ND could gain up to $100M a year from Dakota Access
BISMARCK — North Dakota could gain as much as $100 million a year in additional tax revenue after the Dakota Access Pipeline goes into service, largely due to savings in oil transportation costs.
The $3.8 billion four-state pipeline, expected to be complete as early as next week, will bring a more competitive price for Bakken crude by connecting North Dakota with Gulf Coast markets.
The savings in transportation costs increases the price of oil at the wellhead, which benefits the producers, royalty owners and the state through increased oil tax revenue, said Tax Commissioner Ryan Rauschenberger.
"Every additional dollar that an oil company is able to get from a barrel, that doesn't just help them but it helps the state," he said.
Many in the oil industry consider the 1,172-mile pipeline to be a game-changer for the Bakken, which previously relied on more costly rail transportation to bring oil to market.
When Dakota Access goes into service, North Dakota will have more than enough pipeline capacity to transport the state's oil production, most recently estimated to be about 942,000 barrels per day.
"It gives North Dakota new life in terms of saying we're open for business and we have enough pipeline capacity," said Trisha Curtis, president of PetroNerds, an energy analytics and advising firm in Denver.
Dakota Access will initially ship up to 470,000 barrels per day from the Bakken oilfields to a transportation hub in Patoka, Ill., accounting for half of the state's current production.
Curtis anticipates Dakota Access will operate close to capacity because of the competitive transportation costs. The pipeline can be expanded to ship up to 570,000 barrels per day.
Ron Ness, president of the North Dakota Petroleum Council, estimates that Dakota Access will save oil companies about $3 a barrel in transportation costs. Curtis estimates that cost savings at about $1 to $3 per barrel.
In addition, Dakota Access is bringing more competition to transportation costs in North Dakota, driving down costs on rail and other pipelines, Ness said.
That savings adds up to big money for North Dakota. For every $1 increase in the price of oil, Rauschenberger estimates North Dakota sees a benefit of nearly $34 million a year in oil tax revenue.
"For every dollar, it makes a huge impact for the state," he said.
In addition to oil tax revenue, Rauschenberger estimates the state will receive about $10 million a year in property tax revenue from Dakota Access, as well as additional income tax revenue from royalty owners who benefit from the transportation savings.
Rauschenberger said it's somewhat speculative to determine the exact impact of Dakota Access on tax revenue, but he estimates it could be up to $100 million a year.
"That's probably on the higher end of the overall benefit we would see," he said.
Most of that revenue would go into restricted funds, such as the Legacy Fund and the Common Schools Trust Fund rather than the state's general fund budget, Rauschenberger said.
"Still, that eases the state budget having extra money in those savings accounts," he said.
The property tax revenue would stay in the counties where the pipeline is located, benefiting local cities, counties and schools.
North Dakota also saw temporary economic gains from Dakota Access during construction of the project, such as sales tax revenue and the impact of construction jobs, Rauschenberger said.
In addition, seven short pipelines that will connect to Dakota Access bring additional investment to the state. The North Dakota Public Service Commission approved the latest project this week, a $6 million, two-mile pipeline that will bring oil from the Savage rail hub near Trenton to the Dakota Access Pipeline.
Rail transportation of North Dakota crude oil fell below 250,000 barrels per day in December, the lowest level since the first half of 2012, according to figures from the North Dakota Pipeline Authority. Rail accounted for 22 percent of transportation that month, while pipeline accounted for 64 percent.
Pipeline Authority Director Justin Kringstad said Dakota Access is expected to further reduce the amount of oil transported by rail, but some barrels will likely continue to be ship by rail to access markets on the East and West coasts.
"At the end of the day, it's going to take six to 12 months for the impact of Dakota Access to really settle in North Dakota as far as what we can expect long-term for market pricing," Kringstad said. "I don't anticipate it's going to happen on day one."