The oil and gas industry, stung by two major pipeline setbacks on consecutive days, responded with disappointment on July 6, along with a vow to come out swinging in court.

A federal district judge on July 6 ordered the Dakota Access Pipeline to be emptied and shut down, pending results of an environmental impact study to be conducted by the Army Corps of Engineers. This came a day after Dominion Energy and Duke Energy announced they would cancel the Atlantic Coast Pipeline after pumping an estimated $3.6 billion into the project. The companies cited ongoing delays and the likelihood of future litigation risks from opponents that include environmental groups.

“We believe that the ruling issued this morning from Judge [James] Boasberg is not supported by the law or the facts of the case,” Energy Transfer LP said in a statement. “Furthermore, we believe that Judge Boasberg has exceeded his authority in ordering the shutdown of the Dakota Access Pipeline, which has been safely operating for more than three years.”

Industry group API bemoaned how permitting regulations have made the industry vulnerable to unending litigation.

“Between the Atlantic Coast Pipeline cancellation and now the ruling to shut down the Dakota Access Pipeline, we are deeply troubled by these setbacks for U.S. energy leadership,” Mike Sommers, the organization’s president and CEO said in a statement. “Our nation’s outdated and convoluted permitting rules are opening the door for a barrage of baseless, activist-led litigation, undermining American energy progress and denying local communities the environmental, employment and economic benefits modern pipelines provide.”

DAPL

The ruling by Boasberg, of the U.S. District Court for the District of Columbia, found that the Corps failed to complete an environmental impact review—“despite conditions that triggered such a requirement”—before granting the easement that allowed Energy Transfer Partners to begin construction in 2017.

“Although mindful of the disruption such a shutdown will cause,” the opinion reads, “the Court now concludes that … Clear precedent favoring vacatur during such a remand coupled with 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.”

Energy Transfer said it would immediately file a motion to stay the decision and, if not granted, pursue a stay and expedited appeal with the Court of Appeals. The company said it believed regulations governing Corps property gives the Corps has ultimate jurisdiction.

Dakota Access runs from North Dakota to Patoka, Ill., with capacity of 570,000 bbl/d of Bakken crude. It was the subject of extensive protests and lawsuits during construction, with the Standing Rock Sioux Tribe arguing that the pipeline’s route under Lake Oahe in North Dakota posed a severe environmental threat to its water supply.

Energy Transfer’s stock price dropped 3.3% in July 6 trading. In the last four weeks, the price is down 18.4%.

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The decision to cancel the Atlantic Coast Pipeline was greeted with delight by the environmentalist group Sierra Club during a July 6 press conference.

“It is a victory for environmental justice, and for addressing the climate crisis,” said Kelly Martin, director of the Sierra Club Beyond Dirty Fuels Campaign. “For six years, grassroots communities held steadfast in their opposition to this ill-conceived, unnecessary, dirty and dangerous project.”

In fact, the pipeline was designed to meet increasing demand from utilities in the Southeast that are shifting to gas-fired power generation from coal-fired plants.

In a report released July 6, Wood Mackenzie pointed out three factors leading to the cancellation decision: uncertainty from ongoing legal challenges; recent project cost guidance that has grown from less than $5 billion in 2014 to more than $8 billion; and weakened gas demand stemming from COVID-19’s impact on the economy, as well as reduced enthusiasm from midstream investors.

“The setbacks speak to the difficulties of building new pipeline projects in the northeast U.S., even when there is actual consumer demand that support these projects,” wrote Dulles Wang, a director on Wood Mackenzie’s North America gas team.

Dominion’s stock tumbled 11% in July 6 trading. Duke’s stock was down 2.5%.

Looking forward, Wang warned that the April 15 decision concerning Nationwide Permit (NWP) 12 by a federal court in Montana would have ramifications on a slew of projects. The court ruled that the Corps violated the Endangered Species Act in reissuing NWP 12 for the crossing of the Yellowstone and Cheyenne rivers by the Keystone XL Pipeline. The judge in the case vacated NWP 12 and ordered the Corps to reconsider its issuance based on compliance with the act.

“Northeast pipeline projects such as Mountain Valley and Penn East need to overcome NWP 12 hurdles,” Wang wrote, “but Permian projects such as Permian Highway Project (PHP) are not immune as well.”

Tudor, Pickering, Holt & Co. was not prepared to go that far, but it did confirm the Sierra Club’s strategy of persistence.

“While the decision does not have any direct read-throughs to other energy infrastructure projects under development,” the analysts wrote, “it will likely embolden existing opposition and validates the strategy of delay.”

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