ND oil pipeline capacity limited as production, imports climb, Kelliher warns

North Dakota crude oil production and imports from Canada exceed current pipeline capacity in the region, Federal Energy Regulatory Commission Chairman Joseph T. Kelliher told a US Senate subcommittee on Sept. 3.

"Both domestic and Canadian crude oil production are increasing, exacerbating the competition for limited pipeline capacity. There have been additions to pipeline takeaway capacity in the region, not enough to limit constraints or accommodate future increases," he told the Senate Appropriations Committee's Energy and Water Subcommittee at a field hearing in Bismarck, ND.

FERC supports energy infrastructure development and has participated as a member of a crude oil market infrastructure task force which the Interstate Oil and Gas Compact Commission initially convened in 2006 to investigate Rocky Mountain crude oil market dynamics, Kelliher continued. "However, the parties themselves must resolve who will commit to support the development of new infrastructure and who is willing to pay for it," he said.

The subcommittee's chairman, Byron L. Dorgan (D-ND), said that he convened the hearing because he wanted to determine what steps will need to be taken to transport and refine the increasing amount of crude being produced from the Bakken Shale formation in western North Dakota.

"With the current infrastructure, it is a challenge to transport the oil from wellhead to refineries, both in and out of state, without experiencing a bottleneck. As this new oil is produced, we need to make sure the transportation infrastructure exists so that future oil production is not limited," he said.

Already increasing

Williston Basin oil production within the state and imports from Canada already put pressure on pipeline capacity, Kelliher said. North Dakota's oil production rose from approximately 125,000 bbl a day in 2007 to 147,000 b/d in March 2008, a 17.5% increase, he noted. Existing pipelines are operating at full capacity, requiring that they apportion that capacity among shippers, he said.

Meanwhile, crude oil imports from Canada also have risen, according to Kelliher. Annual Alberta Basin oil production levels for 2007 published by the province's conservation board showed a 3% increase from 2006 to 1.86 million b/d, he said. "Significantly, Canadian imports are projected to reach 3.4 million b/d by 2017," he indicated.

He pointed out that imports from Canada currently comprise 20% of total US crude supplies and are the United States' largest foreign source. "We expect this trend to continue. These imports are reliable supplies from a friendly country and improve our energy security," Kelliher maintained.

"However, Canadian imports require space in the pipeline and can create bottlenecks in capacity that can limit the amount of crude oil that can be moved out of the North Dakota production region. Pipelines serving North Dakota are increasing their capacity; nevertheless, it is likely that with additional growth in North Dakota oil production and Canadian imports, the pipelines' proposed capacity increases still will not be adequate to transport North Dakota production without capacity prorationing among shippers seeking that capacity," he added.

Other scheduled witnesses at the hearing included Lynn D. Helms, director of the North Dakota Department of Mineral Resources; Harold G. Hamm, chairman and chief executive of Continental Resources Inc. in Enid, Okla.; Kevin Hatfield, regional director for Enbridge Pipelines Inc.'s North Dakota system, and State Rep. Shirley Meyer (D-Dickinson), co-chair of the Task Force to Establish a North Dakota Refinery.

Contact Nick Snow at nicks@pennwell.com

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