White Papers Uncertainty is Clouding the Energy Trading Outlook | Page 4

Uncertainty is Clouding the Energy Trading Outlook

In particular, areas such as the Bakken
Shale in North Dakota and Eagle Ford Field
in South Texas have proven especially challenging as the huge increases in oil production have overrun crude pipeline capacity, necessitating alternative means of transport in
order to move that crude to the refining centers in the Midwest and along the Gulf Coast.

For the Bakken, the best alternative to pipe transport has been via rail, with
up to an estimated 700,000 bbls/day
being transported via train, accounting for
about 60% of the state’s total oil production.
While pipelines are generally considered
the preferable choice in transportation given
their lower costs and perceived lower operational risk, delays in permitting and construction of new pipes have increased reliance on
rail transport; and increasingly, producers are
recognizing the advantages offered by rail, including more flexible routing that allows for
delivery to the most lucrative markets, and
potentially rerouting should market conditions change while the volumes are in transit. While there are a number of proposals
for new crude pipelines to provide additional
capacity to move oil production to refineries
in the east and south, given the significant investment that has been made in new rail lines
and equipment in the area, and combined
with environmental concerns related to pipeline construction, it’s unclear if and when this
new capacity will be built.

The Eagle Ford Field in South Texas
is located relatively near the production and
transportation infrastructure that services the
long established Permian Basin. However,
the huge increases in oil production from the

A ComTech Advisory Whitepaper

field in the last three years (growing from 123,000 bbls/day
in 2009 to more than 1 million bbls/day in December 2013)
have required a massive development program by producers
and midstream operators. New pipelines have been built and
new capacity added to existing facilities to move oil and condensate east to Houston-area refineries and processing plants,
and south to Corpus Christie for loading on barges and ships
for delivery to refineries in Louisiana and points further east.
This re-plumbing of the transportation infrastructure in south
Texas will continue as drilling expands more widely in the oil
rich areas of the field and later as gas production increases
when prices improve.

The Marcellus Field in the Northeast US, though located along established pipeline routes, is having a dramatic and
unprecedented impact (with up to 32 tcf of proven reserves1)
on the natural gas markets from New England to the Gulf
Coast. As Marcellus natural gas production continues to rampup, increasing from less than 2 BCFD in 2009 to more than
14 BCFD in early 2014, basis differentials between the Gulf
Coast and Midwest supply points and the Northeast markets
have tightened, often making transportation uneconomic and
reducing the flow of gas from the south. As producers in the
south find their once lucrative markets being taken up by Marcellus gas, they are increasingly forced to seek out alternative
markets in the southern US and Midwest, often realizing much
lower prices and forcing many to reduce their exploration and
production budgets for gas projects.

In order to address the growing surplus of gas in the
southern US, pipeline operators are seeking to expand their
pipeline networks in the southern states, reaching new or underserved markets and, in the process, improving utilization of
their long-haul systems. While these new facilities will help to
reduce some of the backlog of gas, industrial expansion in the
region and the developing LNG export facilities are the best
hope for improving prices and profitability for producers in the
region.

1| www.eia.gov/naturalgas/crudeoilreserves/pdf/uscrudeoil.pdf
© Commodity Technology Advisory LLC, 2014