The battle for Bakken NGLs could prove a costly one for ONEOK (OKE). Kinder Morgan (KMI) is taking on the basin leader with its decision to convert Double H Pipeline from crude to NGLs service. KMI has several options to take market share, according to East Daley’s review of the Bakken midstream.
The 462-mile Double H Pipeline runs adjacent to OKE’s Bakken NGL and Elk Creek pipelines, connecting operators in the Williston Basin to the Guernsey market in Wyoming. We expect a dual shock to crude oil and NGL markets from the Double H conversion, with impacts to ripple through the Rockies and Midcontinent.
It won’t be easy for KMI to knock ONEOK off its throne. ONEOK would still be the dominant player as the company controls about 47% (~1.9 Bcf/d) of the gas processing capacity in the Bakken, according to plant data in the NGL Hub Model (see figure).
But volumes from other midstream players may be up for grabs. Hess Midstream (HESS), Energy Transfer (ET), MPLX and Targa Resources (TRGP) combine for 1.4 Bcf/d of gas processing capacity in the basin and could benefit from diversification on Double H.
Kinder Morgan will need to build out connections between Double H and (possibly third-party) plants, as well as partner with other pipelines to move NGLs to market (Conway or ideally Mont Belvieu). Two options are ET’s White Cliffs Pipeline from the Denver-Julesburg Basin, or Williams’ (WMB) Overland Pass Pipeline. ET also has a presence in the Bakken G&P business via its acquisition of Crestwood Equity (430 MMcf/d of processing capacity), which could help fill up Double H and allow ET to recover those barrels for its downstream NGL assets.
According to East Daley’s Financial Blueprints, a ~30 Mb/d drop in OKE’s Bakken NGL Pipeline gathering volumes and Elk Creek long-haul volumes would result in a ~$85MM impact to annual EBITDA. This hit represents ~8% of OKE’s combined Bakken NGL and Elk Creek pipeline earnings, or 1% of total company earnings for FY24. The impact on OKE could be offset by higher-than-expected Bakken production, specifically from increased ethane recovery. On the downside, there may be rate risk as well, but we expect joint rates between Double H and downstream pipes would be in line with current Elk Creek rates (~$0.21/gal). — Ajay Bakshani, CFA Tickers: COP, CVX, DVN, EPD, ET, KMI, OKE.
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