The largest oil pipeline out of the Bakken shale formation in North Dakota could be forced to shut this week, and the companies that use it are telling investors they can survive without it. But in legal filings, they have made its closing seem dire.
The 570,000 barrel-a-day (b/d) Dakota Access Pipeline (DAPL) is facing a U.S. federal court order to be closed and drained pending a new environmental assessment. A decision on whether it can remain running while a legal battle continues is expected any day. The pipeline is critical for moving oil out of North Dakota, the second-largest crude-producing state, trailing only Texas.
Numerous industry groups and states issued legal statements in support of DAPL both prior to and after a judge last month ordered the line, operated by Energy Transfer LP, closed by early August.
Before opening in 2017, producers and refiners relied on a patchwork of pipelines and rail to get oil out of the region.
But on recent earnings calls and fillings, companies including Marathon Petroleum Corp. and Continental Resources Inc., the largest Bakken producer, said they have plenty of alternatives should the line be shut.
“It would not have a major impact on moving all of our production if DAPL were shut in, and the cost to us would be a few dollars per barrel,” John Hess, chief executive of Hess Corp., which transports about 55,000 b/d of oil on DAPL, said on an earnings call last week.
However, in an April court filing, the company said it “does not have other practical options to transport the crude oil that is currently being shipped on DAPL.”
A source familiar with the company’s thinking said Hess has since found alternatives for shipping its oil.
The differing statements come down to the need to reassure investors, experts said.
“They really shouldn’t do that,” said Ted Borrego, who has practised oil and gas law for more than 45 years and teaches at the University of Houston Law Center. “But a big chunk of what you need to be able to drill wells is money, and if you’ve got investors that are nervous, they tend to sit on their wallets.”
Last month, a U.S. district court judge found fault with one of the pipeline’s permits and ordered DAPL shut and drained by Aug. 5. That order was delayed by an appeals court, which is still deciding whether DAPL can remain in use during the appeals process.
Energy Transfer did not immediately respond to a request for comment.
Producers and refiners that use Bakken oil relied for years on rail transit owing to the lack of pipelines. North Dakota output peaked at 1.5 million b/d in late 2019 and is at about one million b/d as of August, according to the state’s Department of Mineral Resources.
“The loss of the pipeline has less of an impact if production is reduced,” said Sandy Fielden, analyst at financial services firm Morningstar.
Privately, shippers and executives say ramping up rail shipments takes time and rail cannot handle the same volume as pipelines. One unit train can carry between 50,000 and 90,000 barrels of oil, far less than DAPL’s daily capacity.
“No producer wants DAPL to close,” said one shipper on the line, who spoke on the condition of anonymity.
In May, 52 million barrels of crude was transported from the PADD 2 region that includes North Dakota to the U.S. Gulf Coast, compared with just 351,000 barrels shipped via rail, according to U.S. Energy Information Administration data.
Continental Resources said in a legal filing in June that shutting the line could cost between US$4 and US$7 a barrel extra, boosting costs for all producers and shippers by US$832-million to US$1.5-billion annually. Bakken oil currently costs about 20 cents less than U.S. benchmark crude.
Executives on the company’s earnings call on Tuesday said they were confident the line would remain open.
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