(BRK.A), (BRK.B)
The Obama Administration’s decision to reject the Keystone XL pipeline’s fourth phase will have a positive impact on BNSF Railway. BNSF, which since the oil boom in the Bakken Formation has become a mobile oil pipeline, is facing increased competition from a variety pipelines.
Keystone Was a Major Threat
Keystone XL, the fourth phase of the Keystone pipeline, would have moved crude oil from Alberta’s tar sands to refineries in Texas and Illinois, and most importantly in relation to BNSF, would have also carried about 100,000 barrels a day from the Bakken Formation in North Dakota and Montana.
Roughly twelve percent of Keystone XL’s capacity would have been used to carry Bakken crude through a lateral addition called the Bakken Marketlink.
While BNSF offers an advantage to crude of oil producers of being able to route shipments to different refineries depending on demand, it has about a $2 per barrel cost disadvantage versus pipeline transport.
Pipelines Keep Coming
BNSF will not be able to avoid pipeline competition forever, in fact, some of it has already started.
The Keystone XL’s Bakken Marketlink is not the only threat to BNSF’s mobile pipeline business. In August, Kinder Morgan’s 485-mile Double H pipeline began carrying crude from the Powder River Basin by way of a new connection in Douglas, Wyoming.
The Double H pipeline originates in the Bakken oil production areas near Dore, North Dakota and Sidney, Montana, and terminates near Guernsey, Wyoming. Double H interconnects with the Pony Express pipeline for further transportation to the Phillips 66 Refinery in Ponca City, Oklahoma, or the Deeprock Terminal in Cushing, Oklahoma.
The Double H pipeline has a capacity of 99,000 barrels per day and is expandable.
Kinder Morgan acquired the pipeline from Hiland Partners in January 2015.
© 2015 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.