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Energy Pipeline delays cost builder millions, risking contract loss

Pipeline delays cost builder millions, risking contract loss

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DES MOINES, Iowa (AP) — The completion of the Dakota Access oil pipeline has been delayed after the U.S. Army declined to grant an easement for the final few thousand feet under a Missouri River reservoir in North Dakota pending further study. Pipeline company Energy Transfer Partners originally was expected to finish the pipeline before the end of this year, but the Army’s move likely delays it by several months. That will be costly to the Dallas-based company, but industry experts say it’s unlikely to kill the project completely. Here’s a look at some of the ways the delay could impact the pipeline:


Delays have already cost Energy Transfer Partners more than $450 million, the company said in court documents last month, and continued delays cost $83.3 million per month. The Army Corps of Engineers isn’t very sympathetic saying in court filings that the company knowingly began construction prior to receiving all necessary approvals “at its own risk.”


The Army’s decision likely halts progress on the project until after President-elect Donald Trump takes office on Jan. 20. Trump, who supports the pipeline and holds stock in Energy Transfer Partners, hasn’t said whether he will try to overturn the Army’s decision. Dakota Access has said tunneling under Lake Oahe is likely to take at least 60 days once digging begins and some industry experts say it could take as long as 90 days. So, if the Trump administration were to immediately reverses course and authorize construction, the pipeline likely wouldn’t be completed until April or May.


Dakota Access attorney William Scherman said in a Nov. 15 document filed in U.S. District Court in Washington that further delay could “threaten the very survival” of the $3.8 billion privately funded project, which would carry North Dakota oil through the Dakotas and Iowa to a shipping point in Illinois. He said the company has long-term transportation contracts with nine shippers indicating the pipeline will be in service by Jan. 1, 2017, and the shippers have the right to terminate those contracts if terms aren’t met. Industry experts say the contracts likely have several target dates including project start date, in-service date and differing start dates for the nine shippers. It’s difficult to say when they might walk, but shippers are unlikely to cancel the deal easily because most are probably shipping by rail now at a cost of $8 or $9 a barrel, while the pipeline is likely to cost much less, more like $5 or $6 a barrel, said Skip York, a vice president at energy industry consultant Wood Mackenzie.


Yes. When Dakota Access signed on shippers in 2014, crude oil prices were at $95 a barrel, but they’ve averaged around $45 to $50 a barrel recently, which could be in incentive for some to use the delay as a reason to want to open up the terms for renegotiation. Shippers say they’re not concerned yet. Hess Corp. spokesman John Roper says the company can just continue using current transportation methods. Dennis Nuss, a spokesman for petroleum company Phillips 66, which owns a 25 percent stake in the pipeline, expressed confidence the project will be finished early next year.


Yes. In Iowa, about a dozen landowners forced to allow the pipe on their farmland through a state eminent domain law are pressing forward on their own legal challenge. They contend, among other arguments, that a 2006 Iowa law prohibits an industry from using eminent domain to take agricultural land. They’re asking a judge to throw out what they consider to be illegal easements granted by the Iowa Utilities Board. If they win, they want the pipeline dug up and removed. “Dakota Access knew how to put it in, so it must know how to take it out,” they said in court documents.

A judge is set to hear arguments on Dec. 15.


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