In the span of 24 hours, a major natural gas pipeline was cancelled and a judge ordered the Dakota Access Pipeline shut down. Just days after Dominion Energy and Duke Energy prevailed in a case that went all the way to the U.S. Supreme Court, the utilities scrapped the very project that effectively received the go-ahead from the justices. The 600-mile Atlantic Coast pipeline would have carried Marcellus shale gas to consumers in Virginia and North Carolina, opening up yet another market for Appalachian gas.
But the years-long permitting issues led to delays and cost blowouts, pushing the cost of the 1.4 billion-cubic-feet-per-day pipeline from $5 to $8 billion. The Supreme Court ruled in the utilities' favor just a few weeks ago, upholding permits for the project related to sensitive areas, particularly under the Appalachian Trail. But that did not do away with remaining regulatory hurdles, which create an "unacceptable layer of uncertainty and anticipated delays for [Atlantic Coast Pipeline]," Dominion said in a statement.
The market is dramatically different than it was when the pipeline was originally proposed. Renewable energy is significantly cheaper than it was years ago, and environmental opposition grows with each passing year. Plus, the Covid-19 pandemic has upended forecasts about future demand.
On top of that, a recent court decision scrapping an industry-friendly permitting program done by the Army Corps of Engineers - the Nationwide Permit 12 - tossed out an avenue to accelerate and streamline pipeline projects. That decision in Montana was related to an entirely separate project - Keystone XL, in fact - but the decision affected the entire permitting program done by the Corps, which the judge said violated the Endangered Species Act.
In other words, the hurdle for new oil and gas pipelines to move forward is a lot higher than it was before. Dominion specifically cited this court decision as pivotal in its decision to scrap the Atlantic Coast pipeline.
"This announcement reflects the increasing legal uncertainty that overhangs large-scale energy and industrial infrastructure development in the United States," Dominion CEO Thomas F. Farrell II and Duke Energy CEO Lynn J. Good said in a joint statement.
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Meanwhile, Dominion also announced that it was selling off its natural gas transmission and storage assets, and a stake in Cove Point LNG, to Warren Buffet's Berkshire Hathaway in a $4 billion deal ($10 billion including debt). Taken together - scrapping a massive gas pipeline, and selling off other gas assets - Dominion is pivoting back to regulated utility assets and planning for a shift to clean energy. The Virginia-based utility will be required to phase out fossil fuels by 2050 under legislation recently passed by the state.
"This looks like an energy-transition play," Andrew Gillick, a managing director at RS Energy Group, said in a comment to the FT. "With the cancellation of the pipeline as well, it is clear Dominion is planning for net-zero."
Dominion put on a brave face, trumpeting it's Atlantic Coast pipeline loss as a way to transition. "Over the next 15 years we plan to invest up to $55 billion in emissions reduction technologies including zero-carbon generation and energy storage, gas distribution line replacement, and renewable natural gas," Dominion's CEO Thomas Farrell said. "In addition, between 2018 and 2025 we expect to retire more than four gigawatts of coal- and oil-fired electric generation."
For Berkshire, the deal means that Warren Buffet's company will soon account for 18 percent of all natural gas moved across state lines, up from 8 percent currently.
The Atlantic Coast Pipeline cancellation alone was bombshell news. Very few pipeline developments could upstage the cancellation of such a massive project, but hours later, even bigger news emerged.
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On Monday, a judge vacated the permit for the Dakota Access pipeline, which carries 570,000 barrels of oil per day and was subject to intense protest from the Standing Rock Sioux Tribe and a coalition of indigenous and environmental groups. In a scathing opinion, the judge said that the Army Corps of Engineers violated the National Environmental Policy Act (NEPA) when it gave a permit to the pipeline to build beneath Lake Oahe. In effect, the Trump administration's effort to rush the job at the start of his term came back to derail the pipeline.
Dakota Access now has to shut down and drain the pipeline by August 5. It will then need to undergo a full environmental impact statement, which is expected to take around one year to complete. The "seriousness of the Corps' deficiencies outweighs the negative effects of halting the oil flow for the thirteen months that the Corps believes the creation of an EIS will take," U.S. District Judge James Boasberg wrote.
"Today is a historic day for the Standing Rock Sioux Tribe and the many people who have supported us in the fight against the pipeline," Chairman Mike Faith of the Standing Rock Sioux Tribe said in a statement. "This pipeline should have never been built here. We told them that from the beginning."
Energy Transfer, the owner of Dakota Access, saw its stock plunge by more than 10 percent on Monday.
"Investors have lost patience with big infrastructure projects, and the 2020 election poses too much risk for major projects to move forward," Katie Bays, co-founder of Washington-based Sandhill Strategy LLC, told Bloomberg.
For Dakota Access, much now depends on the outcome of the presidential election. If former Vice President Joe Biden prevails, Dakota Access could be doomed. "We also expect strong political pressure on the Biden campaign to oppose reissuing permits to Dakota Access upon reelection (given the project's high profile and the success of Native American Tribes to secure the ear of the Obama White House), and therefore we see a strong possibility that the permits may not be reauthorized," ClearView Energy Partners wrote in a note.
By Nick Cunningham for Oilprice.com
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Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. More