Market forces may kill Bakken pipeline despite likely Iowa Utilities Board approval

Pipes intended for use in the Dakota Access pipeline being stored in Jasper County, Iowa during 2015. Photo provided by Wallace Taylor, used with permission.

UPDATE: As expected, the board voted unanimously to approve the permit. Scroll to the end of this post for more details and reaction.

The Iowa Utilities Board will meet this afternoon to issue a decision on the proposed Dakota Access pipeline. Everyone I know in the environmental community expects the three board members to approve the permit for this project, better known as the Bakken pipeline. Litigation is sure to follow, as opponents charge the Iowa Utilities Board’s eminent domain powers may be used only in the service of a “public good,” not “to privilege a private corporation.”

Other legal hurdles include the need for a permit from the Iowa Department of Natural Resources, because the pipeline route would cross “four areas in Iowa that have been identified as sovereign lands.” The Sierra Club Iowa chapter has been pushing for a thorough Environmental Impact Study and archaeological review. (Too many Iowa politicians from both parties signed a letter to the utilities board opposing an independent environmental impact assessment.)

Iowa State University economist Dave Swenson has long cast doubt on the “bloated” economic impact numbers Dakota Access has used to market the project. Click here for Swenson’s detailed analysis on the pipeline’s “purported economic and fiscal benefits to the state of Iowa.”

A growing number of observers believe the project no longer makes economic sense even for Energy Transfer Partners, the parent company of Dakota Access.

The two dozen organizations in the Bakken Pipeline Resistance Coalition represent thousands of Iowans. Few have invested more time in fighting the pipeline than former State Representative Ed Fallon, who walked the entire 400-mile proposed route last year. In a February 29 blog post, Fallon sounded more optimistic than ever that the Dakota Access project is “in trouble.” Excerpts:

– The stock of Energy Transfer Partners (ETP) has seen a steady decline from 65.65 on January 2, 2015 to 26.47 today.

– ETP’s merger with Williams Companies last year has not gone well, with some indication that ETP wishes it could find a way out of the deal. The fact that ETP’s CEO, Kelcy Warren, says “we’re not going to talk about the Williams transaction,” only further confirms that the merger was a bad idea. (Provided by TheStreet)

– The sudden firing earlier this month of the company’s CFO, Jamie Welch, is another sign that things are not well in the ETP empire.

– There are also growing doubts as to whether ETP is on track with the capital it needs to launch the Bakken Pipeline: “ETP is evaluating project financing of the Bakken Pipeline. This measure would materially reduce the direct spending required for this project.” (See NY Times Business Day Markets.) […]

– Noted industry analyst, Jim Cramer, writes: “We have way too many oil pipelines in the country and the master limited partnership woes must stop and the bleeding be staunched among the independent oil and gas companies.” (See #5 of My Checklist for the Market to Start Making Money, Part 2.)

– Finally, with Saudi Arabian oil minister Ali al-Naimi saying last week that he doesn’t see his country cutting output, don’t expect crude oil prices to rise any time soon.

Howard Learner, executive director of the Environmental Law and Policy Project, recently discussed falling oil prices as “a game changer for Midwestern pipelines” in an op-ed for the Duluth News Tribune. Click through to read his whole analysis. Learner contributed this comment on the subject to Bleeding Heartland (disclosure: I am an active supporter of the ELPC’s work in Iowa).

Bakken shale oil and Canadian oil sands market prices are low, and oil production is falling. Pipeline companies are biting the bullet and deferring new projects because of oil price and production uncertainties. Markets matter.

The market price for benchmark West Texas Intermediate (WTI) crude oil is low at around $31 per barrel, having fallen from the $100 per barrel range in 2011 through mid-2014. JP Morgan forecasts WTI crude oil to average $31.50 per barrel in 2016, and Goldman Sachs projects $40 per barrel. Analyst projections for 2017 – 2018 vary considerably. Low oil prices mean fewer rigs, less oil production and less need for new pipelines.

Bakken shale oil’s break-even prices are around WTI $40 – $45 per barrel, well above the current market price. Production costs vary depending on how rich the particular oil well is, efficiency of the company’s operations, financing costs, and how close the rig is to infrastructure. Bakken shale oil must be transported by pipeline or rail to distant Midwest or Texas refineries.

The number of active drilling rigs in North Dakota is the lowest since July 2009. There are now only 39 active rigs in the Bakken area, down from 201 rigs in February 2012.

According to North Dakota Department of Mineral Resources Director Lynn Helms, Bakken output fell to 1.15 million barrels a day in December 2015, down 6 percent below the all-time high in December 2014. Helms stated that oil production could fall to 1 million barrels per day by late 2016. Oil production and service companies are planning more layoffs, and there could be additional bankruptcies in June 2016 when banks often recalculate their debt limits for oil companies.

Oil prices have dropped dramatically over the past 15 months. That changed reality has unavoidable market consequences for both oil production and the controversial pipelines.

Although the Iowa Utilities Board will likely give Dakota Access what it wants today, and other state and federal agencies may do so in the future, landowners and activists may not need to exhaust all administrative and legal paths to block the Bakken pipeline. The project may simply prove too expensive for the company to pursue.

To keep up with pipeline news, follow the websites of the Bakken Pipeline Resistance Coalition, the Sierra Club’s Iowa chapter, the Fallon Forum, Iowa Citizens for Community Improvement, and the Iowa Informer, a new independent, alternative media source based in Ames.

Good Twitter follows include Ed Fallon, No Bakken, William Petroski of the Des Moines Register, Brian Morelli of the Cedar Rapids Gazette, Iowa CCI, and Gavin Aronsen, founder of Iowa Informer.

UPDATE: Iowa Utilities Board Chair Geri Huser and members Libby Jacobs and Nick Wagner all voted to approve the permit. David Pitt reported for the Associated Press,

“We weighed the public benefits of the proposed hazardous liquid pipeline project against the public and private costs and other detriments as established by the evidence on the record,” board member Elizabeth Jacobs said. “Together we weighed all the issues presented by the parties and found the issues of safety, economic benefits, environmental factors and landowners’ rights to merit the most significant weight in reaching our decision.” […]

Owners of 296 parcels of land have refused to sign easements allowing the pipe to go through their property. The board’s approval means Dakota Access may now proceed with condemnation proceedings using eminent domain authority to force them to cooperate.

Opponents said they plan to appeal.

“While the ruling is certainly a setback and disappointing landowners will assess how to move forward on appeal and they are going through that process,” said John Murray, a Storm Lake attorney who represents the Northwest Iowa Landowners Association. “We need to read the entire ruling to fully inform ourselves.”

William Petroski reported for the Des Moines Register,

Regulators in three other states have already approved the pipeline, and construction is scheduled to begin this spring. However, permits are still needed from the Iowa Department of Natural Resources and the U.S. Army Corps of Engineers, and community activists have vowed to continue doing whatever they can to stop the pipeline.

In addition, lawsuits are expected from Iowa farmers opposed to the pipeline who fear damage to tile drainage lines and reduced crop yields or who simply don’t like the idea of a pipeline running through land that has often been owned by Iowa families for generations.. A Cherokee County District Court judge used a technicality in October to dismiss a lawsuit challenging the Iowa Utilities Board’s authority to grant eminent domain for the pipeline, citing a failure to exhaust all administrative remedies.

But the judge did not rule whether the pipeline company, which is not a public utility, is eligible to use eminent domain. Eminent domain is the right of a government to seize private property for public use, in exchange for payment of fair market value. Iowa and other states, responding to concerns about protecting property rights, have moved in recent years to limit use of eminent domain.

Governor Terry Branstad’s office released this statement:

Gov. Branstad and Lt. Gov. Reynolds appreciate the thorough, thoughtful and transparent process conducted by the Iowa Utilities Board in reaching a decision. The Iowa Utilities Board allowed many different stakeholders to voice their opinions on the Bakken pipeline and the governor and lt. governor respect the decision made.

Last month, Branstad said

he would not object to having a pipeline cross agricultural land he owned if he were fairly compensated for the easement and the company took steps to address tile lines and other concerns.

“If it were my land, I would obviously want to make sure that it was done in the right way,” Branstad told reporters after a taping of Iowa Public Television’s “Iowa Press” show. “But I wouldn’t be one that says no, you can’t put a pipeline through the property.”

In 2015, Branstad indicated that he opposed “political interference” from the state legislature regarding Iowa Utilities Board decisions. A bill that would have blocked the use of eminent domain for any new oil pipeline failed to advance in either the Iowa House or Senate last year.

SECOND UPDATE: Gavin Aronsen embedded the full Iowa Utilities Board decision at Iowa Informer. He also reported that today the Iowa DNR “approved a construction permit for the Bakken pipeline on public land, contingent upon approval from the U.S. Fish and Wildlife Service.” I enclose below the statements from the IUB and the DNR.

Iowa Utilities Board press release, March 10:

Iowa Utilities Board approves Dakota Access
pipeline permit with landowner protections
The Board imposes terms and conditions necessary for the proposed pipeline to promote the public convenience and necessity
(Des Moines) – After 18 public informational meetings, hundreds of pages of pre-filed testimony and briefs, thousands of filed public comments, 12 days of a public hearing, over 3500 pages of transcript, 43 intervenors, close to 70 witnesses, and weeks of public deliberations, the Iowa Utilities Board made the decision to grant Dakota Access a permit for a Hazardous Liquid Pipeline in Docket No. HLP-2014-0001. The permit will be issued only after Dakota Access has complied with the additional terms and conditions set forth in the Board’s written order and construction may not commence until the permit is issued.
In consideration of all the evidence and arguments presented in this case the Board found that “subject to the terms and conditions the Board has adopted in this order, the proposed pipeline will promote the public convenience and necessity and, pursuant to Iowa Code 479B.9, a permit is granted and will be issued to Dakota Access after the company has complied with the filing requirements set forth in this order.”
In reaching its decision the Board applied a statutory balancing test, which found the public benefits of the project outweigh the private and public costs with the terms and conditions imposed by the Board. The public benefits were found to include (1) significant safety advantages of pipeline transportation of crude oil compared to the alternatives and (2) the jobs and other economic benefits associated with construction and operation of the pipeline, projected to be at least $787 million during the construction period alone.
The Board found the issues that weighed against the project included environmental risks associated with the pipeline and the intrusion on private landowners whose property will be affected. The Board therefore determined that the addition of several terms and conditions were required to protect landowners, attend to land restoration issues, and provide assurances addressing safety and remediation of any potential incidents. The additional terms and conditions the Board placed on the permit included changes to the involuntary easements, the land mitigation plan and parent company guarantees. Further, landowners will be compensated for any and all damages they incur.
Under Iowa law, receipt of a permit includes the right of eminent domain across those parcels where Dakota Access has been unable to negotiate voluntary easements. The Board has limited Dakota Access’s power to utilize eminent domain to the minimum rights necessary for the safe construction and operation of the pipeline.

Before issuing a permit, the Board has imposed specific terms and conditions and filing requirements that Dakota Access must successfully complete regarding the financial responsibility of Dakota Access and parent companies, environmental impacts of the project and the burden to private interests, particularly landowners, along the proposed route. For example:
• Dakota Access must obtain and maintain a general liability insurance policy in the amount of at least $25 million
• Dakota Access must demonstrate and file the unconditional and irrevocable guarantees from its parent companies for remediation of damages from a leak or spill
• Dakota Access must make modifications to easement forms on properties utilizing eminent domain to include the removal of language that would have allowed valves on any condemned parcel and the removal of language that would have allowed company access on any portion of a condemned parcel
• Dakota Access must continue to offer to purchase voluntary easements, with the same terms and conditions already offered to landowners, for the best prices that have already been offered by Dakota Access, at least until the county compensation commission meets to assess the damages for each taking
• Dakota Access must file a revised Agricultural Impact Mitigation Plan to include landowner notifications and the separation of all topsoil from affected areas
• Dakota Access must file a Winter Construction Plan
• Dakota Access must file quarterly status reports
• Dakota Access must file a statement accepting the terms and conditions the Board has determined to be just and proper for the permit
With today’s Board decision any party may apply for a rehearing within 20 days and the
Board must then act on the application(s) within 30 days. Upon such a request, the Board could:
• Grant a rehearing and schedule further proceedings;
• Deny a rehearing; or
• Grant a rehearing solely to allow for further consideration
Parties can also file for judicial review in district court pursuant to procedures laid out in Iowa Code 17A.
The Board intends to issue orders acknowledging receipt of documents filed as required by the terms and conditions laid out in the order. The Board will only issue the final permit upon acceptance of all required pieces. Construction cannot begin until a permit has been issued by the Board.
Due to the potential for the Board’s involvement in rehearing and/or judicial review, the Board Members will not have any additional comments in relation to the order.
Today’s Board order is available on the Board’s web site at, https://iub.iowa.gov. All documents in this case are found in the Board’s Electronic Filing System at https://efs.iowa.gov/efs/.

Iowa Department of Natural Resources press release, March 10 (emphasis in original):

DNR Approves Construction Permit for Pipeline on Public Land

DES MOINES – A permit for the proposed Dakota Access Pipeline Project to cross publicly-owned land has been approved by the Iowa Department of Natural Resources.

The permit, however, is still conditional on authorization from the U.S. Fish and Wildlife Service.

A permit from the DNR would allow Dakota Access to construct the pipe line across the Big Sioux River Complex Wildlife Management Area in Lyon County as well as borings for the pipeline under the Big Sioux River in Lyon County, the Des Moines River in Boone County and the Mississippi River in Lee County.

“We have thoroughly reviewed this application and do not find any long-term negative impact to the environment or natural resources,” said DNR Director Chuck Gipp.

The permit lays out conditions that address construction techniques required to be used, the timing of construction, environmental resource concerns and long-term maintenance to minimize potential environmental and natural resource impacts as specified in Iowa code (IAC 571 Ch. 13).

A mitigation plan has been negotiated to restore and enhance the type of habitat affected by the construction of the pipeline. The company will pay $400,000 to implement the mitigation plan.

“Iowa has thousands of miles of pipeline underground including many that are under public property. This request and the subsequent permit we would be issuing is not precedent setting,” said Gipp.

In fact, if constructed, the pipeline across the Sioux River Complex Wildlife Management Area would parallel an existing natural gas line.

In the last year, 700 permit applications for construction on public lands were received for review. The DNR issues approximately 200 permits of varying types annually for projects such as streambank stabilization, waterlines, natural gas pipelines, overhead powerlines and fiber optic cables.

Proposed Bakken pipeline route:

 photo Bakkenpipelineroute_zpsy5qn7vbr.jpg

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