Though unloved now, East Daley Analytics believes the Bakken will take on a larger role as a supplier of ethane than commodity markets currently give credit. If correct, then we expect more ethane will be shipped to the Gulf Coast, and more EBITDA generation for ONEOK (OKE).
Location is the biggest hurdle for the Bakken. North Dakota is far from Mont Belvieu, the fastest growing NGL demand market, setting a high cost to move trapped ethane to Texas. The Williston Basin is much farther away from market than the Permian, Eagle Ford or Anadarko, so the in-basin price netback is not as competitive.
The spot price of ethane at Mont Belvieu is about $0.16/gal today, but the contango-shaped curve indicates prices around $0.25/gal in 2026. From the Bakken, shippers (mostly producers) pay a bundled transportation and fractionation (T&F) rate of ~$0.30/gal to move molecules to Mont Belvieu.
As shown in the map, ethane does not move at these prices. Instead, operators sell it as a gas molecule down Northern Border Pipeline, where the price on a $/gal equivalent is higher. This is why East Daley’s Bakken NGL forecast looks flat in the NGL Hub Model (see figure) and mirrors our outlook on overall oil and gas production growth in the Bakken. Northern Border does have limits to the amount of ethane that can be delivered before the composite Btu content becomes too high.
Here’s the key thing to ethane – the market does not require more drilling or completion capital to yield more supply. The marginal cost is minimal to cool down cryogenic plants (especially in the winter season) and extract the lightest end of the NGL barrel.
Instead, the invisible hand of the market must act as a catalyst to flip the switch on processing plants. That catalyst could come from ONEOK, where the internal economics may tell a different story than what market prices suggest.
Referring again to the map, the only cost OKE incurs to move its own ethane supply (“equity barrels”) to market is the variable T&F. EDA estimates this cost is $0.07-$0.09/gal from the Bakken to Mont Belvieu. When viewed in this context, the c2 netback price becomes 1) positive at $0.16-0.18/gal and 2) greater than the equivalent per-gallon price if sold as gas at AECO prices in 2026.
EDA recently gave our view why OKE is opting to rebuild the Medford fractionator in Oklahoma. We believe most of the NGL supply growth supporting the Medford frac will come from the Bakken (less so from the Permian or Anadarko), as we discussed in greater detail in the 3Q24 follow-up webinar to clients. – Rob Wilson, CFA Tickers: OKE.
Webinar TOMORROW – Fast and Furious: Production, Constraints and Opportunity
East Daley will host our latest MCAP webinar on September 25th at 10 am MT. In “Fast and Furious: Production, Constraints and Opportunity,” we will look at opportunities across the energy complex:
Register here to join us.
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