The midstream sector of the energy industry faces significant logistical challenges to handle the growing volumes of oil coming out of the Bakken shale play, a panel of industry observers told attendees at Hart Energy’s Rockies Midstream conference in Denver.

“There is unprecedented change that's happening in the U.S. crude marketplace” because of the Bakken, Greg Haas, Hart Energy’s manager of research, said in his presentation. That point brought agreement from the other panel members, Tad True, vice president of Bridger Pipeline LLC; and Bradley Olsen, vice president-midstream research, for Tudor, Pickering & Holt.

True provided a perspective on the size of the midstream challenge during his portion of the discussion.

“There's a 900,000 barrel-a-day difference between total takeaway capacity and total peak production” in the Bakken, he said. “Some OPEC countries don’t produce that much.”

That creates differing perspectives on the situation within the oil and gas business, he added. “If I'm a producer, I look at this and I think that's fantastic, that's just great. From a midstream guy, I'm going to look at this and say, ‘you hold on a second,’ ” he added. Midstream infrastructure has a hard time matching the growth.

One impact of that steep rise in output is significant change in the traditional pipeline-rail transportation balance in the midstream, True said. The conventional pipeline tariff edge may not matter as much this time.

“It looks like every pipeline leaving the basin is going to get filled. We do need rail now, but at some point in the future we won’t. That's what the (conventional) model shows us. The basis for this model is that the lowest cost of transportation is going to be the first that gets filled,” he said. But that model is proving wrong, True added, because of volume commitments, regional infrastructure constraints and geographic price differentials.

Price differentials are driving where the crude goes, he said. Oil is worth far more to refiners on both the East and West coasts than at the Cushing, Okla., pipeline trading hub – and rail is the only way to reach those markets from North Dakota.

“It wasn't that long ago when the absolute price of crude oil was between $22 and $26, and now we're looking at differentials of about the same amount,” he said.

Olsen discussed Bakken midstream merger and acquisition deals “to give an idea of where the market is going and what the market is thinking.

“We've seen crude-gathering assets in the Bakken area transact at between 15 and 20 times cash flow. Obviously, even for that elevated valuation in the midstream space, that's a pretty healthy price,” he said. “Clearly, the gathering assets that a lot of smaller midstream operators and private equity teams have put together have a lot of value.”

The how-to-move Bakken crude riddle actually matches a long-term regional trend, Olsen added. “The Rockies tend to export a lot more than other regions in terms of hydrocarbon production.” Coupling Bakken production with the burgeoning Denver-Julesburg basin’s growing crude flows complicates things in what has traditionally been a natural gas-prone region, “so getting crude to market via pipes or rail – everything was on the table.”

Hart Energy’s Haas called the current situation for midstream operators “just an amazing time of unconventional supply growth, great midstream pipeline and rail construction and expansion.” The current trends create “advantages for your ultimate customer, the refiners.”