ND oil drillers taking steep discounts
BISMARCK (AP) -- North Dakota oil production is outpacing the ability to efficiently move the product to market, causing drillers to take deep price cuts at a time when national gasoline prices are on the rise, the U.S. Department of Energy said.
Crude oil from North Dakota's rich Bakken and Three Forks formations has traded at record price discounts in 2012 compared to West Texas Intermediate, the U.S. benchmark, according to the Energy Information Agency, a branch of the Energy Department.
The agency said Bakken crude reached a record price gap of $28 a barrel on Feb. 10. The price discount has thinned in recent weeks but remains well above historic levels, the agency said.
Bakken crude was fetching $92.38 a barrel on Thursday, $15 below West Texas Intermediate.
State Mineral Resources Director Lynn Helms said prices for North Dakota sweet crude generally mirrored West Texas Intermediate prices last year but began widening in January when President Barack Obama temporarily halted the $7 billion Canada-to-Texas Keystone XL pipeline, which would have carried 100,000 barrels of crude daily from North Dakota and Montana.
"The Keystone XL was slated for 100,000 barrels a day in volume, and with that delay, the oil traders picked up on that," Helms said.
The Energy Department said the price discount for Bakken crude "is an indication that production is likely proceeding faster than existing and new infrastructure can efficiently bring it to market, leading to transportation congestion issues in the northern Midwest."
Justin Kringstad, director of the North Dakota Pipeline Authority, doesn't disagree with the Energy Department's assessment.
It's the oil transportation bottlenecks beyond North Dakota causing the price disparity, Kringstad said, noting that North Dakota's pipeline, rail and refining capacity is adequate to keep pace with the burgeoning crude production.
"There is nothing in our state that would be affecting this," Kringstad said.
Rail shipments account for about one-quarter of the more than 530,000 barrels produced daily in North Dakota, Kringstad said.
North Dakota producers increasingly are using trains to move crude in search of better prices at coast refineries, including to a Louisiana terminal some 1,800 miles away.
Helms said he recently met with 10 of the top oil producers in the state, and the disparity between Bakken crude and WTI was a hot topic.
"All of them are seeking more rail capacity to bypass this problem," Helm said.
Despite the deep discounts, Helms said, North Dakota oil drillers continue to be on pace for a record year -- more than 2011's production record of 152.9 million barrels that Kringstad cited.
"It's not severe enough to slow down their 2012 plans," Helms said.