pipeline

After the U.S. Army Corps of Engineers (COE) announced it will deny the easement for the Dakota Access Pipeline (DAPL) to be drilled under Lake Oahe – the drinking water source for the Standing Rock Sioux  – the oil company was quick with its response.

Energy Transfer Partners (ETP) openly stated it would ignore COE’s decision and plan to continue installing the pipeline in the original route, calling the decision a political move by the Obama administration.

As stated all along, ETP and SXL are fully committed to ensuring that this vital project is brought to completion and fully expect to complete construction of the pipeline without any additional rerouting in and around Lake Oahe. Nothing this Administration has done today changes that in any way.

Contrary to this statement, DAPL is not “vital” to the already overbuilt transport capacity of the Bakken oil fields (more on that later). But political posturing is not enough to explain ETP’s frantic push to complete its high-risk investment project.

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After delays caused by months of protest at Standing Rock and direct action elsewhere, another delay in the form of having to reroute the pipeline could spell financial doom for the entire $3.8 billion DAPL project.

According to the Institute for Energy Economics and Financial Analysis, DAPL is on the verge of becoming a “stranded asset” due to several factors, including the high-risk financing behind the project and the potential for shipping contracts to be cancelled or renegotiated.

DAPL faces a looming financial deadline. The pipeline’s principal backer, Energy Transfer Partners (ETP), has conceded in court proceedings that it has a contractual obligation to complete the project by January 1, 2017. If it misses this deadline, companies that have committed long-term to ship oil through the pipeline at 2014 prices have the right to rescind those commitments—and may well exercise that right.

The report describes financial weaknesses in the project and the fact that the oil-transport infrastructure for the Bakken region is already overbuilt, with 60 percent of existing infrastructure underutilized. Also, low oil prices have contributed to a drop in Bakken production (20% from its 2014 peak) and declining interest in drilling new wells – further negating the need of DAPL.

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All of these factors make for a greater likelihood that oil shippers will choose to use existing transport methods, rather than wait on a pipeline that isn’t even necessary, or will renegotiate terms which would sink ETP’s profits.

“The broader economic context for the project has changed radically since ETP first proposed it, in 2014. Global oil prices began to collapse just a few months after shippers committed to using DAPL, and market forecasters do not expect prices to regain 2014 levels for at least a decade. As a result, production in the Bakken Shale oil field has fallen for nearly two consecutive years, creating major financial hardships for drillers.

Because the economic prospects for Bakken oil producers have dimmed dramatically since early 2014, oil shippers—in the interest of protecting their investors and shareholders—may attempt to renegotiate terms when ETP misses its Jan. 1 deadline, seeking concessions on contracted volumes, prices, or contract duration.

Moreover, if oil prices remain low, as projected, Bakken oil production will continue to decline, and existing pipeline and refinery capacity in the Bakken will be more than adequate to handle the region’s oil production. If production continues to fall, DAPL could well become a stranded asset—one that was rushed to completion largely to protect favorable contract terms negotiated in 2014.

Clark Williams-Derry, co-author of the report, said DAPL “stands to fall victim to global oil markets” and its capacity will become “superfluous.” Co-author Cathy Kunkel described how DAPL is being “rushed to completion largely to protect favorable contract terms negotiated in 2014.”

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Adding to the pressure is that ETP planned to sell 49 percent of its 75 percent stake in DAPL (the other 25 percent stake is Phillips 66), but that sale cannot be finalized until COE grants its final easement for pipeline installation. An ominous sign came in June 2016 when Moody’s placed ETP on a “negative outlook.”

 “The rush to build the controversial Dakota Access Pipeline stems largely from the financial motivations of Energy Transfer Partners, motivations that do not necessarily coincide with the interests of Bakken oil drillers or with any economic rationale for increased regional pipeline capacity.”

The entire fiasco of DAPL underscores the futility of clinging to fossil fuels, and the absurdity of massive investments in oil with its notoriously volatile prices. The reality is that market forces are propelling renewable energy to eclipse dirty fuels. In pushing destructive, unnecessary projects like DAPL, Native American rights and the rights of landowners are systematically ignored and dismantled.

Fortunately, the incredible efforts of water protectors and those joining the Standing Rock Sioux in solidarity have had a profound effect. The tribe’s water source might actually be protected if ETP does not violate the law.

The protests have also exposed the wanton disregard for Native American rights by corporations and government, the willingness of police to become militarized protection services for corporations, and the destructive way in which fossil fuel companies go about their high-risk business.

 

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Justin Gardner is a peaceful free-thinker with a background in the biological sciences. He is interested in bringing rationality back into the national discourse, and independent journalism as a challenge to the status quo.