The court overruled the lower court’s decision to halt operations of the Dakota Access pipeline (DAPL), allowing the pipeline to continue carrying crude until the U.S. Army Corps of Engineers (USACE) conducts an environmental review related to specific water-body crossings.
Crude oil prices in the region depend heavily on reliable access to downstream markets. Without DAPL, the outbound options are limited. While DAPL was never emptied or taken out of service, Bakken Clearbrook prices reacted to the news in early July, with the differential price plunging by $1. Once it became clear that the project would be permitted to remain operational, at least for the foreseeable future, prices started to gradually climb. After this week’s court ruling Bakken Clearbrook prices extended their recovery, rallying over 75c to near equivalence to WTI Cushing.
As mentioned in our previous post, Most of Bakken Oil Shut-ins Have Returned, our AEGIS model indicates that much of the previously curtailed production in the basin has been brought back on-line. If this is the case, production would exceed pipeline take-away capacity if DAPL were not available. Without DAPL, Bakken (and likely, Rockies) price differentials would be pressured lower.
The court had previously found USACE in violation of the National Environmental Policy Act (NEPA) when it granted approval to build and operate part of the pipeline that runs under Lake Oahe. Lake Oahe is in the heart of the basin, running between North and South Dakota. The court cited the USACE’s failure to produce a required environmental review as part of the basis for which the ruling was made.
USACE has been ordered to conduct an environmental review on specific water-body crossings; the process may take up to 13-months. Depending on the outcome of the environmental review, the pipeline could still be ordered to close.
The Dakota Access Pipeline transports nearly 570 MBbl/d from the geographically constrained Bakken basin allowing the crude to reach Gulf Coast/ Midwest refineries and other downstream markets.
The latest court ruling is good news for producers in the region, but it’s temporary. The outcome of an environmental review is not clear. If the uncertainty drags on, the U.S. political landscape becomes more of a factor in 2021.