FEATURE: DAPL win could prove brief for Bakken crude artery

The Dakota Access Pipeline received a win April 9 when the US Army Corps of Engineers said the primary Bakken Shale artery can keep flowing crude oil for now even though it essentially is operating illegally.

Pipeline operator Energy Transfer's stock shot up by more than 2% for the day, and the 570,000 b/d pipeline looked like it could survive the Biden administration and beyond.

However, the win could prove short-lived because the Army Corps' decision just leaves the fate of the four-year-old pipeline up to US District Judge James Boasberg, who previously ordered the 570,000 b/d pipeline shuttered last year before it was halted on appeal.

Boasberg granted Energy Transfer 10 days until April 19 to update its arguments against closure, as well as the economic consequences of a pipeline shutdown.

The District of Columbia judge will then rule on whether to close the pipeline while the Army Corps completes a court-ordered environmental review that could put the pipeline in proper legal standing but that is expected to drag out until March. A plaintiff attorney said he expects a ruling by Boasberg in May.

"We interpreted the result as a simple 10-day punt, not a victory for DAPL," midstream energy analyst Ajay Bakshani of East Daley Capital said. "If anything, there might be more risk of a shutdown as the [Army Corps'] reluctance to take a position puts the decision on Judge Boasberg."

While the Army Corps' stance "absolutely" is a victory for DAPL, the 1,200-mile pipeline could still be facing a closure for several months or longer, said James Coleman, an energy law professor at Southern Methodist University.

"It would be a little surprising if the court allowed the pipeline to stay open," Coleman said, citing Boasberg's previous stance.

But it is still possible Boasberg could see the direction the Army Corps is headed -- and the more stringent legal test for a pipeline-shuttering injunction -- and opt to let the pipeline keep operating, Coleman said.

Corps position not shifting

The bigger win though for DAPL and potentially other pipeline projects is that President Joe Biden does not appear to be exerting any anti-fossil fuel influence on the Army Corps, Coleman said. The Army Corps' position on DAPL is almost unchanged from the Trump administration, he said.

That could bode well for DAPL being granted the necessary easement from the Army Corps' Environmental Impact Statement study, Coleman said, although nothing would be certain.

"Every week it's shut down, reopening it becomes less and less urgent," Coleman said of the potential DAPL closure. "Even though the Biden administration doesn't want to shut it down, that doesn't mean they would open it back up."

Instead, the Army Corps' position could prove more beneficial for other hotly contested crude pipeline projects, such as Enbridge's Line 3 Replacement where construction is ongoing in Minnesota, and its planned partial replacement of the Line 5 pipeline in Michigan, Coleman said.

Even though Biden canceled the permitting for the Keystone XL Pipeline as promised, Coleman said Biden has not taken much of a stance against pipelines otherwise.

After all, he is the same politician who crankily chided an Iowa activist and voter by saying, "Go vote for someone else," when pressed to oppose oil and gas pipelines during the Democratic primary campaign, Coleman added.

Legal gymnastics

While the US Court of Appeals for the District of Columbia Circuit last year prevented an immediate shutdown of DAPL as ordered by Boasberg, the appellate court ruled in January that the pipeline is operating in violation of federal law.

The court moved the case back to Boasberg and the Army Corps to decide whether to allow the pipeline to continue operating during the ongoing environmental impact.

The DAPL case is closely watched by industry and environmental observers alike because it could potentially set a standard for attempting to close existing pipelines and other fossil fuel infrastructure.

The appeals court agreed with Boasberg's prior ruling that the Army Corps violated the National Environmental Policy Act by approving the pipeline easement without an EIS despite the opposition from some tribes and environmental activists. And the court opinion acknowledged the unprecedented situation of a major pipeline being allowed to operate illegally.

The plaintiffs, led by the Standing Rock Sioux, asked Boasberg to shut the Energy Transfer pipeline as soon as possible because courts have ruled the pipeline is operating illegally and the Army Corps is not taking more direct action.

Boasberg expressed some surprise and disappointment that the Army Corps refused to take a stronger stance after he had already granted a 60-day time extension to allow the new Biden administration to get up to speed on the case.

"It seems I don't have any other option than to go ahead and decide on the motion," Boasberg said during the April 9 court hearing. "I too am a little surprised this is where things stand 60 days later. I would have thought there would be a decision one way or another at this point."

Dakota Access lawyer David Debold said the pipeline owners will ask for an a rehearing en banc of the appellate court ruling, and he urged Boasberg to hold off until that issue is decided. But Boasberg said he likely can issue his ruling independently of the other court.

Dollars and barrels

If DAPL is ordered shut by Boasberg in the coming weeks, energy analysts believe drastic measures will not become necessary so long as the closure is temporary, through the back half of the year until the EIS is completed, although an unprecedented permanent closure would have much bigger long-term impacts.

With Bakken crude production and activity already diminished from the ongoing coronavirus pandemic and, to a lesser extent, DAPL uncertainty, a temporary closure would keep projected Bakken production growth from occurring, but it would not trigger substantial reductions in volumes, analysts said.

With the potential loss of DAPL capacity, analyst consensus mostly expects at least 200,000 b/d to move to existing pipeline alternatives, about 200,000 b/d more to crude-by-rail, and up to another 100,000 b/d or so in increased trucking volumes.

North Dakota crude production fell from a high of about 1.5 million b/d at the end of 2019 to less than 865,000 b/d in May during the peak of pandemic lockdowns. Output bounced back to 1.2 million b/d late last year before dipping back to 1.15 million b/d in January.