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U.S. court orders Dakota Access oil pipeline to be shut, emptied


NEW YORK (Reuters) – A U.S. District Court on Monday ordered Energy Transfer LP to shut and empty the largest pipeline from the North Dakota shale oil fields within 30 days, in a big win for the Native American tribes who have fought the line’s route across a crucial water supply.

Energy Transfer’s 570,000 barrel-per-day (bpd) Dakota Access oil pipeline (DAPL) is a vital artery to transport oil out of North Dakota’s Bakken shale basin to the Midwest and Gulf Coast refineries. Native American tribes and environmental groups have long protested the line’s construction.

“Today is a historic day for the Standing Rock Sioux Tribe and the many people who have supported us in the fight against the pipeline,” said Chairman Mike Faith of the Standing Rock Sioux Tribe. “This pipeline should have never been built here. We told them that from the beginning.”

The U.S. Army Corps of Engineers violated the National Environmental Policy Act (NEPA) when it granted an easement to Energy Transfer to construct and operate a segment of the pipeline running beneath Lake Oahe, because they failed to produce an adequate Environmental Impact Statement (EIS) despite a requirement for it, the court said.

Preparing a thorough EIS could take about thirteen months, according to an estimate by the Army Corp. Without the order to shut down and empty the line, the Corps and Dakota Access would have little incentive to finish the EIS in a timely matter, the court said.

“Given the seriousness of the Corps’ NEPA error, the impossibility of a simple fix, the fact that Dakota Access did assume much of its economic risk knowingly, and the potential harm each day the pipeline operates, the Court is forced to conclude that the flow of oil must cease,” the U.S. District Court for the District of Columbia said in the ruling.

The ruling is a blow to the administration of U.S. President Donald Trump, which has sought to accelerate pipeline construction by cutting the red tape and environmental and community review processes that typically slow down projects.

The administration’s effects have so far had little impact on large, controversial projects and the latest DAPL order pushes decisions about the future of the pipeline to the next administration.

“With odds of a temporary stay on appeal only 30%, the court-ordered DAPL shutdown on Aug. 5 should last at least 10-12 months if Donald Trump wins re-election and permanently if not,” Rapidan Energy Group said in a note.

The ruling comes a day after Dominion Energy Inc and Duke Energy Corp decided to abandon the $8 billion Atlantic Coast Pipeline project after a long delay to clear legal roadblocks almost doubled its estimated cost.

U.S. Energy Secretary Dan Brouillette blamed activists for the pair of high-profile pipeline setbacks in recent days, including the court’s DAPL decision.

“I’m not quite sure what they’re cheering except for perhaps the loss of jobs all throughout America,” he said during an interview on Fox Business Network.

Energy Transfer did not immediately respond to a request for comment.

“Shutting down the Dakota Access Pipeline would have devastating consequences to North Dakota and to America’s energy security. This terrible ruling should be promptly appealed,” said Kevin Cramer, North Dakota Senator and Trump ally.

MARKET IMPACT

Oil prices have plunged this year as the coronavirus pandemic eroded global demand by nearly 30% in April and restricted travel across the world.

NCS Multistage
NCS Multistage

 

The collapse forced oil producers across the United States to shut in production and curtail new drilling. North Dakota is one of the costliest spots in the United States to produce crude, and its output has dropped by about one-third from last year, more than most other oil-producing states.

Shutting down the pipeline will cause significant disruption to DAPL, the North Dakota oil industry, and potentially other states, the court said.

But clear precedent favoring a decision for the pipeline to be emptied and the seriousness of the Corps’ deficiencies outweighs the negative effects of halting the oil flow for the thirteen months to create an EIS, the court said.

The court did not specify the method DAPL must use to empty the line.

Market sources in the Bakken said the ruling will likely divert some oil flows onto railcars but that a long-term closure of the pipeline would force producers to shut in more output.

“There’s going to be a scramble for rail cars,” said one person familiar with rail operations out of the Bakken.

The loss of DAPL shipments will result in more Bakken crude traveling by rail to the U.S. West and East coasts for refining instead of down to the Gulf Coast for exports, the source said.

Reporting by Devika Krishna Kumar in New York, Valerie Volcovici in Washington DC and Laila Kearney; Editing by Chizu Nomiyama and Marguerita Choy



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