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Bakken Energy Corridor Investing

Brian Hicks

Written By Brian Hicks

Posted October 2, 2013

It is no secret that places like the Bakken need more transportation infrastructure to prevent supply gluts and to reduce the amount of associated gas being flared. And while it is true that the Keystone XL project would be able to secure an access route in North Dakota, the project seems to be on an indefinite hold, and it would not directly serve the needs of the Bakken region.

But there is one local energy corridor project that would not only cater to local production, but would also help in alleviating wasted natural gas that is burnt in the atmosphere.

There is no specific name for the project, but it would be an addition to a 465 mile energy transmission line that runs from Center, North Dakota to Duluth, Minnesota.

The project is in its planning stages, and no information has been given on cost or construction dates. The corridor would be helpful in transporting carbon dioxide – something that could be used in enhanced oil recovery – as well as wastewater. But most importantly, the project would provide a direct response to needed oil and natural gas transportation routes.

The companies behind the project are Allete (NYSE: ALE) and Allete Clean Energy, and the project has the full backing of Governor Jack Dalrymple.


This is a great project for both North Dakota and Minnesota – particularly since the latter region requires more access to natural gas.

And there would be little need for many companies to approach landowners for mineral rights.

But one of the most important problems it will reduce is the problem of associated gas being wasted.

Flaring is so prevalent that the Bakken region lights up on a NASA satellite with other major cities. North Dakota burns about one-third of its natural gas, simply because there is no place to store and transport the gas. And since natural gas prices are low, producers see little value in storing and transporting the commodity. Flaring is not only destructive to the environment, but it also a waste of money, since taxes and royalties are still due for flared gas.

But most importantly, this is the kind of infrastructure needed to safeguard against oil backups – especially as North Dakota ramps up production.

Oil Infrastructure

While this is great news for Bakken oil production, the nation still needs more infrastructure to alleviate supply gluts around the country. It is the primary reason why WTI crude is cheaper than Brent – because the oil cannot get to market in enough time.

As North America heightens its success in shale oil production, infrastructure construction is not keeping up with drilling. North Dakota is on its way to producing one million barrels per day, with no sign of slowing down.

The state of Texas has reached over two million barrels per day in production. And plays further out West, like the Mancos shale, are gaining traction.

There is an increasing amount of localized pipeline projects along the Gulf Coast, but there needs to be more out West and in parts of Texas.

While Canada is waiting on Keystone XL, the country has another national project in the works called the Northern Gateway pipeline. Northern Gateway may be put off until 2019 due to political blow-back and aborigine land rights, but once it goes through, it will add significantly to the nation’s infrastructure. The U.S. needs a similar national initiative to upgrade infrastructure.

It would be a tough road, but it is something that needs to take place, since supply glut is a real factor that could slow down production.

Could a lack of infrastructure spell doom for the shale oil boom?

All signs indicate that this will not happen anytime soon; commodities are flowing despite the backlogs going on in some parts of the country. But it could pose real problems down the line should other states join the production boom.

Investor Involvement

The best way to get involved would be to invest in companies that specifically cater to gas-gathering or commodity transportation.

Energy companies need this infrastructure, but many do not have the resources or the time to go through regulatory hoops. So there is big business in companies that construct these pipelines on behalf of energy companies.

Alliance Pipeline is one company to keep an eye on, since it is spending $141 million on a project in North Dakota with the multi-purpose function of providing oil and gas transportation. The plan is still in the early stages, but it’s worth keeping an eye on.

Energy collection can be a great investment venture. More pipeline companies are getting involved in places like the Bakken, and there is strong demand on the part of producers for more infrastructure. Pipelines are faster in transportation and quicker in construction times, although the red tape during the approval process is burdensome.

But producers have made it clear that they would use pipelines without hesitation were the infrastructure in place.

And the pipeline issue may be an area where environmentalists and oil producers can agree. There is some support for pipelines within the environmental community because it would mean less reliance on rail transportation, which can be less safe than pipeline transportation. And projects like the energy corridor would be helpful in transporting harmful pollutants.

Although Allete’s expansion project has recently been announced, it is certainly a positive step toward bringing the infrastructure issue to light. Allete and Allete Clean Energy are examining other projects, but we’ll see if both companies follow through on this announcement.


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