Niobrara crude production takes off

Sandy Fielden, RBN Energy  

Crude production from the Denver Julesburg (DJ) and Powder River Basin (PRB) plays in the Niobrara shale in Colorado and Wyoming is up 260% to 361 Mb/d since January 2012 and is expected to double again by the end of 2019. Takeaway capacity is expanding but is complicated by crude streams travelling through the region from Canada and North Dakota. Rising condensate production also presents a challenge to midstream companies. New pipeline proposals to expand takeaway from the DJ by as much as 500 Mb/d have recently surfaced – suggesting that local producers are looking to secure capacity. Today we look at recent and planned expansions to Niobrara takeaway capacity.

We first described growing producer interest in the Niobrara shale in April of 2013 (see Bananarama in the Rockies). As we use the term here, the Niobrara is a generic region that extends across northeast Colorado, northwest Kansas, southwest Nebraska and southeast Wyoming and encompasses several plays in the region including other hydrocarbon bearing shales such as the Codell. To date, most of the oil and gas development in the region has focused on two areas, the Denver-Julesburg (DJ) Basin and the Powder River Basin (PRB). The DJ basin hot spot is the Wattenberg field in Weld County in northeast CO. PRB drilling activity is concentrated in Campbell and Converse counties WY. DJ Basin drilling in Ward County includes both a wet gas zone (where production is primarily rich gas with high liquids content) and an oil zone.

Figure #1

Source: RBN Energy  

Crude production data for the Niobrara is hard to assemble because the basin crosses state lines and neither Colorado or Wyoming insist on prompt reporting of oil and gas volumes by producers. Figure #1 shows RBN’s production estimates for the DJ and the PRB since 2005 and our forecast out to 2019. The chart shows production picking up slowly in 2011 before taking off as producers increased horizontal drilling in 2012. From 2012 to present (August 2014) output has increased more rapidly.  DJ Basin increased 260 percent from 90 Mb/d in January 2012 to 235 Mb/d in August 2014 and PRB production was up from 50Mb/d to 130Mb/d (also 260 percent) over the same period. Our forecast is for DJ Basin crude output to double again to 450 Mb/d and PRB to more than double to 280 Mb/d by the end of 2019. That’s an expected increase in crude production for both these Niobrara plays of 370 Mb/d in the next 5 years.

The crude production data in these numbers includes lease condensate that is not reported separately because the Energy Information Administration (EIA) counts it as crude oil. Lease condensate is suspended in natural gas underground but condenses at surface temperature and pressure into super light crude material with an API gravity over 50 degrees (see Like a Box of Chocolates). Our understanding is that crude output from horizontal drilling in the Niobrara contains a high proportion of condensate. As we have discussed previously, lease condensate can be problematic for refiners because it is too light for typical refinery configurations (see Here Comes the Reckoning Day). Until fairly recently these problems have been addressed by blending condensate into mixed crude streams. However, recent developments in the Bureau of Industry and Security (BIS) regulations governing the export of crude oil make it more straight forward to export processed condensate (see CCATS Scratch Fever). That in turn will likely change the way that producers handle condensate. As we shall see in episode two this has implications for the infrastructure required to get Niobrara crude production to market.

Getting Niobrara crude to market is complicated because growing local output has historically had to compete for pipeline space with production travelling through the Rockies region en route to the Midwest from western Canada and North Dakota. We last looked at crude takeaway infrastructure out of the Rockies in our Gimme All Your Barrels series Part 1 and Part 2 posted this past May. In the first part of that series we documented new pipeline capacity coming out of North Dakota on the True Company Butte Loop and Hiland Partners Double H pipelines (160 Mb/d between them) as well as the new Tallgrass Partners Pony Express pipeline adding 230 Mb/d from Guernsey, WY to Cushing (see Figure #2). These additions were expected online this month (September 2014) but technical issues have delayed Pony Express until November. The major impact of these additions is to relieve pressure on the Guernsey pipeline hub from Canadian and North Dakota crude flows – ideally freeing up some space for local Rockies production. And as we described in a two part series on refining in the Rockies region this past July Niobrara production (361 Mb/d in August 2014) now exceeds Colorado and Wyoming refinery capacity of 295 Mb/d (see Rocky Mountain High). Though as we noted then, local refinery capacity is expanding and refiners are running their plants at full capacity because competitive crude prices and strong refined product demand have led to sustained high refinery margins.

Figure #2

Source: Spectra and RBN Energy  

But pipeline developments designed to relieve pressure on Guernsey only provide new takeaway capacity for PRB production and do not address expanding output from the DJ Basin in northeast Colorado. That market need is being met by some current expansion plans as well as a slew of future pipeline proposals that has surfaced in the past month or two. The principal existing pipeline out of the DJ Basin is the SemGroup White Cliffs Pipeline that was expanded this summer from 70 Mb/d to 150 Mb/d and runs from the Platteville terminal in Weld County to Cushing, OK (see Figure #3). White Cliffs capacity is mostly dedicated to Anadarko and Noble – the two largest operators in Weld County. SemGroup is also expanding the 80 Mb/d Wattenberg Oil Trunkline pipeline that runs north from Platteville to the Noble Energy production system in the Wattenberg – adding a 70 Mb/d expansion to Noble’s East Pony processing facility – expected online by the end of 2014. The Tampa pipeline, completed in December 2013 connects Platteville to a Plains All American 70 Mb/d crude by rail loading terminal at Tampa, CO that can handle unit trains (see a recent YouTube video of the facility in action here). Also shown in Figure #3 is the approximate location of the 90 Mb/d Northeast Colorado Lateral to the Pony Express pipeline to Cushing. That lateral will have receipt points at Pawnee and Buckingham in Weld County and join the mainline Pony Express at Stirling, CO. The northeast lateral is expected online in Q1 2015.

Figure #3

Source: Noble Energy presenation and RBN Energy

These current expansions will provide 170 Mb/d of new takeaway pipeline capacity from the DJ Basin. But apparently they will not be sufficient to meet growing demand for takeaway capacity. So even though as recently as last year a Sunoco Logistics proposed 70 Mb/d “Niobrara Falls” pipeline from Platteville to the Gulf Coast was cancelled due to lack of shipper interest, today midstream operators are tripping over themselves to build new pipelines. In the second episode in this two part series we will detail recent plans to build as much as 390 Mb/d of additional pipeline takeaway capacity from the DJ Basin including segregated capacity to handle condensate as well as expanded rail terminal capacity.

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