Black Snake Bleeding Out: How DAPL Is Duping Investors

The Dakota Access pipeline (DAPL) is yet another violent variable in the equation of environmental racism that plagues the United States, and the world--to the peril of Indigenous and low-wealth communities of color everywhere.

"The financial implications of this decision are both far reaching and profound, and may signal the death knell of DAPL."

Native lands, water, sacred sites, and sovereignty have been sacrificed to "spare" majority white areas north of Bismarck, North Dakota from the myriad risks of this pipeline. Now, in what can only be characterized as abject avarice, Energy Transfer Partners (ETP)--the principal corporation behind DAPL--is pushing for expedited completion of the project, despite the fact that their major investors and stockholders inevitably stand to lose a significant amount of money.

That's because the Army Corps of Engineers, the key federal agency responsible for DAPL, announced on December 4th that they are denying a critical easement and associated permit required for the pipeline to cross Lake Oahe, pending further environmental analysis. The financial implications of this decision are both far reaching and profound, and may signal the death knell of DAPL, also referred to as the "Black Snake" by the Native communities leading the resistance on the ground. For all of ETP's bravado--including the suggestion that they could start drilling in defiance of the Army Corps decision--it may very well be oil investors, not the courts or the federal government, who ultimately deal the final blow and cut off the Black Snake's head.

What's Behind ETP's Rush to Gush?

DAPL was supposed to be so easy. After all, part-time climate champion Barack Obama had permitted the Army Corps to try to push through a slew of fossil fuel projects, including Keystone XL--so why should DAPL be any different?

The regulatory process that the Army Corps employed in this task, known as Nationwide Permit 12 (NWP 12), is designed to do one thing and one thing only: fast-track the permitting of oil and gas infrastructure, circumventing the thorough environmental review required under the National Environmental Policy Act (NEPA). As pointed out by a coalition of environmental groups, including the Center for Biological Diversity and local 350.org chapters, NWP 12 was not supposed to apply to gargantuan, interstate fossil fuel projects. And it turns out that the "tree-huggers" aren't really asking for anything too frivolous--because Section 102, Title I of NEPA stipulates that "all federal agencies are to prepare detailed statements assessing the environmental impact of and alternatives to major federal actions significantly affecting the environment."

Having contributed to over 100 documents associated with NEPA reviews, I can honestly say that the process is not cheap. The environmental consultants who end up writing NEPA documents for corporations like ETP rake in millions of dollars every month for working on projects like DAPL--which explains why Big Oil would rather spend money trying to water down the law than adhering to it. Using the notorious NWP 12 permitting process is another way out.

Double, Double Oil in Trouble

Double, double toil and trouble; Fire Burn, and caldron bubble. Fillet of fenny snake, In the cauldron boil and bake

It's unclear if William Shakespeare was a climate activist or not. What is certain is that the opening of Macbeth could easily describe the situation facing DAPL and its investors: they are in a self-proclaimed cauldron of financial difficulty. And the oil that DAPL would transport to the Gulf Coast from North Dakota's portion of the Bakken field is no longer flowing freely.

"The United States continues to experience a sharp decline in the amount of oil produced each month."After reaching a peak of over 1 million barrels in December 2014, production in the Bakken oil field has been in decline. In fact, per a report released by the Institute for Energy Economics and Financial Analysis (IEEFA) and the Sightline Institute last month, Bakken oil output has plunged 20 percent since last year, and by more than 25 percent since that 2014 peak.

The downward spiral is not just limited to the Bakken. The United States continues to experience a sharp decline in the amount of oil produced each month. Last month the U.S. Energy Information Administration (EIA) reported that domestic crude supplies fell by 2.4 million barrels, which is larger than the 2.2 million barrel drop reported by American Petroleum Institute (API)--a decline that was anticipated to be 1.7 million.

The Bakken Peak has sounded an alarm throughout the local oil and gas industry, which can be heard from construction workers to executives to everyone in between. For instance, the three largest Bakken drillers have experienced a precipitous collapse in revenue of 70 percent since 2014. According to the North Dakota Department of Mineral Resources, oil drillers were adding roughly 157 new producing wells per month during the Bakken peak. In 2016, they were averaging only 44 per month. And the number of oil rigs is not the only thing dropping faster than Alex Rodriguez's 2016 batting average: Moody's and S&P have both downgraded the credit ratings for each of those top three Bakken drillers.

The Price is (Not) Right

No true Adam Sandler fan can forget the moment in Happy Gilmore when he has an altercation with Bob Barker. During the scene, Sandler seemingly knocks out Barker, quipping that the "price is wrong"--only to have Barker ascend and eventually knock him out with a pretty good combination.

But oil prices don't appear poised for a Barker-style comeback. And this is a big problem for ETP, one that may lead to a Showcase Showdown with its backers. That's because when the oil shippers who want to use DAPL agreed to terms with ETP in 2014, oil prices were roughly $95 per barrel. Since then, oil prices have dropped by over 70 percent, leading to numerous bankruptcies and the loss of approximately 250,000 oil worker jobs--50 percent of the nationwide total. Moreover, while prices have slightly rebounded in recent months, analysts are skeptical that the recovery can be sustained.

The bottom line is that there are real questions about whether DAPL investors can actually make money on this pipeline, given that the project's current contracts with shippers expire on January 1, 2017. Even if it was operational by January 1, 2017, which is now impossible due to the Army Corps decision, the price of oil still would not be at 2014 levels. ETP knows this better than anyone, which may help explain why the company sold almost half of its stake in DAPL this past August to a joint venture involving Enbridge Energy Partners and Marathon Petroleum.

But any relief from that move will not be realized until the Army Corps grants final approval. And even if that happened shortly after January 1--unlikely, even with the incoming Trump administration and its climate killing cabinet--it would take 90 to 120 days to complete construction.

Hissing Away Money

While no one can definitively say what the Army Corps decision means for actual construction of the pipeline, the financial implications are well-documented--and we can thank ETP for those revelations.

"Needless to say, there will probably be a couple fewer champagne bottles at the ETP New Year's Eve party this year."

Dakota Access Vice President Joey Mahmoud made very profound statements in court documents regarding the impacts of a delay in pipeline construction, stating in an August 2016 filing that the costs could become "too great to absorb and therefore the project would have to shut down":

This level of economic harm would be direct, irreparable and not recoverable, and would have irreparable harm and damage to DAPL's and ETP's reputation and ability to conduct business in the future. Stopping work at this time is near impossible without causing significant and extreme harm. It would be an infeasible task without grave and irreparable impacts to DAPL, its workers, the landowners, economy, both the state and federal government, and the environment.

This may be the first and only time I say this in my life, but I think we need to take the oil corporation at its word. Mr. Mahmoud's statement represents a crude awakening for DAPL. Recently, a judge not only rejected a challenge to the Army Corps move, but also indicated that any further decisions won't be made until February 2017 at the earliest. These developments are the equivalent of lighting money on fire. Needless to say, there will probably be a couple fewer champagne bottles at the ETP New Year's Eve party this year.

A Market-Based Solution We Can Get Behind

The valiant and peaceful Native-led resistance to DAPL is in large part responsible for the Army Corps decision, which represents a major blow to the Black Snake. But in the end, the kill shot may be delivered by the project's backers.

"Investors must now also realize that the people's resistance to fossil fuel infrastructure is not going to be cheap."

Come January 1, DAPL's oil shippers have a contractual right to pull out or re-negotiate on behalf of their shareholders. Many of us embark on obligatory New Year's resolutions (whether we adhere to them or not is a whole other blog post). But as surreptitious as the oil and gas industry can be, they are never coy about their stated resolution to make as much money as possible for themselves and their stockholders, and 2017 will be no different.

However, new contracts may prove impossible for ETP, who, by their own admission in those court documents, are about to eat $1.4 billion in delay costs--nearly 40% of the cost of building the pipeline in the first place. It appears that Mr. Mahmoud may be the most prescient petroleum pusher of 2016: it all may prove too much for ETP, resulting in the "shut down" of DAPL.

Adding to ETP's financial freefall is the Bakken Peak, with the oil field set to produce under 800,000 gallons per day by the end of 2017. There is existing capacity in the region to move about 2.5 million gallons per day, meaning that DAPL is unnecessary. In fact, by some estimates, 60 percent of the Bakken's oil transport infrastructure is already unutilized.

Investors must now also realize that the people's resistance to fossil fuel infrastructure is not going to be cheap. The Native-led struggle against DAPL, which is an instant classic and a key moment in history, has also provided the climate movement with a blueprint they can use for the coming fights ahead--like stopping fracked gas pipelines from Sabal Trail in Florida, to Spectra AIM in New York and New England, to Trans Pecos in Texas. Activists and their allies are prepared and well-equipped to embark on a war of attrition with the oil and gas industry; #NoDAPL has demonstrated that prolonged struggles are expensive for Big Oil, especially when they involve everyday people willing to put it all on the line to protect their sources of sustenance, their climate, and indeed their very way of life.

DAPL has taught us many lessons, and one of the most consequential may be reserved for oil investors: going in on fossil fuels is like putting money on the Cleveland Browns. That is, it's no longer a safe bet.

If you listen closely, you will hear the silent screams of the Black Snake bleeding out.