Producers in what in what had been a persistently takeaway-short Williston Basin have gained more bargaining power at the transportation-cost table. Energy Transfer Partners LP (ETP) is currently building the 1,172-mile, 30-inch Dakota Access Pipeline from Stanley, N.D., to the Patoka, Ill., crude oil pipeline hub and its direct connections to Midwest refineries and the East and Gulf coasts.

Meanwhile, ETP’s Energy Transfer Crude Oil Pipeline project (ETCOP) will add to Patoka’s connectivity through the repurposing and reversal of what had been a lightly used natural gas pipeline. The 744-mile ETCOP project will link Patoka with the Nederland, Texas, crude hub on the Gulf Coast.

Dakota Access was expected to be online late this year, but securities analysts now project a 2017 start-up due to regulatory delays in Iowa and tribal protests in North Dakota. Initial transport will be 450,000 barrels a day (bbl/d), according to ETP; capacity will be 570,000 bbl/d.

Jean Ann Salisbury, a senior analyst for Bernstein Research, reported earlier this year that falling Bakken output and the completion of Dakota Access “will leave the basin with excess transport capacity. Some 400,000 daily barrels of Dakota Access capacity is under contract, so the rails and other pipelines will lose flows.”

Sandpiper’s future

How Salisbury’s projection turns out depends on what happens to the proposed but oft-delayed 225,000 bbl/d Sandpiper Pipeline, sponsored by Enbridge Inc. Knowing a good thing when it sees it, Enbridge instead joined the Dakota Access project in the third quarter, along with Marathon Petroleum Corp.—a move that probably killed Sandpiper. Sunoco Logistics LP and Phillips 66 Co. are ETP’s original partners in the $3.8-billion Dakota Access project.

Enbridge and Marathon, instead, announced a $2 billion joint venture (JV) to purchase an interest in Dakota Access. Marathon then terminated its commitment to be Sandpiper’s anchor shipper. Sandpiper has faced numerous regulatory delays and protests in Minnesota. Enbridge said in a statement it was withdrawing Sandpiper’s regulatory applications and deferring the project beyond its current, five-year capital plan.

Marathon Petroleum announced in 2013 that it would fund 37.5% of the construction of the $2.6-billion Sandpiper, which is proposed to carry crude from northwestern North Dakota to Superior, Wisconsin At the time, Sandpiper was expected to be in operation early this year, but regulatory delays prevented construction from ever starting.

Rightsized capacity

Justin Carlson, vice president and managing director of research for East Daley Capital Advisors, told Midstream Business that transportation capacity nto the region could come into balance if Dakota Access goes in and Sandpiper Pipeline is not built.

“For the Bakken, we may have gone from really long to rightsized if the markets continue to stay in a good position,” Carlson said. “Obviously if oil prices go to $30, then I think we will be really long again.” He added, “The infrastructure may be well-positioned, from a pipeline perspective, to grow into what is planned—if Sandpiper is officially sidelined.”

Rail, which has dominated Bakken takeaway crude capacity, is set to drop substantially. Producers that are using rail pay some $10/bbl; using the pipeline will keep $4 to $5 in their pockets, Salisbury wrote, based on a $5 to $6 tariff on Dakota Access.

“Rails currently sending crude east and south will likely see flows disappear ….” In addition, he said, “existing midstream operators without take-or-pay contracts are also likely to face headwinds.”

Sagging production

Early in the third quarter, Genscape estimated outgoing Bakken pipeline capacity at around 641,000 bbl/d. Once Dakota Access becomes operational, the play’s pipeline capacity will rise to 1.21 MMbbl/d, t said. The U.S. Energy Information Administration estimated Bakken crude output would rise to 896,000 bbl/d early in the fourth quarter, which would still be well below a peak above 1 MMbbl/d at the end of 2014.

East Daley projects that Bakken production will remain flat at current rilling rates with around 30 to 35 rigs currently active. That rig count is up from in the twenties earlier this year.

“There will be some upward movement if oil prices improve,” Carlson said, noting crude prices at $50 or better could cause Bakken production to tick upward to 1.2 to 1.3 MMbbl/d from the current rate. The research firm places total Bakken pipeline capacity at 1.24 MMbbl/d when Dakota Access enters service.

Dakota Access, like Sandpiper, faces opposition. The Standing Rock Sioux Tribe has led multiple protests, some of which turned violent. North Dakota’s governor ordered an “emergency evacuation” of demonstrators following construction equipment vandalism and the onset of cold weather. Tribal chairman David Archambault II was among the protestors— some on horseback—arrested for interfering with construction. The pipeline will cross the Missouri River north of the Standing Rock reservation, parallel to the gas-carrying Northern Border Pipeline that has been in place since the early 1980s. The tribe’s protests have become a cause célèbre for environmental activists and have attracted several famous Hollywood personalities.

Two federal courts ruled in favor of the project in September and October but the Army Corps of Engineers, which controls the land disputed by the Sioux, had not allowed work to resume by November. The tribe argues that the pipeline threatens sacred sites and poses a risk to its water supply.

Changing price dynamics

Jack Stark, Continental Resources Inc. president and COO, told Midstream Business that transportation costs out of the basin have declined significantly during the past three years. “It is one of the key changes happening in the Bakken,” he said.

With Dakota Access coming online, “we will have more pipeline takeaway capacity in the basin than production,” he said. “We will have well over 1 MMbbl/d in pipeline takeaway capacity, while we’re producing approximately 1 MMbbl/d from the basin. That really changes market dynamics and provides more optionality for producers.”

Currently, some 80% of Continental’s Williston Basin production is shipped via pipe. “In 2010 and 2011, we were asking, ‘How are we going to get this oil out of this basin?’ In 2013, approximately 80% of our oil was shipped by rail. Now, we may have excess takeaway capacity with pipe alone,” Stark added.

Continental produced 129,000 barrels of oil equivalent per day (boe/d) from North Dakota in the first quarter of 2016.

At Whiting Petroleum Corp., which produced 125,000 boe/d from the basin in the first quarter, “we still have a little bit of rail, but almost all of it is [shipped via] pipeline,” Mark Williams, senior vice president, exploration and development, told Midstream Business.

Greg Hill, Hess Corp. president and COO, said that the company is in fine shape to meet its minimum-volume commitments (MVCs) out of the basin.

“We are facing a few MVC [issues] on the trains, but it’s not material to us financially,” he told Midstream Business. “It’s better to shove as much into pipe now as you can.”

Differential declines

Mark Pearson, president of privately held Liberty Resources LLC, told Midstream Business that the company’s differential has declined to between $6 and $7. Years back, it was as much as $15, “but for the most part, in the past three or four years, it has been in the $6 to $8 range. We’re hopeful, with the additional pipeline capacity coming on, that that will continue to narrow,” he said.

Marc Rowland, founder and senior managing director of nonoperating producer IOG Capital LP, said that spare capacity is also due, in part, to the 186,000 bbl decline in daily North Dakota output between December 2014 and April 2016; the rest is primarily the result of new pipeline.

The impact on the crude-by-rail business has been dramatic. Based in Dallas, Rowland was visiting in Oklahoma last spring. “There must have been 500 cars sitting idle in the rail yard” that he visited, he told Midstream Business. “For a long time, rail was the way to take surplus barrels out. It was virtually the only way.”

Across the U.S., some producers are experiencing an inability to meet MVCs due to capital constraints that are preventing new-drill investment.

“Some of these obligations will be resolved by courts and some will be renegotiated,” Rowland said.

Go west

But some Bakken crude still moves out by rail, mostly to the West Coast—a route with no competing pipelines and virtually no prospects of ever having any.

A quartet of pumpjacks on a Whiting Petroleum Corp. lease in Williams County, N.D., keeps the big tank battery in the background filled. Source: Hart Energy Phillip M. Anderson, president of Tesoro Logistics LP, told Midstream Business that the MLP continues to make sizeable crude-by-rail shipments westward to supply the 120,000-bbl/d refinery its parent, Tesoro Corp., operates at Anacortes, Wash., north of Seattle.

“Tesoro’s Anacortes refinery has historically relied on a steady mix of Alaskan and Canadian crude oil supplemented by imported barrels from all over the world,” Anderson said. “The Bakken barrel works really well with the configuration of that refinery and produces a better slate of products than ANS [Alaska North Slope crude]. A large portion of the refinery diet is now made up of Bakken, and it gives them some additional flexibility to fill out the remaining slate that still consists of a lot of Canadian and ANS crude.

“The western U.S. is unique to the extent that there are very few interconnected, core crude oil and product pipelines, and a reliance on marine assets to move products between key market hubs,” he added. “One of our key drivers over the years has been the ability to grow our logistics capabilities organically to serve enhanced access across our footprint.”

Shifting logistics

Tesoro Logistics also operates a major Williston Basin crude gathering operation that, in part, supplies Tesoro’s 74,000 bbl/d refinery a Mandan, N.D., outside Bismarck. He noted “a significant shift” in the Bakken’s midstream logistics as production declines and new pipeline capacity becomes available. “Our system has always been dedicated to aggregating crude oil and bringing it to multiple market hubs.”

Tesoro is expanding in the region, including the purchase of North Dakota’s only other refinery, Dakota Prairie, at Dickinson, N.D., from a JV between MDU Resources Group Inc. and Calumet Specialty Products Partners LP. Dakota Prairie—the first new U.S. refinery in many years—opened in May 2015 and has a capacity of 20,000 bbl/d. Tesoro plans to continue to market its ultra-low sulfur diesel to local customers and utilize the plant’s naphtha and reside in its integrated value chain system, Anderson said.

Williston Basin pure-play Oasis Petroleum Inc. has been exploring options for a partial monetization of its midstream business. Taylor Reid, president and COO, told Midstream Business recently. “We’re still looking for partners— ideally a financial partner.”

Mike Kelly, senior analyst for Seaport Global Securities LLC, estimates the unit’s value could be $1 billion or more, but the “potential monetization … may be on hold.” As oil prices have been improving, Oasis’ leverage ratio has been cast in a better light, Kelly reported. “… We now wouldn’t be surprised to see Oasis de-risk the asset in hopes of a higher multiple—we think 10x or more—after doubling [the unit’s]EBITDA to some $130 million by year-end 2017.”

What about the gas?

Then there is natural gas. Bakken wells are abundant liquids producers, but most also flow a significant amount of gas. The problem has been that, collectively, the wells don’t quite produce enough gas to warrant a separate gathering and processing infrastructure. That led to widespread flaring in the first years of the Bakken boom, which brought protests from the politically strange bedfellows of royalty owners and environmentalists. The state responded and placed limits.

“From a North Dakota perspective, I don’t see the value of building another gas pipeline when you have infrastructure that is either able to be repurposed or there are volumes to displace,” East Daley’s Carson said. “Canada still brings in quite a bit of gas volume to the U.S. From a Bakken standpoint, producers can price themselves nto that market, especially since they are mostly concerned with the oil, and the gas takeaway is a necessity to capturing all of the volumes.”

Whiting had far exceeded North Dakota’s minimum gas-capture rule in the second quarter of this year, with 94% captured. The deadline for operators to capture at least 85% of their produced associated gas was Nov. 1, which was postponed by the state late ast year from Jan. 1.

For privately held Resource Energy Partners LLC, an operator in northwestern North Dakota, gas infrastructure is already in place. CEO Paul Favret told Midstream Business that “most operators are certainly not making money on their natural gas, and it is a cost center in our operations. But it is a requirement.”

Tudor, Pickering, Holt & Co. Inc. analysts noted that 90.3% of North Dakota gas production was being captured earlier this year, according to a state report—the greatest percentage since 2007, when most of the state’s production was from legacy wells in conventional formations. That rate was accomplished while daily associated-gas production grew by 20.5 million cubic feet per day (MMcf/d) to just more than 1.7 billion cubic feet per day (Bcf/d).

Contributing to the growth, despite a reduced rig count, is producers’ focus on drilling only in the well-established core of the Bakken play. In the core of the basin, “gas-oil ratios tend to be higher,” the analysts said.

ONEOK’s plans

ONEOK Partners LP is the dominant as gas gatherer and processor in the Williston, and its system across western North Dakota and eastern Montana includes 6,900 miles of gathering lines and nine processing plants that can process 615 MMcf/d. Producers dedicated some 3 million acres to the system. It planned to bring its new Bear Creek processing plant online during the third quarter.

“We added nearly 85 new well connections in the Williston Basin during the second quarter,” CEO Terry Spencer said in the MLP’s second-quarter conference call. “There are 19 rigs currently on our dedicated acreage, along with approximately 350 drilled but uncompleted [DUC] wells in inventory.”

As with the nation’s other shale plays, the longstanding question of what to do with the ethane in the raw gas stream could be answered in another year or so. Spencer’s presentation noted that ONEOK Partners projects an additional 35,000 bbl/d of ethane demand in the immediate future as new U.S. petrochemical plants start up and ethane exports grow. He added that, systemwide, growing ethane demand could be worth an additional $200 million in annual earnings for ONEOK as ethane rejection ends.

Watch for DUCs

Those DUCs—and that potential uptick in ethane demand—are crucial for ONEOK’s success in the play, Baird noted in a research report following the partnership’s second-quarter earnings announcement.

“Our primary concern remains the long-term volume outlook in the Bakken, specifically how much behind-pipe well connection and drilled-but-uncompleted inventory remains to cushion the inevitable declines in volumes from the cessation in drilling,” the report said.

“Secondarily, [ONEOK Partners’] valuation may be at risk if the ethane recovery story does not arrive as early or as fully as envisioned by the market consensus.”

ONEOK projected in a third-quarter nvestor presentation that its Williston gas gathering system is projected to capture 30 to 40 MMcf/d of previously flared gas. The company said approximately 350 DUCs on acreage dedicated to ONEOK will more than offset natural production declines as they are completed and turned on.

ONEOK also holds a 50% interest in the 2.4 Bcf/d capacity Northern Border Pipeline, the key gas transmission system crossing the region from Canada to the Midwest. TransCanada’s TC PipeLines LP owns the balance of Northern Border and operates the system.