Dakota Access Pipeline Ready to Open for Business
A common expectation among production companies and investment bank analysts appears to be a boost to gross margins in a range of $1 to $3 a barrel as transportation costs drop and North Dakota prices rise because of greater market access in much of the Midwest and South. But not necessarily an immediate boost.Some estimates go higher:
If an increase of $2 a barrel is a reasonable estimate, it would mean a shipper moving 50,000 barrels a day would get an additional $36.5 million a year.
Railroads can be expected to lose business to the pipeline. Some of the crude has been going east by rail on the BNSF railway as far as Chicago and then by CSX railway from Chicago to Albany, N.Y., after which the oil can be taken south to New Jersey by rail or barge for delivery to refineries along the Delaware River.Many shale oil producers are on the line between profit and loss with West Texas Intermediate crude oil selling for $43 a barrel. A difference of $2 or $3 doesn't sound like a lot, but it is huge in the current market.
Dakota Access should allow for a $3 to $8 decrease in transportation costs per barrel, said Tessa Sandstrom, spokeswoman for the North Dakota Petroleum Council. Rail transportation is not expected to dry up, however.
“Rail is still helpful because it goes to premium eastern markets where pipe doesn’t,” Chandra said. “So it’s not just transport cost but also oil sale price that matters,” he said, implying there is a price premium for oil reaching Delaware River refineries.