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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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Crucial U.S. Pipeline In Legal Limbo

A federal judge halted construction on the Bayou Bridge pipeline in Louisiana, holding up the last missing puzzle piece in a pipeline network that stretches from North Dakota to the Gulf Coast.

The project, a joint venture between Energy Transfer Partners and Phillips 66, would run from Lake Charles to St. James, two existing oil hubs with refineries and other processing facilities. The pipeline is also an extension of an existing pipeline from nearby Nederland, TX, and it would carry 480,000 bpd.

A U.S. District Judge issued a preliminary injunction that halts construction on Bayou Bridge, until the lawsuit brought by a set of environmental groups can be adjudicated. The lawsuit argues that the Army Corps of Engineers violated the Clean Water Act when it issued permits for the project.

The groups, including the Sierra Club, argue that Bayou Bridge represents a threat to the Atchafalaya Basin and the communities that depend upon it, and they argue that the government needs to conduct a full environmental assessment. The Atchafalaya Basin is a National Heritage Area and is the nation’s largest wetland and swamp with nearly 1 million acres of forested wetlands. It is also home to large crawfish industry, which has opposed the project.

While the Army Corps insists that it conducted the necessary environmental reviews, the plaintiffs allege that the risks of an oil spill were not adequately considered.

Construction on the $750 million project began in January and was supposed to be completed in the second half of this year.

If completed, the project would connect oil from the Bakken to the Gulf Coast, completing what is essentially a transcontinental pipeline network. Bayou Bridge would also be the last leg of a network that begins with the Dakota Access Pipeline, also built by the same company, Energy Transfer Partners.

ETP said that it will lose $1 million per day while construction is halted. At the time of this writing, it was not clear if the judge’s ruling applied to the entirety of the pipeline route, or just the section that is located through the Atchafalaya Basin. If the company is forced to stop work on the entire length of the pipeline, ETP said that it would lose $1.6 million per day. Related: Metal Prices Surge As EV Production Grows

ETP also said that it would appeal the decision to the 5th U.S. Circuit Court of Appeals in New Orleans.

To state the obvious, pipelines have significant consequences upstream and downstream. After the completion of the Dakota Access pipeline, Bakken producers received better prices for their crude. The pipeline displaced hundreds of thousands of barrels that were traveling on trains each day, a much costlier form of transport.

The pipeline narrowed regional price differentials, significantly increased takeaway capacity and incentivized new drilling (along with some help from higher oil prices more generally). The rig count in the Williston Basin (which includes the Bakken formation) rose by a third over the past year to 50, and production has rebounded sharply after a few years of a downturn.

Related: Shale Drillers Are Supersizing Fracking

In another recent example of how seemingly minor pipelines can upend regional flows, the Diamond pipeline, which connects Cushing, OK to Memphis, TN, came online in December, allowing oil to move from Cushing to the Memphis region. That has led to cascading effects, draining inventories in Cushing, which has pushed up WTI and deepened speculation about a tightening oil market. It has also dented regional oil prices in Louisiana – Light Louisiana Sweet and Mars – as oil flowing from south to north has taken a hit.

The Bayou Bridge would not have nearly as big of an impact, but it would still service refineries along the Gulf Coast. The pipeline would cut out oil shipments that are currently delivered by truck or ship, the pipeline’s sponsors say. “The Bayou Bridge pipeline, combined with the storage and logistics capabilities of our Beaumont Terminal, provides enhanced opportunities to deliver North American heavy and light crudes into the Louisiana market that is heavily dependent today on marine and rail delivery of crude oil,” Greg Garland, chairman and CEO of Phillips 66, said in a 2015 press release announcing the project. “The pipeline also complements other pipeline projects we have underway to deliver Bakken crude oil to the Gulf Coast.”

For now though, the pipeline is in legal limbo.

By Nick Cunningham of Oilprice.com

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