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Dakota Access Pipeline Saga Stalls Oil Production Recovery In The Bakken

The uncertainty surrounding the future operations of Dakota Access, the key pipeline carrying crude out of the Bakken, is stalling oil companies’ plans to invest in bringing back online the output they had curtailed after the pandemic-driven crash in oil demand and prices, executives told Reuters.

A federal judge ruled on July 6 that the Dakota Access Pipeline, in operation since 2017, must be emptied and shut down by August 5, until a new comprehensive environmental review is completed.

A week later, a U.S. Appeals Court ruled that Dakota Access can continue to operate while the court considers whether the pipeline should be shut down as ordered by a lower court’s ruling. 

Until the new saga with the Dakota Access pipeline is resolved, oil drillers in the Bakken are not rushing to restore production as they see the move as too risky in case Dakota Access were to shut down.

As of June 26, the Bakken had a total of 405,000 bpd of shut-in production, compared to 510,000 bpd curtailed output in May, according to data from the North Dakota Department of Mineral Resources.

This means that Bakken producers had brought just one-fifth of the production they had curtailed before the court order for shutting Dakota Access added an enormous layer of uncertainty for drillers in North Dakota.

Another pipeline, the Tesoro High Plains Pipeline, was also ordered shut in early July, after 67 years of operations, by the U.S. Interior Department’s Bureau of Indian Affairs for trespassing on land owned by Native Americans.

If the two pipelines – which carry over one-third of the oil pumped in the Bakken as per Bloomberg estimates – were to shut down, it would make life much harder for Bakken shale drillers which may have to contend with higher shipping costs via rail or trucks while oil prices continue to languish in below-profit-making territory for the average well in the region.

The Western Dakota Energy Association, which filed a so-called “friend of the court” brief to support Dakota Access, said in it that “the loss of DAPL’s 570,000 barrel-per-day takeaway capacity will likely add at least $5.00 per barrel to the cost of shipping North Dakota crude,” and that added cost “would make it nearly impossible for North Dakota to compete with other oil-producing regions in the country, thereby stopping our communities’ recovery in its tracks.”  

By Tsvetana Paraskova for Oilprice.com

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