Lessons from the Dakota Access Pipeline
The Dakota Access Pipeline (DAPL) is expected to begin carrying crude oil from western North Dakota to Illinois by May, but the Standing Rock Sioux Tribe plans to pursue efforts in and out of court to stop it and other energy infrastructure projects. Tribal Chair David Archambault recently said, “We’re going to continue to fight this in court and we’re going to take it as far as we can.”
The $3.8 billion, 1,172-mile-long pipeline will transport about 500,000 barrels of Bakken oil—just under half the state’s crude production—from northwestern North Dakota across South Dakota and Iowa, finally ending up at a crude terminal in Patoka, Illinois.
The DAPL project has completed its directional drilling under Lake Oahe and the remainder of its pipeline construction, and DAPL’s parent company, Energy Transfer Partners, submitted a tariff filing to the Federal Energy Regulatory Commission in the final week of April saying it intends to have the DAPL pipeline in operation by May 14.
Despite the fact DAPL has cleared every state and federal hurdle placed before it, the project continues to face stiff opposition from environmental extremists. “We’re going to build awareness about the investors, the lenders, the banks, the financial institutions who fund projects like this and who fund companies like Energy Transfer Partners,” Archambault said recently at an event at the University of North Dakota School of Law. The event was titled “Resistance, Resilience and Reconciliation: Indigenous Environmental Justice.”
So, what does “build awareness” mean for DAPL and every other energy infrastructure project in development? The term cannot be construed as anything other than a threat of economic consequences to banks, investors, suppliers, and developers and we can expect much more “awareness-building” by environmental extremist groups in the months and years ahead. Why? Because it works.
“Building awareness” is a very successful tactic for the left. Businesses often cave too quickly to economic bullying, and environmental extremists know it. Companies would rather take the easy way out and give in to threats than do what they truly believe is right. For many of these companies, it’s not worth the fight, and more importantly, the higher costs are often passed on to the consumer.
The protests over DAPL were never really about the river crossing, as the environmentalists involved suggested. DAPL crosses under the Missouri River two times in North Dakota. The first crossing is just miles from the water plant serving Williston, North Dakota, my hometown. However, you would never know that based on the national media coverage of the DAPL protests. It is just one of the inconvenient facts that are so easily ignored by the alt-left. In fact, there are 1,079 existing crude oil pipeline river crossings in North Dakota alone and more than 38,000 in the United States. Why was there never any outrage over any of those crossings?
We in North Dakota know the DAPL protest is not about water and not about sacred or historic sites; this protest is about politics, intimidation, and bullying. The alt-left continues its efforts to shut down DAPL, a project that was fully vetted, passed every regulatory requirement, and is now 100 percent complete. If environmental radicals are successful in bullying DAPL out of commission, it would have a chilling effect on private investment in future traditional energy projects.
For many environmentalists, their agenda is driven from the top. Facts, the rule of law, private property rights, and playing by the rules do not matter.
Much can be learned from the DAPL project and its associated protests, and one of the most important is a lesson in economics. Reuters reported on April 19, 2017, that the largest refinery on the East Coast will not take delivery of Bakken oil in June of this year, despite having done so for a long time. This is attributed to the expected start of DAPL.
Crude sent by rail (CBR) to the East and West Coasts of the United States has always been vital to the development of the Bakken in North Dakota. As the tight oil play in North Dakota ramped up, there was not enough pipeline capacity to handle the flood of oil being produced. CBR filled the gap nicely and had the added benefit of flexibility, giving producers access to new markets on both coasts.
Pipeline capacity has slowly increased despite the well-publicized battles over the Keystone XL Pipeline and DAPL pipeline. Between the drop in oil production caused by lower oil prices and the increase in pipeline capacity, CBR volumes have fallen considerably. The North Dakota Pipeline Authority reported CBR volumes in North Dakota dropped from nearly 850,000 barrels per day in early 2015 to just under 300,000 barrels per day in February 2017.
Now that DAPL is coming online and taking commitments from oil producers, we are able to see Bakken CBR volumes sent to East Coast refineries will crumble over the next few months, down to a trickle by the end of the summer. DAPL will safely and economically deliver Bakken oil to new markets on the Gulf Coast by next month, and the economics are no longer there to ship oil by rail to the East Coast.
It seems the DAPL saga will continue for at least a little while longer, but in the meantime, producers and mineral owners will benefit from the added capacity and new markets that DAPL is providing.