The need for the controversial and delayed Dakota Access Pipeline is falling along with the production of oil from the Bakken Shale in North Dakota and Montana, said Sandy Fielden, Morningstar’s director of oil and products research.
While the completion of the Energy Transfer Partners-led pipeline project is being delayed under the Obama administration, it will almost certainly be approved once Donald Trump take office, Fielden wrote in an analyst note.
However, the lower oil production levels coupled with the glut of crude coming from West Texas mean there will be less demand for the pipeline once it comes into service next year, Fielden wrote.
The $3.8 billion, nearly 1,200-mile pipeline runs from North Dakota to terminal and refining hubs in Illinois. From there, it connects to an existing pipeline system that will ship the crude to Nederland, Texas and all the Gulf Coast refineries.
The existence of the pipeline likely will encourage some additional Bakken production. “However, any upside in North Dakota will be tempered by competition for refiners’ attention in the Midwest and Gulf Coast, with the Gulf Coast market looking oversupplied,” Fielden wrote.
Even if the Dakota Access Pipeline isn’t a big earner in the near future, it still holds long-term value, said Brandon Blossman, an energy analyst with Tudor, Pickering, Holt & Co. in Houston. Energy Transfer is banking on the pipeline being the primary channel for Bakken crude for many years to come.
“Over time, getting a piece of infrastructure in the ground is going to be valuable. Period,” Blossman said. “These are 50-year projects.”