Energy Transfer Pipeline to Take Midwest Oil to Gulf Coast - Analyst Blog

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Pipeline operator Energy Transfer Partners, L.P. ( ETP ) announced that its board of directors has approved the construction of a 1,100 mile crude oil pipeline called the Bakken Pipeline. This new pipeline will transfer crude oil from the Bakken/Three Forks production area in North Dakota to Patoka, IL, where the Bakken Pipeline will interconnect with Energy Transfer's existing 30-inch diameter Trunkline Pipeline.

Successful Open Season

Constructing a crude oil pipeline involves huge initial capital investment. So, the pipeline operators conduct an open season to assess the demand for pipeline services. Energy Transfer, too, through its open season was able to secure multiple long-term binding contractual commitments for the new pipeline. These commitments provide assurance to pipeline operators on return on investments.

The 30-inch diameter Bakken Pipeline will initially transport 320,000 barrels per day of capacity with the provision of increasing the capacity depending on customer demand.

Midwest Crude Production

Modern drilling technology has resulted in increased crude oil production. North Dakota presently produces more than 1 million barrels of crude oil per day. Crude oil production in this region is expected to go up, further driving demand for pipeline services.

The new Bakken Pipeline is expected to start operation from end 2016, when the production of crude oil in North Dakota is expected to expand by 40% to 50% from current levels.

Cost Effective Services

The Bakken Pipeline will provide a cost effective alternate method to transport production from the region to the major U.S. markets. This will reduce the dependence on rail and truck transportation.

The shippers will have the option from Patoka, IL to access the Midwest and East Coast markets by rail. They can also avail the Trunkline to reach the Nederland, TX crude oil terminalling facility of Sunoco Logistics Partners L.P. ( SXL ).

Will the U.S. Lift Crude Oil Export Ban?

U.S. crude oil production has jumped manifold thanks to superior exploration and production techniques. Reports are also rife that the Obama administration might lift the ban on U.S. crude oil exports completely. If the export ban is finally lifted it will create greater demand for pipeline services.

Even if that is not the case, crude oil production in the U.S. is expected to touch 9.3 million barrels per day in 2015, up 25.7% from 2013 levels, as per the U.S. Energy Information Administration. This boom in crude oil production is likely to benefit the pipeline operators.

Zacks Rank

Energy Transfer Partners carries a Zacks Rank #2 (Buy). Investors interested in the oil and gas pipeilne industry may also consider stocks like Delek Logistics Partners, LP ( DKL ) and TC PipeLines, LP ( TCP ). Both these stocks carry a Zacks Rank #1 (Strong Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: SXL , ETP , TCP , DKL

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