DAPL cites Colonial Pipeline outage as reason to remain open

The owners of the Dakota Access Pipeline cited the recent Colonial Pipeline outage from a cyberattack and a May 16 train derailment in Iowa as reasons to keep the major Bakken Shale crude oil artery open as it faces a potential court-ordered shutdown.

The DAPL court filing on May 17 also quotes US Energy Secretary Jennifer Granholm talking about the urgency to get the Colonial petroleum products pipelines back online -- and not relying too long on alternate truck or rail transport -- when she said, "Pipe is the best way to go."

Colonial was down for about a week, triggering more than half of all fueling stations in several Southern states to run out of gasoline amid panic-buying, and they are only slowly being replenished as of May 17.

A sense of urgency

There is an ongoing sense of urgency for DAPL proponents to state their case because US District Judge James Boasberg of the District of Columbia is expected to rule in the coming days or weeks 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.

Pipeline operator Energy Transfer also is appealing to the US Supreme Court. This effort comes after the April 23 denial of the rehearing en banc request from the US Court of Appeals for the District of Columbia Circuit which means the previous ruling stands: The four-year-old pipeline is operating without a legal water-crossing easement.

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 new DAPL court filing contends Granholm's comments are "instructive on the severe disruption of a pipeline shutdown, as well as the relative superiority of pipeline transportation over rail or truck." Colonial is the primary supplier of gasoline to the South and East Coast, while DAPL moves the most Bakken crude to refineries. DAPL ships more than 40% of Bakken oil and is responsible for 4.5 percent of all daily U.S. crude production, the filing noted.

"Thus, DAPL -- like Colonial -- is a vital component of the supply chain for petroleum and petroleum products in the United States. And, as is the case with Colonial, rail and truck are inferior alternatives due to their limited availability in the short term, and the greater economic, environmental, and safety costs they impose," the court filing concluded, also highlighting a May 16 Union Pacific derailment in Iowa involving a train carrying petrochemicals.

Legal status

The plaintiffs, led by the Standing Rock Sioux, asked Boasberg to shut the crude oil 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 courts previously ruled the pipeline was approved improperly by the Army Corps without undergoing proper environmental impact assessments.

The Army Corps said 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.

"It is possible that in the EIS process the Corps would find new information, but to date the Corps is not aware of information that would cause it to evaluate the injunction factors differently than in its previous filing," the Army Corps stated in an additional May 3 filing.

Last month, 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.

Alternate crude transportation

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.