US federal appeals court denies DAPL rehearing request

Houston — A federal appeals court quickly denied a rehearing request for the vacating of necessary permitting for the Dakota Access Pipeline, still leaving the fate of a potential shutdown of the Bakken Shale crude oil artery up to the federal judge who previously ordered the pipeline shuttered.

The April 23 denial of the rehearing en banc request from the US Court of Appeals for the District of Columbia Circuit means the previous ruling stands: the four-year-old pipeline is operating without a legal water-crossing easement.

US District Judge James Boasberg of the District of Columbia is expected to rule in May whether to close the 570,000 b/d pipeline while the US Army Corps of Engineers completes a court-ordered environmental review that could put the pipeline in proper legal standing. That Environmental Impact Statement study is not expected to be finalized until March 2022.

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 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.

The Army Corps said on April 9 that it would allow DAPL to keep flowing for now, even though it essentially is operating illegally. But, notably, the Army Corps also said it would no longer staunchly defend keeping the pipeline open, essentially punting the decision to Boasberg, who previously ordered the 1,200-mile pipeline shuttered last year before it was halted on appeal.

Earlier this week, pipeline operator Energy Transfer and other DAPL owners upped the estimated costs of economic losses now that crude oil demand is rebounding, and the state of North Dakota asked to intervene as a defendant because the Army Corps has taking a more neutral stance under the Biden administration.

The state noted that more than 40% of North Dakota's crude oil production flows through DAPL, and that the pipeline is indirectly responsible for nearly 25% of the state's revenues and many thousands of jobs.

In an April 19 court filing, Lynn Helms, North Dakota's top oil and gas regulator, said a DAPL closure would take months to arrange for alternate crude transportation via other pipelines, rail and truck, potentially triggering the shut-in of up to 400,000 b/d of crude oil output. And, because of the uncertainty about DAPL's status during the Army Corps review, many companies will be reluctant to invest in alternate transportation means for the rest of this year, the defendants argued.

If DAPL is ordered shut by Boasberg in the coming weeks, some energy analysts believe drastic measures will not become as necessary as the defendants claim 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 would not necessarily trigger the substantial reductions in volumes that the defense claims, 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, and close to 200,000 b/d more to crude-by-rail, as well as 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 less than 1.1 million b/d in February.