Heavier DJ crude output spawns new grade
Crude output in the Denver-Julesburg (DJ) basin is becoming heavier as unconventional shale production moves beyond core acreage near the basin's Wattenberg field – historically a major gas field with lighter oil production – and towards more intermediate output.
One connection from the DJ basin to Cushing, Oklahoma, has already added a new quality specification to accommodate the heavier production. The 190,000 b/d Saddlehorn pipeline joint venture with Magellan Midstream, Plains All American and Anadarko Petroleum earlier this year added Saddlehorn Intermediate Crude Oil, defined as 42-46° API crude, with less than 0.40pc sulfur. The new spec became effective in September, joining specs already in place, which are Saddlehorn Crude Oil, defined as 35-44° API crude with less than 0.40pc sulfur, and Saddlehorn Light Crude Oil, defined as 44-53° API crude with less than 0.15pc sulfur. Saddlehorn is a portion of the 340,000 b/d undivided joint-interest Saddlehorn-Grand Mesa pipeline system, and NGL Energy Partners owns the 150,000 b/d Grand Mesa portion.
The new specification could help satisfy shipper demand for more competitive prices as the intermediate quality lines up closely with Bakken crude, which is around 42° API and 0.18pc sulfur. Bakken typically garners a premium over the US light sweet benchmark in the Cushing market while Saddlehorn Light would be priced at around parity to the DJ's White Cliffs grade – around 46° API and 0.39pc sulfur – which is more commonly priced at a discount to the US benchmark delivered to Cushing. The heaviest specification on the connection is close to Niobrara quality, the DJ's heaviest crude, which is about 39.5° API and 0.39pc sulfur.
Argus-assessed Bakken Cushing was at a premium to White Cliffs Cushing – and in turn to Saddlehorn Intermediate – ranging from roughly 95¢/bl to $2.40/bl from the January 2019 trade month to December. Niobrara Cushing ranged from a roughly 15¢/bl discount to a $1.10/bl premium over Bakken Cushing during the 2019 trade year.
But other systems from the DJ basin to Cushing only service crude in the light and heavy end of the spectrum without specifying an intermediate quality. The 215,000 b/d White Cliffs line from Platteville, Colorado, to Cushing, specifies Niobrara Crude Petroleum as 35-46° API and DJ Common Grade Crude Petroleum is 35-57°. The 400,000 b/d Pony Express line that connects points in Wyoming and Colorado to Cushing specifies Pony Express Light as 47-57° API with Niobrara at 34-42°. For its part, the Grand Mesa portion of the Saddlehorn-Grand Mesa system specifies Lucerne and Riverside crude as 34-42° API, and Lucerne-only crude from 42-55° API.
As DJ crude trends heavier, other systems may add additional specifications to satisfy shipper demand. In the past few years, DJ basin production has dropped by roughly 2° API, according to RS Energy Group. The company's data indicate DJ API quality fell from an average of roughly 47.5° API in 2017 to 45.5° API in 2019. Non-core DJ crude output has also been on the rise, with production outside of the central Wattenberg field rising from 60,000 b/d in 2017 to roughly 115,000 b/d in 2019, as of last August, RS Energy data show.
The nearby Powder River basin's output, also serviced by some of the same connections, has doubled since 2017 and is now at roughly 120,000 b/d, according to RS Energy. Powder River crude averages about 43° API.
"As you move out from the core Wattenberg, which includes more wet gas, the crude is going to get heavier," RS Energy director Samir Kayande said. "I can see why you'd want to segregate out more of the crude that looks like condensate, because it is dilutive."
The trend stands in contrast to how unconventional development has affected the Permian basin, which has produced lighter crude as production moves beyond the core Midland basin, giving birth to lighter grade West Texas Light (WTL), which looks similar to condensate.
By Alex Endress
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