The controversial Dakota Access Pipeline hit another roadblock this week after the federal government deferred making a final decision on a key permit. Driving the delay is the need for more time to review the project in light of increasing opposition from the Standing Rock Sioux Tribe as well as environmental groups, which are concerned about the pipeline's route through a culturally and environmentally sensitive area of North Dakota. The delay is another setback for the pipeline's developer, Energy Transfer Partners (NYSE:ETP), which had initially hoped to complete it this year.
Drilling down into the latest delay
Driving this latest delay, according to a joint statement from the Departments of the Army and Interior, is a desire to have additional discussions with the Standing Rock Sioux Tribe due to their concerns about protecting Lake Oahe. They did admit, though, that their prior decisions to approve the project were consistent with legal requirements. However, given the intense opposition to the project, they felt they needed to take another look.
At issue is the permit that Energy Transfer and its partners, Sunoco Logistics Partners (NYSE:SXL) and Phillips 66 (NYSE:PSX), need to drill an easement tunnel beneath the lake to finish the pipeline. That tunnel is the final step to completing the 1,172-mile project, which is already 84% complete.
The Army Corps of Engineers said that its discussions with the tribe would include conditions in the easement for the pipeline that might reduce the risk of spills. Furthermore, it plans to complete an assessment that would detail how a spill might impact the tribe. It intends to work with the tribe on a timeline to complete the discussion and analysis quickly.
Denouncing the delay
The decision did not sit well with Energy Transfer and Sunoco Logistics, which put out a joint statement condemning the review as "unjust," citing no "legal or factual justification" for the delay. It also said that the Corps "knows full well that it is seeking additional consultation with a party that has steadfastly refused to consult. Rather than holding Standing Rock Sioux Tribe accountable for its decisions over the past three years, it seeks to reward them at this late date."
Meanwhile, Energy Transfer CEO Kelsey Warren did not mince words in the release, saying:
This action is motivated purely by politics at the expense of a company that has done nothing but play by the rules it was given. To propose, as the Corps now does, to further delay this pipeline and to engage in what can only be described as a sham process sends a frightening message about the rule of law.
One of the problems is that those opposed to the pipeline are not just objecting to this section of the route due to concerns about protecting Lake Oahe but to pipeline projects in general. They want the pipeline's construction permanently halted because it increases the country's access to fossil fuels, thus hurting demand for renewables. For example, in a Reuters report on the additional review, Amada Starbuck, the climate and energy program director for the environmental group Rainforest Action Network, said, "This delay provides an opportunity for the U.S. government to resolve outstanding issues to the full satisfaction of the Standing Rock Sioux Tribe and end this pipeline project."
It's a case where activists are seizing on an opportunity to stop a project they do not want to see completed.
A permanent halt to the project is not a fate that Energy Transfer Partners can afford given that it and its partners are investing $3.8 billion in the nearly complete project. In addition, the company has customers signed up to long-term contracts for most of its 470,000-barrel-a-day of capacity. These contracts will generate steady fee-based cash flow that Energy Transfer needs to support and grow investor distributions.
Energy Transfer continues to face a major roadblock in its attempts to complete its critical Bakken pipeline. This latest review will likely set the company back several months given the time it will take to finish the project once it has the final permits in place. That is, of course, if it gets those approvals, though given the results of the recent election, and President-elect Donald Trump's desire to make America energy independent, it is very likely that Energy Transfer will be able to complete this project next year.
Matt DiLallo owns shares of Phillips 66. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.