BISMARCK, N.D. — The percentage of North Dakota oil shipped by pipelines has dramatically slipped in the past year as producers have turned to trains to reach faraway U.S. refineries where premium prices are fetched based on foreign crude prices.
But state and industry officials believe the pendulum may be swinging back in favor of pipelines as the price differential narrows between domestic and overseas crude.
“I’ve heard the price spread has dropped over the past few weeks and the barrels have been racing to the pipes again,” Ron Ness, president of the North Dakota Petroleum Council, said in an email Thursday. “Market options are good for any producer.”
Rail shipments accounted for about three-fourths of the record 794,000 barrels of crude produced daily in April, said Justin Kringstad, director of the North Dakota Pipeline Authority. Trains accounted for only 39 percent of the North Dakota’s oil shipments for the same month a year ago, data show.
“Rail has not only been able to meet the needs of producers, it has exceeded the needs by providing that extra value to North Dakota crude oil,” Kringstad said.
Pipeline shipments of sweet crude from the state’s rich Bakken and Three Forks formations slid from 21 percent of total production in March to 17 percent in April, Kringstad said, citing the most recent data available.
North Dakota has become the U.S.’s second-biggest oil producer behind Texas, but its infrastructure wasn’t capable of keeping up with the rapid growth of the oil industry. The problems that North Dakota producers have had in getting their product to market has forced them to sell for up to 30 percent less than the benchmark price for light sweet crude that’s set in Cushing, Okla., the major crude hub where most U.S. shipments are sent.
In 2008, with an oversupply problem in Cushing, North Dakota reached its then-capacity for pipeline shipments of 189,000 barrels per day, leading producers to begin shipping by train to new markets.
Billions of dollars in rail and pipeline facilities have been built over the past few years, bumping North Dakota’s current rail shipping capacity to about 800,000 barrels daily and about 583,000 barrels by pipeline.
As options and capacity increased, producers found willing and lucrative buyers in coastal refineries that had relied on foreign crude but were not served by North Dakota-linked pipelines. These refineries would pay prices comparable to more expensive Brent crude, the global benchmark used in pricing oil imported by U.S. refineries.
Kringstad said a barrel of West Texas Intermediate, the light sweet crude North Dakota produces, has been more than $20 cheaper than a premium Brent barrel over the past year, but the gap recently narrowed to less than half of that. WTI prices on Thursday were about $95 a barrel, compared to about $103 a barrel for Brent crude.
A barrel shipped by rail typically costs $2 to $3 more than if it were shipped by pipeline, Kringstad said.
“Spending an extra $2 or $3 to get an extra $8 — it’s not tough to see what the incentive is,” Kringstad said. “But since the price has narrowed, producers are reassessing their options. It’s all market driven with pricing.”