Oil Prices Jump in North Dakota as Production Falls Over Pipeline Worries

Well, if you didn’t know that you could deliver your product to market, would you keep producing that product?  That’s where oil producers in North Dakota’s Bakken shale region find themselves.  Oil prices from the region have jumped to six-month highs as producers cut back back as they worry about the Dakota Access Pipeline.

North Dakota is the second only to Texas in terms of U.S. oil producing states, with about 1.2 million barrels per day (bpd) of output. Harsh weather in the region is restraining production and well completion, which had already been hampered by poor demand in 2020 caused by coronavirus.

Concern about how U.S. President Joe Biden’s administration will handle the Dakota Access Pipeline (DAPL), which can transport more than 550,000 bpd out of the Bakken, is also boosting prices.

The possibility that the line could be shut down is prompting some producers to ask for higher premiums for their oil, fearing buyers may renege on agreements, dealers said.

Crude output in North Dakota is still about 20% lower than the historic high of 1.5 million bpd hit in late 2019. While production from wells more than one year old has recovered, output from newer wells has not, because of a lower rate of completions.

Meanwhile, DAPL has been embroiled in legal battles over the past five years, and faces new threats from the Biden administration. The latter has already taken several steps to restrict new oil and gas development, though it has not yet tried to shut a pipeline currently in operation.

DAPL’s operator, Energy Transfer, is arguing in court that the line should be kept open even as the U.S. Army Corps of Engineers undertakes a new review of the impact of the line’s passage under Lake Oahe, a key source of water for indigenous communities in the Dakotas.

Shirin Lakhani at Rapidan Energy Group, an energy consultancy in Bethesda, Maryland, said:

“The barrels would still move by alternative means. This is more than enough to absorb the remaining barrels displaced by DAPL in the near-term, but it would add $5-$10 to transportation costs.”  

A hearing scheduled for Wednesday in the U.S. District Court of the District of Columbia was postponed until April at the request of the Army Corps, the court said on Tuesday.

The court, which threw out DAPL’s permit to cross Lake Oahe, had asked the Corps for an update on what it intends to do about the pipeline.

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