A Bakken crude oil hub?KLJ CEO: Johnsons Corner starting to look like a commodity trading center Mike Ellerd Petroleum News Bakken
During an Oct. 31 North Dakota interim legislative committee hearing, Niles Hushka, president and chief executive officer of Kadrmas, Lee and Jackson, KLJ, a leading North Dakota engineering and planning company, told legislators that he believes a crude oil trading hub could be emerging at Johnsons Corner in northeast McKenzie County.
As a true crude oil hub, Johnsons Corner would become a place where Bakken crude is actually traded, which means Bakken crude oil prices would be established within the Williston Basin at a location with access to multiple markets on all three coasts as well as the Mid-Continent.
Johnsons Corner lies at the intersection of state highways 23 and 73 approximately 13 miles east of Watford City. It is a terminal and storage center for a number of crude oil pipelines, including Bakken Link, Highland Partners, Four Bears, Targa and Tesoro. There is not a rail loading facility at Johnsons Corner, but there is rail facility access via pipeline.
With those storage and shipping capabilities, coupled with the fact that it sits in the middle of one of the most highly productive oil basins in the country, Johnsons Corner is well suited as a hub in that it’s a commodity transportation center with a stable and steady supply and relatively large storage capacity which provides buyers with multiple export options. And with that storage capacity, producers could ship crude to the hub without having to make prior export commitments.
“Johnsons Corner in McKenzie County is starting to look like a hub,” Hushka told the Energy Development and Transmission Committee. “It has multiple pipelines options that are coming into it and a lot of other very large storage farms that are being built. So as the tankage is built onsite and the product is being shipped into a central location,” he continued, “you can begin to manage the product as you do in a hub. You don’t have to commit early to a pipeline.”
As more and more shipping options become centralized at a single location, Hushka said, producers have more options and no longer have to “commit three years worth of pipeline usage.” He added that as more capacity becomes available, onsite traders become attracted to the region because they have the opportunity to store and ship.
A standalone commodity If Johnsons Corner were to become a crude oil hub for Bakken Crude, it would mean that Bakken crude would be traded as its own, standalone commodity. Hushka said crude oils such as Brent and West Texas Intermediate became index crudes because they ultimately emerged as stable commodities guaranteed to flow into the market. As they became guaranteed, he said, they could begin to be traded.
That situation, Hushka said, now exists in the Bakken. “We now have that. We’ve proved to resources, traders and refiners, that we can produce upwards of a million barrels per day … and now we’re proving to them that we can sustain that flow. As those conditions come into play, I do believe that Bakken will begin to be traded on its own index.”
While Bakken crude oil trades at discount to other crudes at Mid-Continent markets (see story, this page), Hushka believes it should be trading in the neighborhood of 6 to 8 percent above Brent because of its quality. He said if Bakken crude is broken down and evaluated on a component basis the way a refiner would evaluate it, it prices out higher than other crude oils because it’s lighter, has a lower sulfur content, and has the ability to produce more high-value products. “So I do think that … if it historically follows the original model, we’ll see that, we’ll see Bakken traded on its own.”
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