|
Governors discuss oil pricing, pipeline issues Lack of pipeline space from Montana, Wyoming, North Dakota means oil discounted; Enbridge planning 30,000 bpd expansion Becky Bohrer Associated Press Writer
Steep discounts in the prices companies get for the oil they produce could have a chilling effect on drilling in the region and investment in the industry, the governors of Montana, Wyoming and North Dakota said April 19 in pledging their support for creating a more favorable environment for industry growth.
The governors met here with energy experts and industry officials to discuss oil pricing and pipeline capacity and possible ways to address those issues.
“We have a near-term crisis, but really a long-term problem,” Wyoming Gov. Dave Freudenthal said. “We have to figure out a solution to both.”
Pipeline capacity concern Pipeline capacity and the ability to move oil to market without sizable discounts have become growing concerns, with increasing production in eastern Montana, southwestern North Dakota and Canada; a refinery fire that affected operations in Denver; and limited room in which to move the product, officials say.
Three key pipelines run in the region. Two flow to a hub in Guernsey, Wyo.; oil from the hub goes to refineries in Wyoming, Colorado or Kansas, said Tom Richmond, administrator of the Montana Board of Oil and Gas Conservation. The other pipeline, which serves the booming oil fields of northeastern Montana, covers North Dakota on its way to Clearbrook, Minn. From there, oil heads to refineries in Minnesota and Illinois, he said.
In Montana alone, oil production doubled from 2001 to 2005, with 32.9 million barrels produced in the state last year, according to the state board. Most of that production, about 30.3 million barrels, came from the active, expanding play in northeastern Montana, Richmond said in a telephone interview.
Steep discounts That might sound great for companies, but Richmond and other officials say they’re seeing discounts, and in some cases, those may be steep — from $10 a barrel to $22 a barrel or more recently.
Discounts occur after factoring in such things as transportation costs; the going rate in a particular area; and pipeline capacity, officials said.
“If you can’t get your product to market, it’s not worth as much,” Dave Galt, executive director of the Montana Petroleum Association, said before the meeting.
Tad True of Bridger Pipeline said wells in the Rockies were at risk of being shut in because of a lack of pipeline space. Pipeline competition is the real issue here, he said, particularly in light of light of the growing production out of Canada.
The governors did not take issue with Canadian imports.
Enbridge: expansion proposed Denise Hamsher, a spokeswoman for Enbridge Energy Partners LP, a pipeline operator, said a combination of factors “caught everybody off guard, and normal long-term planning for pipeline capacity expansion is now being very much rushed.”
Enbridge, whose regional pipeline has a capacity of about 80,000 barrels of oil per day, is proposing expanding capacity by 30,000 barrels per day, she said. She said in an interview that the market will need to decide if what is happening is a temporary phenomenon or if it wants to invest in increased capacity for the longer-term future.
Gov. Brian Schweitzer said he doesn’t consider government to be the solution, though Montana does have a vested interest in the companies’ success because of potential losses in tax revenues. “We think private industry is the best place to make this investment,” he said, and called on major oil companies to step up.
North Dakota Gov. John Hoeven said he wants to ensure producers are getting fair prices. He said the issue of discounting should be “healing up” by early summer, because of factors including increased capacity on a key pipeline.
In the short term, he believes modifying or enhancing infrastructure will help move oil but down the road, capacity needs to be developed further.
|
