Dakota Pipeline’s Fate May Hinge on Next President After Setback

(Bloomberg) -- The Obama administration halted work on a stretch of land where Energy Transfer Partners LP is building its controversial Dakota Access oil pipeline, a move that could threaten to thrust the fate of the project into the hands of the next president.

The U.S. Army Corps of Engineers won’t authorize construction on its land near Lake Oahe in North and South Dakota until it determines if it should reconsider prior decisions to allow the project, the government said in a statement Friday. Federal officials also asked the company to voluntarily pause activity within 20 miles of the lake.

The decision by the Interior Department, Army and Justice Department came shortly after U.S. District Judge James Boasberg in Washington declined a request by the Standing Rock Sioux Tribe to halt work on the $3.8 billion project. The 1,172-mile pipeline that would bring oil from North Dakota’s Bakken formation to markets in Illinois has drawn hundreds of protesters, including groups that successfully petitioned the Obama administration to reject the Keystone XL pipeline project. 

The question is whether "the prospect for future changes alleviates tension sufficiently so that things simmer down and the pipeline can go forward," said Christine Tezak, managing director at research firm ClearView Energy Partners LLC in Washington. "If tensions don’t diffuse, I don’t know when we’ll see it."

The best-case scenario is a few months of delay, which could mean the project falls into the hands of the next administration, she said.

Earlier, the ruling that construction on the pipeline could proceed came as a blow to critics who said the project would damage culturally significant sites and create an environmental hazard where it crosses the Missouri River.

The project likely complies with the National Historic Preservation Act, Judge Boasberg wrote in a memorandum accompanying his Friday opinion. "The Tribe has not shown it will suffer injury that would be prevented by any injunction the Court could issue," he said.

Standing Rock Tribe

The Justice Department, in a joint statement with the Army and the Department of the Interior, said it needs to determine whether it’s necessary to reconsider previous decisions regarding the Lake Oahe site under the National Environmental Policy Act and other federal laws.

"It was absolutely the right move," said Jane Kleeb, president of activist group Bold Alliance and, before the current battle, a prominent opponent of TransCanada Corp.’s Keystone XL pipeline. "They listened to the people on the ground and really looked at what’s been happening."

Last year, the Obama administration intervened to reject plans for Keystone. President Barack Obama said the project -- which had been the subject of heated debate for seven years -- wouldn’t make a meaningful contribution to the U.S. economy, lower gasoline prices or increase the country’s energy security.

More Talking Needed

The Dakota Access case highlights "the need for a serious discussion on whether there should be nationwide reform with respect to considering tribes’ views on these types of infrastructure projects," the Justice Department said, noting a plan to invite tribes to formal consultations this fall.

Construction on a segment of the pipeline in North Dakota was stalled after the Standing Rock Sioux Tribe filed a lawsuit challenging the federal permits for the project in July. Bold Alliance has been organizing protests and reaching out to politicians. 

Energy Transfer says it’s taken appropriate safety measures and that the pipeline will create 8,000 to 12,000 jobs during construction. A spokeswoman for the Dallas-based company declined to comment.

The government’s intervention leaves Energy Transfer officials in limbo, whereas "at least with the court they had some certainty on timelines and how things are moving forward. Here they have no idea yet when this review is going to be complete," said Brandon Barnes, a Bloomberg Intelligence analyst. Though he said he sees no threat yet to completing the project on schedule by the end of the year, "we don’t know how long this delay will last."

The project would run through four states from North Dakota to Patoka, Illinois, where it would join another Energy Transfer line that carries oil to refineries in Nederland, Texas, on the Gulf Coast. Energy Transfer is overseeing the project, which is jointly owned with Phillips 66, Sunoco Logistics Partners LP, and a joint venture with Marathon Petroleum Corp. and Enbridge Energy Partners LP.

Celebrity Opposition

The pipeline has also come under fire in Iowa where landowners who objected to its use of eminent domain asked the Iowa Utilities Board to halt the project, but were denied.

Since then, opposition has intensified. Thirty protesters were arrested in August for trespassing on the project’s construction site in Iowa, and eight were arrested in North Dakota. Morton County’s sheriff’s department in North Dakota has issued an arrest warrant for Jill Stein, the Green Party’s presidential candidate, for trespassing and spray-painting construction equipment on private property.

North Dakota Governor John Dalrymple authorized a restricted emergency declaration last month, making state resources available to manage safety amid ongoing protests. The state National Guard was called in to support local law enforcement.

Hollywood has chimed in as well: Rallies have included actresses Susan Sarandon and Shailene Woodley. Cast members of the upcoming movie "The Justice League," including Ben Affleck, spoke out against the pipeline in a video posted on Instagram. Actor and activist Leonardo DiCaprio has also voiced support for the protesters.

Bakken Drillers

The pipeline would help cut costs for Bakken region drillers, which have had to turn to more expensive rail shipments when existing pipes filled up. Dakota Access, with a capacity of about 470,000 barrels a day, would ship roughly half of current Bakken crude production and allow producers to access Midwest and Gulf Coast markets.

Energy Transfer fell 3.6 percent to $39.14 in New York on Friday.

The case is Standing Rock Sioux Tribe v. U.S. Army Corps of Engineers, 16-01534, U.S. District Court, District of Columbia (Washington).

--With assistance from Tim Loh and Chris Dolmetsch To contact the reporter on this story: Meenal Vamburkar in New York at mvamburkar@bloomberg.net. To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Carlos Caminada, Michael B. Marois