Enbridge Losing Bakken Oil Business to Railroads, Refiner Says

Enbridge Inc. (ENB)’s North Dakota pipeline system has been underused for the past three months as railroads move more oil out of the Bakken shale play, a refining company told U.S. regulators.

Enbridge’s plans to expand its pipeline network out of the Bakken won’t stop railroads from taking business, Flint Hills Resources LLC, a unit of Koch Industries Inc., said in a filing with the Federal Energy Regulatory Commission.

“This trend is not temporary,” Flint Hills said. “Rail transportation is becoming more competitive and will continue to take barrels away from the Enbridge North Dakota system.”

Railways have emerged as a competitor to pipelines as production from shale fields has grown faster than pipeline space. While rail is typically more expensive than pipelines, railcars can reach markets that pipelines don’t, yielding higher prices for producers.

Flint Hills, which operates the 330,000-barrel-a-day Pine Bend refinery in Minnesota, filed the document with FERC as part of its opposition to a surcharge on the North Dakota system proposed by Enbridge.

“We are seeing reduced volumes on our North Dakota system as some producers seek alternate transportation options to take advantage of favorable oil pricing in other markets,” Graham White, an Enbridge spokesman in Calgary, said in an e-mail. Volumes will increase as new regional market access projects are finished later this year, he said.

North Dakota produced 747,000 barrels a day in October, up 50 percent from a year earlier, according to the U.S. Energy Information Administration. An estimated 52 percent of the crude moved by rail, versus 38 percent by pipeline, according to the North Dakota Pipeline Authority.

Top Shipper

The largest oil rail-car shipper in the Bakken is Burlington Northern Santa Fe LLC, owned by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) The company plans to boost its crude-oil shipments by 40 percent to 700,000 barrels a day by the end of this year, Chief Executive Matt Rose told Bloomberg in a phone interview this month.

Enbridge’s North Dakota system can transport 210,000 barrels a day from Minot to Clearbrook, Minnesota, according to the company’s website.

The company plans to expand its Bakken pipelines and to connect them with other parts of the Enbridge network, including construction of a new 225,000 barrel-a-day pipeline called “Sandpiper” that will link with Enbridge’s Mainline system in Superior, Wisconsin.

To contact the reporter on this story: Edward Welsch in Calgary at ewelsch1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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