It’s not unusual for court arguments to engage in a bit of hyperbole to drive home their points, but myriad pipeline proponents clearly want to highlight worst-case scenarios to state their cases for maintaining the crude flow through the Dakota Access Pipeline while a broader environmental review is conducted.
According to court filings, the potential shutdown of DAPL would not only hurt Bakken Shale’s crude oil production, but could lead to famine, floods, fires, fatalities and much more.
The nation’s geopolitical security would be threatened and the elimination of a major crude artery would trigger greater environmental emissions, worse health outcomes, poor education funding, and even the potential for “incinerated” towns.
Even if some level of overstatement is at play, it’s worth examining how such a major crude pipeline shutdown could impact the energy sector and reverberate well beyond oil.
On August 5, the day the pipeline was originally ordered to be emptied, a federal appeals court said the pipeline could remain open, but left it up to a federal district court to possibly make a stronger argument for an injunction to shut the pipeline. And both courts have ruled for now a broader environmental review, which could easily drag out into 2021, is required to justify the pipeline’s operation .
If nothing else, a DAPL shutdown is no longer imminent, but its future still remains in an ominous state of limbo.
From the stranding of grain shipments, as they’re replaced by crude-by-rail cargoes, to the loss of funding for flood protection projects, there are many potential ripple effects from the possible DAPL shutdown, as argued by 19 states, the federal government, and numerous trade associations and corporations.
“If pipeline flow must cease while the environment is studied, it is not only oil producers who will suffer – so will grain farmers, the world food supply, public safety, and the environment itself,” the group of states argued in a recent court filing.
Part of the plaintiffs’ counterargument, of course, is that they’re greatly exaggerating and the global coronavirus demand is still crippling crude demand from the Bakken anyway, so other commodities wouldn’t be dramatically impacted. North Dakota’s crude Bakken production fell from 1.46 million b/d in late 2019 down to just 827,000 b/d in May, according to the state, although volumes are back on the rise.
Still, it’s notable and unprecedented that we’re discussing shuttering a 570,000 b/d pipeline that’s already built and operational, which moves close to 40% of the Bakken crude produced from North Dakota and almost 5% of all US crude.
Despite all the talk of famine and fires amid the COVID-19 pandemic, the biggest direct impact of a DAPL shutdown would be to the oil sector and North Dakota’s state coffers. The state estimates that close to 7,000 jobs would be permanently lost and tax revenues would fall by close to 20%, or $2 billion, over two years.
Pipeline operator Energy Transfer said almost 180,000 b/d of crude could be shifted to rail or truck delivery, while reiterating the argument that rail and truck transportation is much more dangerous than pipeline delivery. And with limited additional pipeline capacity, much of the Bakken production would be forced to shut in.
“The pandemic is temporary and does not affect the fundamental and deeply painful irreparable economic and environmental consequences of a shutdown,” the pipeline operator said. “The cost to oil producers, states and others would be hundreds of millions—plus more air pollution and greater risks of train accidents, fatalities and oil spills.”
When DAPL first opened after many months of heated protests and legal wrangling, the crude-by-rail percentage of oil transportation in North Dakota quickly plummeted from 24% down to 7%, the North Dakota Petroleum Council noted. From 2013 to 2018, the fleet of rail cars carrying oil was more than halved from nearly 29,000 tank cars to less than 13,000. At its peak, North Dakota’s crude-by-rail export volumes reached 850,000 b/d.
“This [rail] capacity no longer exists,” the council stated. “The dramatic logistical changes needed to shift the majority of DAPL’s flows to rail are not physically possible anytime soon. A sudden shutdown of DAPL would necessitate widescale shut-ins of North Dakota production.”
Many of the rail cars were phased out for no longer meeting upgraded safety standards, several rail terminals were retired or repurposed, and it would take some time to staff up a trained workforce to meet the demand. And it would require many months to retrofit old rail cars or manufacture new ones, the council said.
Because of the additional costs of crude-by-rail in the Bakken of $5-$10/b, the council argued each 100,000 b/d on rail would equate to North Dakota producers paying $15 million-$30 million more per month in additional transportation costs.
“Shutting down DAPL at the present time would result in another wave of shut-in production on top of whatever volumes producers have already curtailed due to low prices,” the council said.
In addition, the American Petroleum Institute and other industry trade groups noted oil refineries from the Midwest to the Gulf Coast would suffer from the lack of DAPL inputs, furthering hampering US energy security.
“A DAPL closure will irreparably devastate the competitiveness of numerous refineries that rely on its crude, impairing their ability to fully recover in this economic climate and putting them at risk of possible closure,” the trade groups stated. “For consumers, less refined product will translate into higher prices for gasoline at the pump.”
Further ripple effects
But the court arguments extend well beyond the impacts on the energy sector and North Dakota’s shale jobs.
Because North Dakota’s state funds are do dependent on revenues generated from oil production, the state argues the DAPL shutdown could greatly hinder state services for hospitals and education funding.
Likewise, the North Dakota Water Users Association said the loss of revenues from DAPL would cut into funding for several flood control and water supply projects needed to keep communities both above water and supplied with ample potable water.
Farmers could be financially crippled as well and, in particular, their grain shipments could be replaced and stranded by more valuable crude oil moving to rail, effectively harming food production in the US and much of the world, states and industry groups said – again at risk of hyperbole.
“The most food-secure nation on earth could well experience food shortages, to say nothing of the consequences for developing nations whose industries and food security also rely on American grain exports,” argued the group of states, including South Dakota, Texas and others.
The states highlighted the greater risks in crude-by-rail transport, even citing the 2013 “rail accident that incinerated much of the town of Lac-Mégantic, Quebec, with Bakken crude,” killing more than 40 people.
Matter of precedents
The whole legal debate over DAPL essentially boils down to the court ruling the pipeline’s environmental review process was unlawfully fast-tracked by the US Army Corps of Engineers under encouragement from the Trump administration.
Judge James Boasberg of the US District Court for the District of Columbia ordered a new environmental impact statement that could take another year to complete and he ruled in July that the pipeline must shut down while the review is conducted, in part citing a powerful incentive to finish the study in a timely fashion. The appeals court said Boasberg failed to justify the shutdown, but said he could still argue for a closure under a more stringent injunction legal test.
The US Army Corps of Engineers argues the Boasberg ruling was essentially wrong on all counts.
“All of this creates a new, heightened standard of judicial review that will be impossible for agencies to meet and that will accordingly generate powerful new headwinds against vital infrastructure projects like this pipeline,” the Army Corps said.
For his part, Judge Boasberg said he didn’t take lightly the serious effects the pipeline shutdown would have on states, companies and individual workers, but that such impacts couldn’t tip the scales against his ruling.
“The court does not reach its decision with blithe disregard for the lives it will affect,” he ruled. “It readily acknowledges that, even with the currently low demand for oil, shutting down the pipeline will cause significant disruption to DAPL, the North Dakota oil industry, and potentially other states. Yet, given the seriousness of the Corps’ … 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.”