A US district court has ruled that the largest outbound Bakken pipeline — the Dakota Access Pipeline or DAPL — shall be emptied within 30 days. If this decree remains in place, hundreds of thousands of produced barrels per day will lack an export route in 2020, Rystad Energy estimates, as alternative options such as other existing pipelines or railway transportation will not be able to fully take on the burden until next year. If we assume that DAPL is unavailable for transportation from August 2020 and that rail exports remain at 300,000 bpd, that leaves around 750,000 bpd of available pipeline capacity (assuming maximum utilization) and local refining demand. Initially, this sounds like more than enough to absorb the 900,000 bpd of Bakken oil production from May 2020. However, we must remember that production declines in April and May were predominantly driven by curtailments; most of these volumes will come back during the summer, assuming that a $40 WTI environment persists. The reactivation of curtailments will likely push statewide oil output back to an average of 1.2 million bpd in 2H20. Hence, with 300,000 bpd rail exports, remaining pipelines and local refineries alone will need to absorb 900,000 bpd of production. This scenario is practically impossible in the short-term, and in reality, existing infrastructure cannot even deliver 100% utilization on its theoretical 750,000 bpd capacity. It is possible to achieve a modest increase in the utilization of outbound pipelines going west (Double H and Butte) as competing Rockies production will naturally decline, especially as the Powder River Basin has been most hard hit by the downturn in terms of medium-term impact. Nevertheless, in our view, only 50,000-70,000 bpd out of 200,000 bpd of spare capacity can be utilized in the short-term. And when it comes to the idled Enbridge Bakken Expansion Program, the persistent price weakness in Clearbrook cannot sufficiently incentivize the resumption of expansion work. Hence, if DAPL is actually emptied, a massive ramp up of rail exports will be required in 2H20, as soon as curtailed volumes are back online and Bakken output has returned to 1.1 million-1.2 million bpd. Taking into account the fact that other pipelines are not able to reach full utilization, we estimate that rail exports will have to absorb more than 600,000 bpd of Bakken production in 2H20 — twice as much as what was exported in 1Q20. On paper, we see around 1 million bpd of unutilized rail export capacity. But historically, we have seen that rail exports cannot be ramped up quicker than 150,000 bpd per quarter. Hence, we should not anticipate that rail exports would reach the required capacity before the end of 2020. "There is a risk for significant bottlenecks and local differentials will be completely blown out as soon as DAPL becomes unavailable. It is already possible that some E&Ps in Bakken will consider the delayed reactivation of curtailments as a potential risk, given the lack of attractive transportation options from Bakken in 2H20," said Artem Abramov, Rystad Energy's head of Shale Research. DAPL kicked in with 520,000 bpd of capacity in 2017 and was ultimately expanded to 600,000 bpd. It flowed close to full utilization for the major part of 2019 and 1Q20. However, it did not completely eliminate rate exports as basin wide production continued to increase, and other pipeline options became less attractive. Other outbound pipelines in the region have generally seen low utilization rates in the last two years, and rail exports a have continued to transport around 300,000 bpd or 20% of total statewide oil output. — Rystad Energy
