Bakken exports to South Korea face challenges

OREANDA-NEWS. June 06, 2016. Bakken producer Continental Resources said it is exploring opportunities to export the North Dakota shale crude to South Korea, but the economics of such a deal face some challenges.

Continental chief executive Harold Hamm told a North Dakota audience on 26 May that he had just returned from South Korea where he was negotiating a deal to sell Bakken crude.

"I just got back from South Korea to arrange a deal to deliver oil from the Bakken to South Korea," Hamm said at an event where he introduced presumptive Republican presidential nominee Donald Trump. "And we are going to be able to do that. We are going to have Bakken oil going to South Korea."

Getting crude from that land-locked region to other markets has proven to be challenging and costly. When Bakken production began to boom early this decade pipeline infrastructure from the region was limited. This led producers to turn to more expensive rail shipments. Pipeline capacity has expanded since then, but changes in crude prices have also made Bakken output less attractive. Crude-by-rail traffic from the Bakken has dropped steeply, from a peak of 772,000 b/d in December 2014 to about 410,000 b/d in March.

Bakken would most likely be exported to South Korea by way of the Pacific Northwest. Bakken crude shipped by rail to that region and then by Panamax vessel to South Korea would likely land at a premium of more than \\$5/bl to regional benchmark Russian ESPO Blend.

Argus assesses the cost of freight from North Dakota to the Pacific Northwest at \\$8.31/bl for June. Assuming that a market participant pays WorldScale (WS)100 to ship Bakken from the Pacific Northwest to South Korea, freight would cost around \\$1.96/bl.

Bakken crude would most likely load for export at the 120,000 b/d Global Partners rail unloading terminal in Clatskanie, Oregon. But Global Partners in its 2015 annual report said it intended to use that facility for ethanol transloading. The company expected to complete the required cleaning and infrastructure changes by the third quarter of 2016.

Terms of a negotiated deal can often smooth over short-term economic issues, but Continental declined to elaborate further on Hamm's comments.

Continental's production at its Bakken acreage rose to 129,168 boe/d in the first quarter from 120,957 boe/d a year earlier. Given the increase in output, the key Bakken producer raised its 2016 total output guidance to a range of 205,000-215,000 boe/d compared with a guidance given in February of 200,000 boe/d.