Development of the Bakken oil and gas shale play in northwestern North Dakota and northeastern Montana is spurring development of several new pipeline systems, as operators are working to insure that transportation infrastructure will meet the region’s future oil and gas transportation needs.

These projects include expansion of existing facilities and as well as plans for brand new oil and gas gathering systems, gas transmission systems, and crude oil trunk lines. To keep the gas flowing, new compressor stations will be built and horsepower will be added at existing stations.

In addition, new gas processing facilities are being planned and existing plants are being expanded to monetize the growing amount of marketable natural gas liquids (NGLs) being produced in association with the Bakken crude oil and natural gas.

Crude Oil Pipelines

The Bakken shale play has received significant publicity as the next major crude oil resource for the North American market. And, with expected increases in crude output, officials are tracking production rates and measuring them against pipeline capacity to insure that the region’s transportation infrastructure can meet future needs.

According to North Dakota’s Pipeline Authority, crude oil transportation capacity is scheduled to expand by 86% through 2010, as measured against a 43% projected growth in the state’s crude oil production. In 2007, pipeline and refining capacity totaled 230,000 b/d, slightly ahead of peak petroleum production of 229,403 b/d. The 229,403 b/d is Williston Basin production, which includes crude oil from North Dakota, South Dakota, and eastern Montana. This year, capacity has increased to 327,000 b/d, and by 2010, total crude petroleum transport capacity will increase to 378,000 b/d. That is 50,000 b/d ahead of projected peak production of 328,000 b/d.

“We at the Oil and Gas Division have worked with the governor’s office, Industrial Commission, and private industry to make sure that our energy has outlets to find its way to market,” said Oil and Gas Division Director Lynn Helms. “That has meant increasing not only pipeline and rail capacity, but also working to enhance processing and refining facilities to help capture these valuable resources.”

Officials are very aware of price and pipeline capacity issues, which, if unresolved, could hinder continued acceleration in the development of the Bakken Formation. As production in Montana and North Dakota increases, the existing transportation system is becoming something of a bottleneck. The existing pipeline system for the Williston Basin area, which is also used for movement of imported Canadian tar sand oil, is fully utilized. Rather than sell oil at a discounted price to get it into the pipeline, some US operators have announced shut-ins and postponements of drilling.

The states of Montana and North Dakota are both actively working with operators and pipeline companies to address the issue of capacity shortages. In May 2006, Governor John Hoeven of North Dakota hosted a summit with legislators, oil industry officials from both the US and Canada, pipeline companies, producers, and railroad officials to help address the challenge of increasing oil pipeline capacity in western North Dakota. “We’re producing more oil, and we need to be able to get it to market so our producers and mineral owners do not suffer unfair discounts,” Hoeven said. “We’re developing more pipeline capacity and taking other steps to solve the problem.”

These other steps include investigating transportation via railroad tank cars. “More supply is also how we get the price down at the pump to help consumers,” Hoeven added.

Crude oil shipped from the Williston Basin in North Dakota and Montana has incurred discounts because of competition for pipeline space. Reduced capacity is attributed to an increase in production, combined with limited pipeline space and a temporary reduction in refinery capacity. In April 2006, the pipeline system was about 15,000 b/d short of needed capacity in western North Dakota. As of May 2006, about 6,000 b/d were restricted by capacity. That’s one reason why North Dakota Petroleum Council President Ron Ness recently told state legislators that even while crude oil pipelines are already being expanded to send more North Dakota oil to market, still more new lines will be needed. “We’re going to need another major outlet for crude oil before we’re done,” Ness said.

On Sept. 21, 2006, the North Dakota Public Service Commission approved the site of a 52-mile oil pipeline that parallels a stretch of existing oil pipeline in Williams County in northwestern North Dakota. Enbridge Pipelines North Dakota LLC already has approval to install larger pumps along the existing line. Enbridge wants to increase its pipeline carrying capacity in the region by at least 30,000 b/d, and these new facilities may be able to take up to 45,000 extra barrels daily.

Other planned pipeline expansions include:

Enbridge Phase V, which will increase capacity from 80,000 b/d to 110,000 b/d in January 2008; and Enbridge’s Phase VI, which will increase capacity by 51,600 b/d to a total of 161,600 b/d by 1Q 2010.

Enbridge is also actively exploring the best proposal for additional expansion, including a link between North Dakota and Canada. The proposal has received positive feedback from shippers, and is only one of the options Enbridge is currently exploring.

Other notable pipeline-related projects include:

Butte Pipeline will introduce a drag-reducing agent in its pipeline system to Guernsey, Wyoming, which should increase export capacity by 10,000 to 12,000 b/d, to be completed before year-end; and

TransCanada’s Keystone pipeline project and its related expansion, which involves the construction of a major international system that will cross through eastern North Dakota (Keystone pipeline, 480,000 b/d) and eastern Montana (Keystone XL, 500,000 b/d). These projects will relieve Canadian oil sands pressure on the Guernsey, Wyoming, hub and can be tapped into to carry Williston Basin crude oil.

Natural Gas Transmission

While the Bakken shale play has gained publicity as a crude oil-bearing formation, the growing amount of drilling efforts there are leading to the development of new gas transmission lines, and the expansion of existing gas transmission facilities, to get the gas production to market. MDU Resources Group Inc., one of the key players in the region, has announced two new major pipeline projects that are designed to increase natural gas transportation capacity from the Bakken shale play.

In May 2008, Williston Basin Interstate Pipeline Co., the wholly owned natural gas transmission pipe-line subsidiary of MDU Resources Group, announ-ced plans to build a new natural gas pipeline to transport gas from the Bakken play to a new pipeline interconnect with Alliance Pipe line system. The proposed Bakken pipeline will consist of about 100 miles of 16-in. pipeline, compression, and associated facilities. It will begin at an interconnect with Williston Basin’s existing pipeline system in Mountrail County, North Dakota, and will run northeasterly to a new pipeline interconnect with Alliance Pipeline in Bottineau County, North Dakota. The Bakken Pipeline is anticipated to have an initial capacity of about 100 MMcfd, with the flexibility to expand capacity to 200 MMcfd. The company said the pipeline is projected to be in service in mid-2010, subject to shipper commitment and regulatory approval.

Williston Basin Interstate Pipeline Co. has also announced plans to expand its existing Grasslands pipeline system, to add further natural gas transportation capacity. Placed in service in December 2003, the 253-mile, 16-in. Grasslands pipeline runs from the Powder River basin in northeastern Wyoming to western North Dakota, where it connects with the Northern Border pipeline system. The Grasslands expansion will include the construction of two new compressor stations; one will be in western North Dakota near Golva, the other in the far corner of southeastern Montana near the Wyoming border. Additional horsepower also will be added to an existing compressor station near Manning, North Dakota. The expansion project will add an additional 75 MMcfd to the system’s existing capacity of 138 MMcfd.

In July 2008, Williston Basin conducted an open season on the Grasslands expansion project seeking customer commitment for additional transportation capacity. Strong customer demand for the pipeline capacity pushed the project to full capacity of 213 MMcfd. The project cost is expected to be about US $28 million and the targeted in-service date is August 2009, pending timely receipt of the necessary regulatory approvals.

“We built the Grasslands Pipeline with future expansion in mind, and we are more than pleased to have reached full capacity on the pipeline in just over five years,” said Terry D. Hildestad, president and chief executive officer of MDU Resources. The Grasslands pipeline held an initial capacity of 80 MMcfd when it was placed in service in late 2003. Since installation, the pipeline has been incrementally expanded, bringing the firm pipeline transportation capacity on that segment to its current total of 138 MMcfd. “Our interstate pipeline system runs through the heart of several active energy production regions, including the newly developing Bakken Play, and we are playing a role in getting this energy to the marketplace,” Hildestad said.

In fact, MDU Resources said it is making a number of long-term investments in the development of the Bakken’s energy resources, including oil
and natural gas, through three of its subsid-iaries: Fidelity Exploration and Production Co.; Bitter Creek Pipelines, LLC; and Williston Basin Interstate Pipeline Co. Fidelity, an oil and natural gas production business, expects to participate in approximately 50 to 60 Bakken wells in 2008, of which about one-half will be drilled and operated by the company. Meanwhile, Bitter Creek is reviewing plans to build gathering pipeline infrastructure in the Bakken to gather natural gas produced in conjunction with the oil to move it to larger pipelines for transport to final destinations. The subsidiary is also actively investigating participation in the construction of natural gas processing facilities in the Bakken.

Gas Processing Facilities

With the increase in natural gas production, there is also a growing amount of associated natural gas liquids being produced in the Bakken play. These NGLs include naturally occurring propane, butane, and several others that have great value in the marketplace. The need to treat the gas and separate these NGLs into marketable products, in turn, has led to the planning and construction of several new gas processing facilities and the expansion of existing plants.

In particular, the Bakken formation wells drilled in Williams and Mountraill County, North Dakota, have spurred the planning and construction of four gas processing plants there. The four new gas plants – all roughly between Ray and Stanley – join eight existing plants in the western-most counties that are already processing oil-related natural gas. The gathering lines that collect the gas at the wells and take it to new processing plants are in place, but the challenge now is building transmission-size lines to take those products to locations where they can enter major natural gas lines, such as the Canadian-originating Alliance pipeline system. This pipeline enters northwest North Dakota in Renville County and exits in Richland County. Officials with the North Dakota Pipeline Authority have said that while several companies are planning those gas transmission lines, none are beyond the proposal stage. In the meantime, trucks and rail cars are taking the natural gas and other byproducts to market.

State officials believe that there is bound to be an increasing amount of gas byproduct in the coming months, because Whiting Petroleum, which has two of the new gas plants, is expecting to drill 50 to 60 more Bakken Formation oil wells in the Sanish and Parshall areas, and seven more into the Red River Formation this year. Other companies building new gas plants include EOG Resources and Nesson Gas Service, and these operators are planning to drill a combined 20 or more oil wells in the same Ray-Stanley-Parshall area. In the fall of 2008, EOG had nine rigs drilling and a tenth being shipped into the area. Nesson says it plans to keep drilling eight to 10 new wells per year.

In North Dakota, both natural gas pipelines and processing facilities have expanded, and industry leaders project further expansions in the future. Natural gas processing capacity will increase by more than 126%, including four new processing facilities and three major expansions. The resulting 513 MMcfd is enough natural gas energy to fuel 1.87 million homes a year. At the same time, natural gas pipeline capacity has increased by 122 MMcfd, and an additional 228 MMcfd has been proposed. Much of this gas was formerly flared off, so there is an environmental benefit, as well as an energy benefit to capturing the gas.

Significant natural gas processing plant facilities and expansions include:

  • Whiting – a new 33 MMcfd Robinson Lake Processing Plant was expected to connect to Williston Basin on Oct. 1, 2008;
  • Whiting – a new 10 MMcfd Ray, North Dakota, processing plant is now in operation;
  • EOG – a new 20 MMcfd Stanley, North Dakota, processing plant was scheduled to come online in October 2008;
  • Nesson Gas Services – a new 10 MMcfd processing plant near Ray, North Dakota, came online December 2008;
  • Bearpaw’s Grassland Plant – an expansion from 63 MMcfd to 100 MMcfd was completed in 2008;
  • Hiland Partners’ Bowman Plant – an expansion from 4 MMcfd to 40 MMcfd in Bowman County was completed in 2008; and
  • Hess Tioga Plant - an expansion from 120 MMcfd to 250 MMcfd is currently in the planning phase.

In terms of natural gas pipelines, Alliance Pipeline filed with FERC in September 2008 to enable Pecan Pipeline to transport rich Bakken gas from the Mountrail County area to markets in Chicago. The project is scheduled to begin shipping 20 MMcfd to 40 MMcfd in 2009 and increase to 80 MMcfd in 2010.

Gas Gathering

Of course, gas gathering pipelines are needed to connect gas production to processing and transmission systems, and operators are making plans to expand these facilities as well. To help meet these needs, Oklahoma-based Hiland Partners says it has agreed to construct and operate gathering pipelines and related facilities in the Bakken Shale play in northwestern North Dakota for Continental Resources. Continental has dedicated 129,000 gross acres to the partnership. Hiland and Continental are both based in Enid. Continental has 10 rigs working in the Bakken and expects to add three additional rigs by the end of 2008.

The initial term of the agreement is 10 years, and grants the partnership the right to process natural gas and share in the sales proceeds of the natural gas liquids and residue gas. The partnership plans to make an initial capital investment of $10 million. The capital investment over the next three years is expected to total $27 million to build processing and treating facilities and install field gathering, compression and associated equipment. The first phase of the project is expected to begin operations by 2Q 2009. “We continue to build upon the success we have experienced with our existing Bakken plant in Montana,” said Joseph L. Griffin, president and chief executive officer of Hiland Partners.

Conclusion

As drilling efforts in the Bakken have continued to ramp up, state officials and industry leaders have continued to coordinate plans for increasing transportation capacity. In September 2008, North Dakota Governor John Hoeven was joined by petroleum and pipeline industry leaders, Oil and Gas Division Director Lynn Helms, and Pipeline Authority Director Justin Kringstad to outline current and scheduled progress in expanding the state’s oil and gas production and processing infrastructure. Also joining Hoeven were Kevin Hatfield of Enbridge Pipeline Inc., Tad True of True Pipeline Companies, Wayne Biberdorf of Hess, and John Berger, manager of Tesoro Refinery in Mandan. “We are working to ensure that our infrastructure keeps pace with our growing production of oil and gas,” Hoeven said. “We have made sustained progress in both the transportation and processing of our petroleum resources, and we are working to keep pace with growing production
in the future.”