The Fuse

Pipeline Companies See Hostile Environment

by Nick Cunningham | December 09, 2016

Energy Transfer Partners probably did not think it would find itself in the middle of the hottest controversy since Keystone XL back when it was filing for permits in 2014, but progress on the company’s nearly-completed Dakota Access Pipeline is now at a standstill after protestors convinced the federal government to reject an easement necessary for the company to build beneath the Missouri River. The Dakota Access Pipeline has become a flashpoint over treaty rights with Native American tribes, property rights, water contamination and even climate change. The company is now hoping that the Trump administration will reverse the Army Corps of Engineers’ decision to pursue a lengthy environmental impact statement, but the future of the project is currently up in the air.

While the opposition has succeeded in “nationalizing” the protest against Keystone XL and Dakota Access, a longer list of other proposed oil and gas pipelines have flown under the radar in recent years. Some have been constructed without any hiccups, but a growing number of pipeline proposals have run into local opposition, even without the aid of national media attention. Success tends to breed success – opposition to pipelines has mushroomed since the rejection of Keystone XL. According to InsideClimate News, more than two dozen major energy projects – LNG export terminals, coal plants, and oil and gas pipelines – have been delayed, rejected or cancelled since Keystone XL was blocked in 2015.

The reason for opposition can vary. In coastal states that have a green bent, people oppose pipelines because of their perceived role in fueling climate change. In southern and more conservative states, however, pipelines have been blocked because of their infringement on property rights. The aggressive use of eminent domain can provoke a backlash even among constituencies that are not opposed to oil and gas development more generally. In March 2016, Kinder Morgan suspended work on its $1 billion Palmetto Pipeline, which would have carried gasoline and diesel from South Carolina to Florida. The pipeline company was forced to shelve the project after Georgia state lawmakers moved legislation that would have put a moratorium on the use of eminent domain after local residents voiced their opposition. Many of the lawmakers that supported the moratorium were Republicans that were once big proponents of the pipeline.

The Diamond Pipeline

The surge in oil and gas production over the past decade has fueled an urgent need for new pipeline infrastructure. But that has also sparked a backlash among people standing in the way of bulldozers making way for long distance pipelines.

It is often difficult to predict which pipeline proposal will become the next Keystone XL or Dakota Access, but one candidate for a future national controversy could be the Diamond Pipeline, a $900 million proposed pipeline that would run from the key oil hub of Cushing, Oklahoma to a refinery in Memphis, Tennessee owned by Valero Energy Corp. The 440-mile 20-inch pipeline would carry 200,000 barrels of oil per day, bringing sweet crude from oil fields as far away as Texas and even North Dakota. Plains All American and Valero, the pipeline’s sponsors, hope to complete construction by the end of next year.

Pipeline projects that become lightning rods of controversy are the ones that generate opposition from a diverse coalition of people. Keystone XL riled up not just national environmental groups, but also landowners and farmers worried about everything from local water contamination to property rights. Dakota Access had the same cross-section of interest groups, plus the Standing Rock Sioux Tribe’s grievance about the intrusion on their ancestral homelands.

planned diamond pipeline route

The Diamond Pipeline has the potential to inspire similar levels of antagonism from different directions, although right now the opposition is at a low-simmer and not yet boiling over. But the fissures are visible. Arkansas property owners who have been affected by the pipeline company’s use of eminent domain have pushed their state legislators to introduce legislation that would strengthen property rights, but the bill has thus far fallen short of passage.

The Diamond Pipeline also raises serious environmental concerns. The pipeline will cross an estimated 500 bodies of water, including a dozen watersheds used for drinking water. It also crosses the Arkansas and Mississippi Rivers.

Plains All American, the builder of the Diamond Pipeline, is no stranger to pipeline leaks. The Texas-based company is facing criminal charges stemming from a ruptured pipeline in Santa Barbara, CA, which saw crude oil spill along a scenic part of the California coastline in May 2015. Around 140,000 gallons of crude oil fouled beaches and made national headlines.

The pipeline dilemma: few alternatives, but problems nonetheless

Pipelines are the safest way to move crude oil long distances. And the blocking of pipelines does not put much of a dent in crude oil demand, which ultimately will be the key determinant of progress on energy security and climate change. If pipelines continue to face resistance, the result will be regional bottlenecks for both crude oil and refined products. The rejection of Dakota Access will lead to an increase in the use of rail to transport crude, for example. The higher costs of moving oil by train could lead to lower oil production upstream, at the margins, but North Dakota will continue to produce oil.

Nevertheless, grievances over pipelines are legitimate, especially in the eyes of affected communities. Although the alternative of moving crude by rail is worse, pipelines still suffer from leaks and explosions. According to the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration, between 2010 and 2015 there have been 1,739 safety incidents involving pipelines deemed to be “significant,” leading to 78 fatalities and $3.4 billion in damage.

Fast Track Permitting

Plains All American insists the Diamond Pipeline will use state-of-the-art technology and equipment, and will not have an adverse impact on the environment. The problem with that argument, opponents argue, is that the environmental impact has not been adequately explored. The Diamond Pipeline received a “Nationwide Permit 12,” which is a quick and relatively cursory form of examination from the Army Corps of Engineers, a procedure intended to fast-track projects of “minimal” impact. That is the same permit that the Dakota Access Pipeline received, and it allows pipeline builders to begin construction quickly, avoiding a full environmental impact statement.

The Nationwide Permit system has come under fire because it fails to take stock of the potential environmental damage resulting from a long distance pipeline. In the case of Dakota Access, it does not seem credible that a pipeline that travels more than 1,100 miles would have a negligible effect on the environment. At a minimum, critics say, that needs to be explored. The Army Corps under the Obama administration has responded to this criticism, agreeing that the Dakota Access Pipeline needs a more thorough review, which is why it says it rejected the easement for the Missouri River and are beginning the process of a full environmental impact statement.

Residents of Arkansas are also wondering why a pipeline that travels more than 400 miles and crosses 500 bodies of water does not warrant heavier scrutiny from regulators.

New era of pipeline construction?

The industry sees the Army Corps’ reversal on Dakota Access as an “unsettling precedent,” according to Reuters. The pipeline obtained necessary permits and was nearing completion, only to have the easement to build the final stretch snatched away. “I think it sends a horrible signal to anyone wanting to invest in a project and I strongly suspect those policies will be discontinued on Jan. 20th,” Brigham McCown, the former head of the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) in the administration of George W. Bush, told Reuters.

The future of pipeline construction in the U.S. is at a curious crossroads. Environmental groups have built a sophisticated infrastructure to oppose pipelines, bogging down projects in court, building coalitions against projects, raising media attention and physically blocking construction. Wins at the national level – Keystone XL and Dakota Access – inspire resistance elsewhere.

At the same time, the incoming Trump administration has promised to clear the way for new pipelines, promising to scrap regulations and specifically voicing support for reviving Keystone XL and Dakota Access. It would seem likely that the Army Corps’ use of Nationwide Permits would revert back to the norm or even increase, allowing swift approval of long distance pipelines.

But the Trump administration will have less control at the local and state level. The derailment of the Palmetto Pipeline is instructive: grassroots opposition, even in a conservative area, forced the state house to effectively kill off the project. President Trump would have very few tools at his disposal to push the project through.

The future for pipeline companies could be mixed, as a result. A friendlier environment from the federal government, but a potential minefield of local opposition.