Energy Transfer (NYSE:ET) invoked force majeure to prevent oil companies from abandoning the expected expansion of the disputed Dakota Access pipeline.
Crude oil output dropped 33% in North Dakota.
The US company is seeking almost double the size of the pipeline, but some oil firms that signed up indicated that it is not necessary anymore. This is because of the sharp decline in US oil production due to COVID-19 pandemic issues that have affected the industry. North Dakota is considered as one of the most expensive regions in the US to produce crude. Output in the region has significantly dropped by almost 33% from last year more than in any other state.
The Dakota Access pipeline is largest in the Bakken shale basin, North Dakota, with capacity of shipping around 570,000 barrels of crude per day to Illinois. Oil companies are now indicating that the expansion to around 1.1 million barrels per day will not be fulfilled since production in the state is unlikely to rebound soon. One customer indicated that they are only trying to build a house that they signed for, even when the need is not there.
Energy Transfer invokes force majeure as it seeks regulatory approval
According to one shipper using the line and who is familiar with the matter, Energy Transfer was invoking the force majeure because it didn’t get permits on time. The move, therefore, buys the company additional time to receive regulatory approvals and also prevent some customers from walking away from the commitment. Energy Transfer has not commented on the matter. But a spokesperson restated the company’s previous statements that it has received adequate interest to expand the pipeline capacity.
In a filing with regulators in April, the company stated that none of the shippers that have committed to the agreement sought to withdraw. This is despite the current oil downturn and excess demand on the pipeline’s capacity. Production in North Dakota dropped to 450,000 barrels per day from almost 1.5 million barrels per day last year.