Oil producers and pipeline developers are having a rough time trying to get their product to market, running into resistance from protestors and seeing projects fall by the wayside.
The latest came from Royal Dutch Shell, backed out of a plan last week to build an oil train terminal in Washington State. The rail terminal would have received 400,000 barrels per day of oil from the Bakken, but Shell said that the project no longer made sense with the ongoing slump in crude oil markets, and crucially, because capital availability is getting tighter.
The setback is only the latest in a string of defeats for developers of energy infrastructure around the country. Also last week, city planners in San Luis Obispo rejected a proposed rail terminal that would service a Phillips 66 refinery in central California.
Yet another oil train terminal met defeat in Benicia, CA, a project that would service a refinery owned by Valero. Moreover, the U.S Surface Transportation Board, a federal rail regulator, affirmed Benicia’s right to reject the terminal, a decision that is important because it grants local communities more power to deny permits for energy infrastructure, which should raise an alarm bell for energy developers around the country. The Huffington Post summed up the latest developments nicely with a headline reading “West Coast Deals Four Major Blows to Big Oil.”
Additionally, the fate of the much higher-profile Dakota Access Pipeline is up in the air. An appellate court gave Energy Transfer Partners the greenlight to resume construction but the Obama administration’s U.S. Army Corps of Engineers reiterated its request for a voluntary cessation of construction while the matter can be reviewed. The Dakota Access Pipeline would carry crude oil from the Bakken to refineries in Iowa and Illinois.
"This development (with Shell), along with the developments regarding the DAPL, will hurt Bakken producers' netbacks," said Sarp Ozkan, a senior energy market analyst with Ponderosa Advisors, according to Reuters. In other words, the stoppage of pipelines will hurt oil producers’ profits.
The problem of infrastructure is not just one for North Dakota producers. Environmental opposition to oil pipelines and other infrastructure became a national issue with Keystone XL, but the fight did not end there. Projects around the country are facing setbacks. For energy executives, the trend should be alarming because protests are only swelling with and spreading. Related: Is 2016 The Turning Point For Energy Storage?
On October 11, environmental activists managed to shut several major oil sands pipelines traveling from Canada into the United States. The outage was temporary, but the coordinated efforts disrupted more than 2 million barrels per day across four major pipelines. In Minnesota, activists used bolt cutters on valves at an Enbridge pipeline that runs from Alberta. In Montana, protestors interfered with a valve at a Spectra Energy pipeline, Bloomberg reports. The original Keystone pipeline (not Keystone XL) saw production shut down by TransCanada. In Washington State, Kinder Morgan temporarily idled operations at its Trans Mountain pipeline. The outages are hardly likely to have a material impact on oil flows, but the coordinated effort, hitting multiple very large transnational oil pipelines at once, was a PR coup. The disruptions also illustrate the worsening business climate for fossil fuel companies.
The environmental protest movement has grown more sophisticated and widespread, and only shows signs of expanding. Their effect is clearly reaching all the way to Washington. Instead of waiting years, as it did with the Keystone XL fight, the Obama administration moved to nip the problem of the Dakota Access pipeline in the bud when it asked its developers to voluntary stop construction.
In Canada, activists are putting a great deal of pressure on Prime Minister Justin Trudeau, demanding that he kill off several major pipelines that seek to take Alberta oil to international markets. Trudeau is on the verge of making several key decisions on high-profile pipelines, and several of them will likely be met with defeat.
With so much fossil fuel development – coal, gas, oil – going on in North America, there is no shortage of targets. Energy companies and their investors should be on notice.
By Nick Cunningham of Oilprice.com
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