Breaking Through the Bakken Bottleneck
The Only Sure Bet in Oil
There's a dark side to the U.S. oil boom.
Usually, people only hear the good news: the fact that our domestic crude production is at its highest level in two decades... or that Texas is once again pumping more than two million barrels per day... or that developing our tight oil plays has changed the landscape of our petroleum industry...
But there's more to the U.S. black gold rush than the stories that headline the mainstream media, and it's not all good news.
Last week I mentioned how indebted the world is (and the Saudis more than anyone else) to giant oil fields. Today I want to take a look a little closer to home...
When it comes to decline rates, we don't have to look far to see the same issues the Saudis are facing.
Prudhoe Bay is a perfect example of one of our largest oil fields failing here in the United States.
Just how bad have things gotten? Since 1988, Alaska's state oil production has plummeted 73%.
They say a picture is worth a thousand words (click chart to enlarge)...
If Alaska's crude output continues its downward spiral, the consequences will be severe.
Earlier this year, I explained that if production in the North Slope falls below 350,000 barrels per day, Alaska could be forced to shut down the Trans-Alaska Pipeline System, the crucial component in getting that oil to market.
The way things are going now, that's going to happen before 2020.
Of course, there's only one other place struggling more than Alaska, and that's California.
It seems like we pick on these two states an awful lot, but it's hard to ignore these declines (click chart to enlarge):
Not exactly your idea of an "oil boom," is it?
Although things seem pretty grim when you look at those charts, this situation creates several lucrative opportunities elsewhere.
All you need to do is recognize them — and, of course, get on board early enough to take advantage of them.
Banking on the Bakken
The story of North Dakota's surging oil production is everywhere. And until now, we've focused on the companies drilling into the Bakken, the pipelines transporting that crude out of the state, and the railways that began shipping Bakken crude when the pipelines hit capacity years ago.
Now it's time to put the next few pieces of the puzzle together...
First, North Dakota's oil flowed south and clogged up Cushing. Railways have started shipping those barrels eastward. (You might recall Phillips 66's billion-dollar deal to move Bakken crude to its refinery in New Jersey.)
Now there's only one direction left for North Dakota to send its crude — west — and that's precisely where it's headed in the future.
The Port of Grays Harbor, which rests on the Washington coast, announced it was leasing property for a crude oil unloading and storage facility. This means crude oil from the Bakken would be transported to the port via railway, and then sent by barge to refineries along the West Coast.
Once completed, oil will account for more than one-third of all exports from the port.
It's developing into a win-win situation: On the one hand, companies in North Dakota will have yet another outlet to get their crude oil to market, which also serves to ease the bottleneck at Cushing...
On the other, West Cost refineries can stop worrying about Alaska's Peak Oil crisis in the North Slope. (Remember that most of the crude oil refined by these facilities is from the North Slope.)
I'll give you one guess what will happen in ten years when the Trans-Alaska pipeline system stops shipping oil to Valdez...
Take two of these refineries as an example: BP's Cherry Point Refinery (the largest of its kind) in Washington and Tesoro's Anacortes Refinery in Tacoma.
Combined, the two refineries can process up to 345,000 barrels of crude oil per day.
But for individual investors trying to capitalize on this win-win situation for West Coast refineries, the difference is like night and day:
All you need to find your win-win investment is to backtrack a few steps.
Because having new outlets for Bakken production opens the door wide open for Bakken drillers.
A Sure Bet in Oil
Few investors believe a sure bet exists in the oil industry. I'll tell you right now they're wrong. We've known about it for years...
In fact, it's paid off in spades so far.
Last year, I showed you what a 99% drilling success rate looks like. It's worth your time to take a second look (click to enlarge chart):
The truth is these producers strike oil no matter where they put their drill bits — and still it's not enough, because the game has changed radically since 2008...
It's no longer about whether or not there are billions of barrels of recoverable oil beneath North Dakota soil, but rather how effectively these companies can produce that crude.
Until next time,
A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.