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Dakota Access Pipeline Shutdown Halted but Environmental Permit Still Withdrawn

Ruling keeps DAPL oil flowing for the time being broader federal environmental review still required

Source: S&P Global Platts, August 5, 2020

Houston — A US federal appeals court halted on Aug. 5 the pending shutdown of the Dakota Access Pipeline slated for the same date, but the court is still requiring an environmental review to move forward that would determine if the 570,000 b/d crude pipeline can remain open longer term.

However, the court would not take a broader step and reissue the water permit for the pipeline that was yanked by the district court, necessitating a broader environmental review by the US Army Corps of Engineers that could draw out into 2021.

Energy Transfer General Counsel Tom Mason called the court order “good news,” despite the decision to withhold the key water permit.

“We believe our arguments are strong, and we’re confident the pipeline will continue to operate,” Mason said in an earnings call shortly after the ruling.

The appeals court said the Corps of Engineers must inform Boasberg if it will let the pipeline remain open while it conducts the court-ordered environmental review, and legal and energy analysts said it’s very likely the Corps of Engineers will keep DAPL flowing. But, critically, Judge Boasberg also could again order a shutdown if he uses a more stringent, four-part injunction test in his reasoning, which could go back to the appeals court for consideration.

In the meantime, the appeals court will consider further arguments on whether the Corps of Engineers must be required to conduct the broader review and issue an Environmental Impact Statement, called EIS. An expedited court process will require arguments and responses due to the court by the end of September and a court hearing will be scheduled shortly thereafter.

“We’re still confident we’ll win in the appeals process and the EIS won’t be required,” Mason added.

The ruling comes at a time when regulatory and legal fights over pipelines are fiercer than ever with more hurdles to jump over to build long-haul pipeline systems. The pipeline came online in 2017 after a series of protests and arrests over the pipeline led by the lead litigants, the Standing Rock Sioux Tribe.

When asked how the EIS could be impacted if the presumptive Democratic nominee Joe Biden becomes president next year, Mason said, “It’s really hard to speculate on that.”

Despite parts of the Aug. 5 court ruling going both for and against Dakota Access, analysts still consider it a big win for Energy Transfer.

“Even with the residual uncertainty, it’s far better for DAPL and Energy Transfer to remain operating while in legal limbo than to have executed the draconian shutdown order from Judge Boasberg,” said East Daley Capital midstream analyst Ethan Bellamy.

James Coleman, an energy law professor at Southern Methodist University, said there are still a lot of question marks concerning whether Boasberg intervenes again or what could happen with an environmental review dragging well into 2021, and potentially under a Democratic White House.

“The headline here is great for the company because they want to make sure there’s not an immediate shutdown. But I’m sure they’re still very concerned,” Coleman said. “This is a pipeline that was approved back in the Obama administration, and we’re still talking about whether it will be allowed to stay open.”


Even with the legal battle and depressed crude demand during the coronavirus pandemic, Energy Transfer is still planning to expand the Dakota Access Pipeline.

The plan is to hike pipeline capacity to about 750,000 b/d with the ability to further expand capacity to more than 1 million b/d if and when demand grows. Energy Transfer CFO Tom Long said Aug. 5 the project is on track to be completed in the third quarter of 2021. The project is more cost efficient because it only involves building new pumping stations and does not require additional pipeline construction.

Still, Energy Transfer said it will further reduce its capital spending budgets this year and for the next few years.

The 2020 capital budget was cut another $200 million down to $3.4 billion. The original budget was $4 billion. And, after planning to spend at least $2 billion in 2021 and beyond, Energy Transfer lowered its 2021 capital budget to $1.3 billion and its 2022 and 2023 budgets to mid-point ranges of just $600 million.

Long said new projects will need to pass very stringent tests to gain approval.

“We went through a very aggressive growth spurt and it’s been painful because it has cost more than we thought and taken longer than we thought,” Long said on the call.

Energy Transfer reported an $855 million net income loss in the second quarter that was primarily driven by a series of impairment charges totaling $1.33 billion. Those included a $619 million write down on its USA Compression Partners business, $483 million on its Arklatex (Arkansas, Louisiana and East Texas) and South Texas operations, and $183 million related to its Lake Charles LNG operations.

While Energy Transfer remains optimistic on growing global oil demand, Long said the industry is still facing a lot of “demand destruction” and that the recovery is unfolding more slowly than previously expected.