Rocky Mountain oil producers think they aren’t getting a fair price. Royalty owners and state governments agree. That’s why the Interstate Oil & Gas Compact Commission is hosting a Rocky Mountain Crude Oil Market Dynamics Summit Sept. 4-5 in Denver.
“It’s been the case for some time as we’ve increased production throughout the Rockies. That has put a strain on pipeline infrastructure, which affects wellhead prices and, ultimately, mineral owners and states,” explained North Dakota Gov. John Hoeven, who chairs the IOGCC.
When a large Denver refinery shut down in 2006, Rockies producers got $25-30/bbl less than what was paid for similar grades elsewhere in the US.
Hoeven told me that IOGCC assembled a task force to examine the problem after he and Govs. Dave Freudenthal of Wyoming and Brian Schweitzer of Montana discussed it.
Brian Jeffries, executive director of the Wyoming Pipeline Authority, said, “The situation has eased so that typically there’s a $5-7[/bbl] differential to Cushing prices. Five years ago, however, it was only $1 or $2. There still are smaller producers, either because of small volumes or the quality of the crude, who are experiencing wider differentials.”
Still bottlenecks
North Dakota Petroleum Council Pres. Ron Ness noted improvements in the market this year but said bottlenecks remain. “Significant infrastructure investments have been made, but as more Canadian production moves through to the Gulf Coast to replace overseas imports, we’re going to see more problems in the Rockies,” he said.
Royalty owners and state governments want better prices, too. “In North Dakota alone, the state lost around $19 million in tax revenues, and the producers and royalty and mineral owners lost over $203 million in revenue during 2006,” Ness told me.
The conference will address how to raise transportation capacity from the Rockies, including the Williston basin, according to Hoeven. It’s important to make sure crude moves east as well as west, he added. “Certain refineries want specific mixes of crude. They also have to deal with bottlenecks getting their products to market.”
Looking for commitments
Because expansion is capital-intensive, pipelines won’t build systems on speculation, Jeffries said.
“They’re looking for commitments, either to volumes or flat fees, over 10 years,” he said. “The issue now is whether there are enough credit-worthy producers who are comfortable making that kind of commitment.”
Ness said project opponents and Congress aren’t helping matters. “We are seeing some permitting issues with the Keystone Pipeline Project (OGJ, July 16, 2007, Newsletter). The Whiting refinery expansion in Illinois also is being opposed (OGJ, Apr. 23, 2007, Newsletter). And for a nation trying to get a more secure energy future, it’s contrary to common sense to pass taxes that hurt domestic production,” he said.