A 2016 study produced by the Institute for Energy Economics and Financial Analysis (IEEFA) and Sightline Institute concluded that the Dakota Access Pipeline (DAPL) was an unnecessary investment and ran the risk of becoming a “stranded asset.”
RATING: 100% False
The November 2016 report stated that, “Bakken oil production will continue to decline, and existing pipeline and refinery capacity in the Bakken will be more than adequate to handle the region’s oil production. Fast forward two years and these dire predictions have proven to be the exact opposite of what’s currently going on in one of the country’s most resilient production areas.
IEEFA and Sightline asserted that Bakken production would fall to “less than 800,000 bpd by the end of 2017,” when it actually rebounded dramatically, averaging over 1.18 million barrels per day in December 2017. Production continued to climb in 2018, surpassing pervious historical records and as of August remained at an all-time high of over 1.29 million barrels per day. In fact, a recent Bloomberg article noted that North Dakota is now producing as much crude oil as the entire country of Venezuela.
The study went on to conclude that “the region’s oil transport infrastructure is already overbuilt” and that “DAPL’s capacity could become superfluous be mid-2017.” This prediction also failed to materialize. A combination of surging production in the region and an influx crude-by-truck shipments of stranded Canadian oil to North Dakota pipeline terminals has taken up almost all the current pipeline space.
Hoping to avoid a repeat of the transportation bottlenecks currently stunting growth in the Permian Basin, pipeline developers have already begun to take steps to increase Bakken takeaway capacity. Energy Transfer LP has announced plans to expand DAPL’s capacity from about 525,000 bpd to as much as 570,000 bpd, while Phillips 66 is gearing up to build the Liberty Pipeline, which will carry oil from Rockies and Bakken production areas to Corpus Christi. Meanwhile, ONEOK Inc. is in the process of constructing the Elk Creek Pipeline to increase the regions natural gas liquids takeaway capacity.
The report’s authors based their analysis in part on the assumption that crude oil prices would not recover after plunging in 2014. At the time the study was written West Texas Intermediate (WTI), the U.S. crude benchmark hovered around $45 per barrel. In the past two years, WTI has averaged $56 a barrel, briefly rallying to above $70 a barrel in the first half of 2018.
Would Bakken production still have rebounded if prices had stayed in the mid-forties? Most likely. The cost of shipping oil via pipeline is significantly lower than rail or truck, meaning Bakken producers were able to fetch a better price per barrel of oil once DAPL came online in June 2016. Additionally, the 2014 downturn forced the industry to adopt new, more cost-efficient ways to complete wells, lowering breakeven points and allowing drillers to reach profitability in a lower price environment.
The more likely reason for the flawed analysis lies with the mindset behind why the report was commissioned in the first place. IEEFA and the Sightline Institute are both activist organizations backed by deep pocketed foundations like the Rockefeller Family Fund, which openly advocates against any new oil and gas infrastructure projects. This study was tainted from the outset, its authors forced to stretch the facts in order to fulfill a predetermined, anti-pipeline narrative.