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Oil Express: Keystone XL delay increases oil price discounts in North Dakota

Press Photo by April Baumgarten An oil train tank waits to make its way down the track Friday in Dickinson. The Keystone XL pipeline's delay has forced distributors to take discounts on crude oil prices, according to a North Dakota Department of Mineral Resources report released last week. It has also congested pipelines, and distributors are opting to ship by rail or truck, officials said.

The delay of the Keystone XL pipeline's approval and completion is forcing distributors to take larger discounts than usual, according to a report from the North Dakota Department of Mineral Resources in Bismarck.

The North Dakota sweet crude price had a 30 percent discount to the New York Mercantile Exchange-West Texas Intermediate price , DMR director Lynn Helms wrote in the report last week. The discount is forcing crude oil to be shipped by rail.

"What's occurring right now is there is quite a bit of congestion in the Cushing, Okla. and the Great Lakes area," said Justin Kringstad, North Dakota Pipeline Authority director.

TransCanada's pipeline is slated to stretch from Canada to Texas. It was rejected by President Barack Obama on Jan. 18.

When the Keystone XL was moving forward, the oil industry in North Dakota thought "the pressures were being taken off," said Doug Goehring, North Dakota Agriculture commissioner and Industrial Commission member.

"When this bit of news came along about a lack of support or delay or just the cancelling of having this pipeline in place, boy, when it fell out the floor just fell out," he said. "It really hurt the price of crude oil in North Dakota.

North Dakota has experienced a discount on pricing historically because of the distance to other markets, but the discounts are higher than the average of 10 percent, Kringstad said.

The Friday WTI Crude price was $102.97, the Bakken Clearbrook, Minn., price was $92.02 and the Brent Crude was $123.03. Prices have fluctuated daily since February, Kringstad said.

The east, west and Gulf Coast offer Brent prices, but the only way to get to those markets is by rail, he added.

"The crude oil take away capacity via pipeline is well below production, but rail and truck transportation are keeping up with near term production projections," Helms wrote in the report.

This isn't just North Dakota's problem like it used to be when pipelines were limited, he added.

"Now we can get the oil out, but the markets that our pipelines are connected to are congested," he said. "Any barrels that are produced and sent to the midcontinent area, whether they are Canadian barrels, North Dakota barrels, Montana barrels, anyone sending barrels to the midcontinent area are experiencing these discounts."

Mineral owners will receive less money for royalties and the tax revenue from oil will drop, Goehring said. The discounts could also affect income for agricultural producers.

"Without the pipeline going into working mode or having it available, in agriculture we are having to compete for that rail space now because they are going to use more rail to try to get this oil out of the state," he said. "We are going to have elevators sitting there with product and farmers not being able to deliver when maybe the market is right or when they have to according to their contract."

If the Keystone XL is completed it may help return discounts to normal, Kringstad said.

Putting more pipelines in the ground will also reduce prices, he said, adding that the state and oil industry is trying to alleviate the congestion.

"The more we can debottleneck midcontinent and open up additional access for midcontinent barrels to get to the Gulf Coast, that's going to raise the price of a barrel in the Great Lakes area and then in turn affect the North Dakota crude pricing," he said.