Two major oil and gas pipelines bit the dust in the last 36 hours, a fearsome demonstration of the growing legal risks facing builders of fossil fuel infrastructure.
On Sunday, the utility companies Dominion and Duke Energy canceled their proposed $8 billion Atlantic Coast Pipeline, which would have ferried natural gas from West Virginia to North Carolina, because of what they said was a battery of legal obstacles that still loomed in spite of a major Supreme Court win only three weeks ago.
Then, this morning, the 1,200 mile-long Dakota Access Pipeline was ordered to shut down until an environmental review that could last 13 months is finished, potentially the first time ever that a court has shut down a major operational pipeline for environmental reasons. Energy Transfer Partners, the pipeline’s owner, failed to obtain a key permit called an Environmental Impact Statement (EIS) from the US Army Corps of Engineers, ruled a DC district court judge, faulting the Corps for its determination that an EIS wasn’t necessary.
The twin developments are only the latest in a series of setbacks for pipeline builders. The difficulty of building fossil fuel infrastructure is rising as well-funded environmental groups increasingly take aim at the complicated environmental permits that pipelines typically require under a law known as the National Environmental Policy Act (NEPA).
In February the $1 billion Constitution pipeline was cancelled after eight years held up in courts, and in May a natural gas pipeline called the Northeast Supply Enhancement was terminated after it couldn’t get a key water permit. In one ruling in April against the beleaguered Keystone XL oil pipeline, a conservation group called the Northern Plains Resource Council even got a federal judge in Montana to vacate a permit issued by the Army Corps of Engineers to build oil and gas pipelines across the entire country, potentially bringing unrelated oil projects thousands of miles away to a standstill. Environmental groups may be chiseling away one project at a time, but steadily they are sending fissures through the entire oil and gas permitting apparatus.
“The Dakota Access and Atlantic Coast pipes encapsulate the last few years of a trend we’ve watched: the dramatic expansion of using regulatory obligations to hurt infrastructure projects in the courts,” said Brandon Barnes, an analyst at Bloomberg Intelligence.
Investors have noticed. An index which indirectly tracks the performance of midstream energy companies — the Alerian MLP Index — is down 42% since the start of the year, compared to a decline of only 2.4% for the S&P 500.
Some in the fossil fuel sector are so worried about the growing legal vulnerabilities that they are calling for a change in the permitting process. “Our nation’s outdated and convoluted permitting rules are opening the door for a barrage of baseless, activist-led litigation, undermining American energy progress,” said Mike Sommers, president of the American Petroleum Institute (API). “The need to reform our broken permitting system has never been more urgent.”
The Trump administration has given it a shot. Last year it issued an executive order to sidestep some of the permitting requirements under the National Environmental Policy Act (NEPA), which requires the government to conduct lengthy environmental studies, often taking years at a time, whenever a major project is undertaken. And in early June of this year the White House issued an order aimed at speeding the permitting process for projects such as highways or pipelines, saying that reviews under NEPA would no longer need to consider the “cumulative impacts” of a project. It also set a deadline of two years for the most rigorous of the required environmental studies, called Environmental Impact Statements.
So far, however, the Trump administration’s deregulatory drive hasn’t had much success. According to a tally by New York University School of Law, out of 94 times that Trump’s attempts to deregulate government agencies have wound up in courts, the administration has emerged successful in only 10.