A federal judge on July 7 denied Energy Transfer's emergency request for a stay to avoid the ordered shutdown of the controversial Dakota Access Pipeline in August.
The decision by Judge James Boasberg of the US District Court for the District of Columbia came after he made the surprising ruling to shut the crude pipeline down and empty its volumes while a more in-depth environmental review is conducted.
Boasberg will soon schedule a status hearing to allow Energy Transfer to argue its case, potentially giving a small window for the federal judge to reverse course prior to the Aug. 5 shutdown deadline for the crude pipeline that moves up to 570,000 b/d of crude from the Bakken Shale. Otherwise, Energy Transfer would have to wait longer for the appeals process to unfold with a three-judge panel.
The unprecedented ruling to shutter an existing pipeline -- which was completed three years ago amid a series of intense environmental protests and arrests -- came after the judge determined the US Army Corps of Engineers failed to conduct a proper environmental review as required by the National Environmental Policy Act.
"The next month will be when [Energy Transfer] is working hardest to get this decision stayed. They're going to do everything they can, and that's going to involve a stay request to appellate court, may involve a stay request to the Supreme Court," said James Coleman, an energy law professor at Southern Methodist University. "We don't know the timeline on any of those decisions."
The Trump administration has pushed the Corps to fast-track the review processes for pipeline projects that were moving along much more slowly under former President Barack Obama. The industry concern is that if presumptive Democratic nominee Joe Biden beats President Donald Trump in November's election, then the Dakota Access Pipeline could be permanently closed and other pipeline projects shelved indefinitely.
The four-state Dakota Access Pipeline originates in North Dakota and runs to a hub near Patoka, Illinois, where it connects with the Energy Transfer Crude Oil Pipeline to Nederland, Texas. The system provides an outlet for crude producers in the Bakken and Three Forks areas of the Williston Basin to ship their barrels south.
Boasberg ruled that the seriousness of the Corps' deficiencies in granting the easements "outweighs the negative effects of halting the oil flow" for the 13 months that the Corps said it would need to conduct a new environmental review.
Energy Transfer spokeswoman Vicki Granado said the company will pursue an expedited appeal and other potential options.
"We are looking into all options available to us to keep this pipeline operating but, ultimately, we believe that Judge Boasberg exceeded his authority in this matter and that he does not have the jurisdiction to shut down the pipeline or stop the flow of crude oil," Granado said in a statement July 7.
RIPPLE EFFECTS
The closing of the pipeline is expected to ripple throughout the Bakken oil sector, hurting crude producers and other midstream companies that move oil and NGLs. More crude volumes would move by rail and the prices of Bakken crude and even Canadian sweet grades could head lower, sources said.
"I think the [Dakota Access Pipeline] ruling is going to lead to a lot of disruption for producers in North Dakota and for refiners in the Midwest or at the Gulf Coast," said Sandy Fielden, director of oil and products research at Morningstar.
North Dakota crude production fell below 1 million b/d in May from 1.4 million b/d in March as the coronavirus pandemic pushed oil demand, and prices, lower, S&P Global Platts Analytics data shows.
Roughly 100,000 b/d of takeaway capacity from the Bakken will disappear over the course of 2020, dropping flows to a maximum of 1.25 million b/d by year-end, according to Jean Ann Salisbury, an analyst at research consultancy Bernstein. Thus, if 570,000 b/d of Dakota Access Pipeline capacity vanishes, that will leave just around 700,000 b/d of refining and takeaway capacity for Bakken crude.
But Energy Transfer does not believe it will come to that.
"We also believe that the [Corps] has the ultimate jurisdiction over this matter, pursuant to its regulations governing Corps property," the company said, adding: "The economic implications of the judge's order are too big to ignore, and we will do all we can to ensure its continued operation."
