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Dakota Access Pipeline gains win-win with court ruling and Biden inaction


DAPL ruling bodes well for other legal fights over existing pipelines

Developer still awaits environmental review slated for March 2022 completion

Energy Transfer has still planned on DAPL capacity expansion

  • Author
  • Jordan Blum    Felix Clevenger
  • Editor
  • Gary Gentile
  • Commodity
  • Oil
  • Topic
  • US Policy

The future of the 570,000 b/d Dakota Access Pipeline is still at risk, but the primary crude artery out of the Bakken Shale is in a much stronger position after a federal court ruling kept the oil flowing and the Biden administration opted against intervening on an existing pipeline system.

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The May 21 court ruling essentially decided there is a minimal threat of oil spills from the four-year-old pipeline and the risk fails to rise to the necessary "irreparable harm" level needed to shutter the 1,200-mile pipeline, even though DAPL is basically being allowed to operate illegally without the necessary federal permitting that was previously yanked.

The US Army Corps of Engineers -- now under President Joe Biden -- could have decided to close the pipeline for now while a court-ordered environmental review is conducted that could put DAPL back in good legal standing after it is completed in March 2022. But the Army Corps punted the decision to US District Judge James Boasberg of the District of Columbia, who instead criticized the Army Corps for inaction.

"That was essentially Biden's chance to exert some influence and he didn't take it," Ajay Bakshani, analyst for East Daley Capital. told S&P Global Platts May 24. "It's definitely positive for the Bakken."

The end result is DAPL will keep operating -- with plans to expand capacity by the end of the year -- although a negative Environmental Impact Statement from the Army Corps next year could again threaten DAPL's viability.

The DAPL case was 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. Now, drilling activity should ramp again with the removal of much of the legal uncertainty, according to S&P Global Platts Analytics.

Platts Analytics expects Bakken crude and condensate production to rise from 1.1 million b/d in May to 1.34 million b/d by the end of 2022.

Impacts on other pipelines

While Biden has opposed some proposed projects, most notably the Keystone XL Pipeline, he has not taken stances in legal fights against other pipelines, including DAPL, the Line 5 shutdown fight in Michigan, Enbridge's Line 3 Replacement project, and the planned Byhalia Connection near Memphis that is part of the Diamond Pipeline extension project.

The White House clearly wants to support environmental concerns and tribal rights, but there also remains the need to ensure energy security, and closing existing pipelines can cause major disruptions, said James Coleman, an energy law professor at Southern Methodist University said May 24 in an interview. Coleman pointed out the recent, regional fuel shortage issues from the one-week closure of the Colonial Pipeline from a cyberattack.

"It's still a little bit of a black box, but their actions on Dakota Access certainly are good news for other existing pipelines, such as Line 5," he said.

Any additional legal appeals are a long-shot at best, Coleman said, so the future of DAPL largely remains in the Army Corps' court.

"It puts the Biden administration in a tough position," he said. "This isn't the end of the road for the plaintiffs because the Biden administration could change its mind at any time."

Indeed, the Army Corps' formal stance is that DAPL remains under continual monitoring and can be ordered closed at any time if problems arise. Not that any about face is anticipated.

Legal arguments

After Boasberg did order DAPL shut last year, an appeals court stopped the closure and applied a higher legal standard on a permanent injunction, specifically a four-point test to prove irreparable harm as set in the 2010 legal precedent, Monsanto v. Geertson Seed Farms.

As such, Boasberg said May 21 the Standing Rock Sioux-led plaintiffs did not prove the necessary irreparable harm. In the end, Boasberg ruled the plaintiffs did not clear the "daunting hurdle" required by law.

"The court acknowledges the tribes' plight, as well as their understandable frustration with a political process in which they all too often seem to come up just short," Boasberg stated. "If they are to win their desired relief, however, it must come from that process, as judges may travel only as far as the law takes them and no further. Here, the law is clear, and it instructs that the court deny plaintiffs' request for an injunction."

It is somewhat unusual for a judge to issue a ruling that deviates from his previous decision, even given the higher legal burden, said Coleman. In that respect, it is an even stronger ruling for pipeline operator Energy Transfer because of the decisive legal position that a notable DAPL oil spill is very unlikely, he said.

And Boasberg instead took aim at the Army Corps.

"The Corps has conspicuously declined to adopt a conclusive position regarding the pipeline's continued operation, despite repeated prodding from this court and the court of appeals to do so," Boasberg wrote. "Its chosen course has instead been -- and continues to be -- one of inaction."

In the Bakken, crude trading started the week May 24 on a quiet note. The lack of liquidity aligned with Canadian holiday Victoria Day, which removed many participants from the market. Bakken traded near the DAPL injection point in Williston, North Dakota, in July was last assessed at the NYMEX WTI CMA minus $2.00/b May 21, with no further indications heard May 24.

As for DAPL, the last update from Energy Transfer is it remained focused on expanding the Bakken system to about 750,000 b/d -- and then consider additional capacity growth -- this fall. Energy Transfer has planned to expand Dakota Access to 1.1 million b/d. But, with the coronavirus pandemic hurting crude demand, the expansion is taking a phased-in approach.