansion added another 145,000 bpd of pipeline capacity out of the Bakken. Thus Enbridge now owns 43% of the crude oil pipeline export capacity out of North Dakota, but this is down from the 61% share it held just two years ago.

Plains All American Pipeline’s (NYSE: PAA) Bakken North pipeline project came online in 2014 with a capacity of 40,000 bpd. Kinder Morgan’s (NYSE: KMI) 84,000 bpd Double H pipeline rounds out the Bakken’s crude oil pipeline capacity. The Double H interconnects with Pony Express Pipeline for transportation to the Phillips 66 (NYSE: PSX) refinery in Ponca City, Oklahoma, or the Deeprock Terminal in Cushing, Oklahoma.    

In this month’s MLP Profits, I will focus on the companies processing natural gas and transporting natural gas, natural gas liquids and finished products in the Bakken. I will also provide updates on the pending crude oil pipeline and rail loading projects.

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