Latest / The Gathering Line / Enbridge’s Tallgrass Deal Reshapes Inland Crude Flows

Transcript

Enbridge’s Tallgrass Deal Reshapes Inland Crude Flows · The Gathering Line

• 0:00
  So, Enbridge just dropped a massive two point five five billion dollar cash deal to
• 0:06
  buy Tallgrass Energy's crude oil transportation business.
• 0:10
  And, uh, if you're watching inland flows, this is a total game changer.
• 0:14
  Enbridge gets a seventy-five percent controlling stake in the four hundred sixty
• 0:19
  thousand barrel per day Pony Express Pipeline, plus a fifty-one percent stake in the
• 0:24
  Powder River Gateway system, and roughly eight point four million barrels of
• 0:28
  terminal storage capacity.
• 0:30
  Now, let me set the backdrop here.
• 0:33
  We are looking at a macro environment where Brent crude futures are hovering right
• 0:37
  around seventy-four dollars per barrel, and W T I is holding near seventy dollars
• 0:42
  and fifty cents.
• 0:43
  Up north, Canadian W C S differentials at Hardisty are sitting at twelve dollars and
• 0:48
  fifty cents under W T I, while down at the mega hub, U S Cushing crude inventories
• 0:53
  drew down by three hundred thousand barrels this past week.
• 0:57
  But the real pressure point on the ground stems from Kinder Morgan's plan to convert
• 1:01
  its eighty-eight thousand barrel per day Double H Pipeline from crude service over
• 1:06
  to N G L service.
• 1:07
  Bakken shippers know those crude barrels are getting displaced,
• 1:10
  so they are rushing to secure alternative takeaway.
• 1:13
  Many are jumping on the joint tariff open season launched by Bridger and Pony
• 1:17
  Express to lock in incentive rates from Guernsey down to Cushing,
• 1:21
  while others are trying to pivot south toward D A P L.
• 1:24
  You know, looking back over my twenty years of tracking Rockies crude logistics,
• 1:29
  I, I, I keep thinking about twenty fourteen.
• 1:32
  That was when Tallgrass converted the original natural gas line into the Pony
• 1:35
  Express crude pipeline.
• 1:37
  It completely reshaped Williston Basin netbacks almost overnight.
• 1:41
  And today, seeing Enbridge step in and commit to the three hundred million dollar P
• 1:46
  X P two expansion, which will boost Pony Express capacity to five hundred fifteen
• 1:50
  thousand barrels per day by late twenty twenty-seven, well,
• 1:54
  that is exactly the long-term structural relief Guernsey terminal operators have
• 1:58
  been begging for.
• 2:00
  Let's zoom in on physical pricing at Guernsey, pronounced GERN-zee.
• 2:04
  Spot differentials there recently flipped to a fifty cent premium over Cushing.
• 2:08
  Why?
• 2:09
  Because P A D D four refinery demand is humming, and heavy line space apportionment
• 2:13
  on southbound pipes is squeezing every drop of available tankage in Wyoming.
• 2:18
  Meanwhile, out in the Bakken, North Dakota crude production is holding steady at
• 2:22
  about one point two two million barrels per day.
• 2:25
  With Clearbrook differentials trading around a dollar fifty under W T I,
• 2:30
  crude by rail economics remain, er, pretty marginal for major Bakken producers like
• 2:35
  Chord Energy and Continental Resources.
• 2:38
  Unless local pipeline bottlenecks worsen dramatically, moving barrels by rail just
• 2:43
  doesn't offer an attractive arbitrage right now.
• 2:46
  Contrast that with the Powder River Basin, which is pouring about two hundred forty
• 2:50
  thousand barrels per day into Guernsey via the Iron Horse and Powder River Express
• 2:54
  pipelines.
• 2:55
  Then look over at Utah's Uinta Basin.
• 2:58
  Uinta yellow and black waxy crude is trading at roughly a three dollar discount to W
• 3:03
  T I.
• 3:04
  That steep discount is driven by seasonal Salt Lake City refinery turnarounds and
• 3:08
  ongoing legal delays surrounding the proposed eighty-five mile Uinta Basin Railway
• 3:12
  project.
• 3:13
  So, if you're a terminal development manager preparing for your morning operational
• 3:17
  call, here is your direct action plan.
• 3:20
  First, audit your tank storage and optimize throughput right now while Guernsey
• 3:25
  trades at a premium.
• 3:26
  Second, keep close tabs on rail loading economics, but don't commit capital to spot
• 3:31
  rail contracts while pipeline tariffs remain competitive.
• 3:34
  And third, re evaluate your firm transport capacity agreements immediately to
• 3:38
  protect your netbacks ahead of the upcoming winter refinery turnaround season.
• 3:42
  That is the play.