Pipeline Challenges in U.S. & Canada Continue Amid Oil Boom

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Oil production is surging in North America but producers are far from happy as their profit margin is sinking. They are struggling to stay competitive owing to the infrastructural bottlenecks. As if the pipeline pinch problem was not enough for the United States and Canada, raging protests against the already approved and existing pipeline projects have made things worse.

Let's delve deeper into the pipeline battles, which have engulfed the nations.

Canadian Pipeline Battle Continues

Pipeline construction in Canada has failed to keep pace with rising domestic oil, forcing producers to sell their products at a discounted rate. Reportedly, infrastructural bottlenecks are likely to lead to lost revenues of C$15.8 billion in 2018.

Moreover, environmental protests are on the rise, thereby further derailing construction. The crusaders believe that the rapidly growing movement of oil around the country is unsafe. Even though pipeline projects have been approved by countrywide review agencies, Canadian industry observers believe that it is not going to be a smooth ride.While Enbridge Inc's mega Line 3 pipeline project recently begun construction, providing a ray of hope, it is facing a public outcry amid environmental concerns. Political and environmental turmoil, along with lack of streamlined regulatory policies associated with the pipeline projects poses challenges for the Canadian energy sector.

The industry has been bogged down by various pipeline projects either getting derailed or delayed. With the cancellation of major projects like TransCanada Corporation's TRP Energy East pipeline and Enbridge's Northern Gateway project, along with uncertainties related to the existing ones, things have gone from bad to worse for investors in the Canadian oil energy space.

Below we have highlighted two major Canadian pipelines, which are constantly facing setbacks.

Trans Mountain and Keystone XL in Focus

The C$7.4 billion Trans Mountain Pipeline expansion project, originally owned by Kinder Morgan, Inc. KMI has long been facing opposition from British Columbia residents and indigenous communities, who are wary of the potential impact of the project on the environment. The NDP government in British Columbia also opposed the expansion project.

Owing to the environmental and political turmoil, Kinder Morgan divested the pipeline project to the Canadian government for C$4.5 billion. However, the hurdles and challenges associated with the project just do not seem to abate. Just about two weeks ago, the Federal Court of Appeal rejected Canadian President Justin Trudeau's approval of the controversial Trans Mountain pipeline. The court stated that the federal government had ignored the repercussions of increased oil tanker traffic off the coast of British Columbia during the evaluation of the project. Conservationists believe that the project threatens marine life, including a few dozen of whales, which are already at risk.

Further, the cloud of uncertainty continues to hover over TransCanada Corporation's Keystone XL Pipeline . After facing delays for near about a decade, the pipeline finally received regulatory approval from Nebraska commissioners late last year, albeit on an alternative route to the one proposed by the company. However, the project was again hit by fresh controversy last month, as rerouting of the pipeline subjected it to a new legal investigation.

Under the alternative route, which is likely to be longer, the pipeline would run across different countries and water bodies, posing environmental risks to indigenous communities and marine life. So, per the latest ruling, federal defendants are thus required to review the alternative route under the National Environmental Policy Act. The project also faced other challenges in Nebraska, pursuant to a lawsuit currently pending before Nebraska Supreme Court, which is not expected to get resolved by this year. In the latest bid to halt the pipeline, two native American communities are planning to sue the Trump administration, claiming that it fabricated the environmental analysis of the project.

Pipeline Protests Mount in the United States as Well

While pipeline battles and oppositions have long been a cause of concern in Canada, the condition in the United States is no different. While pipeline construction is the need of the hour amid the oil boom and the takeaway crisis, even the already approved and existing pipelines are drawing flak. And that too, in spite of Trump's pro-energy policies.

Notably, making good on his campaign promises to rev up infrastructure spending, President Trump signed an executive order in January 2017 to accelerate the environment review process and approvals for various pipelines. But still there is a rough road ahead for the pipelines to work smoothly.

While there are land issues with residents opposing pipelines on their lands, the green campaigners cause major hindrances to these projects. The roadblocks and oppositions related to pipeline projects are rising rapidly. These are likely to be detrimental since pipelines are the lifelines of the energy industry.

Let's take a look at a few recent setbacks hitting some of the major pipeline projects in the United States.

Atlantic Coast, Mountain Valley & More in Spotlight

While the FERC greenlighted the $5 billion Atlantic Coast Pipeline project last November, it has been facing opposition on environmental, health and safety concerns.The project is a joint venture between Dominion Energy, Inc. D , Duke Energy Corporation, Piedmont Natural Gas Company and Southern Company, with Dominion Resources being the majority stakeholder and chief operator of the pipeline. The project suffered a roadblock last month when FERC ordered stalling of the natural gas pipeline's construction amid opposition from three environmental groups namely Sierra Club, the Defenders of Wildlife and the Virginia Wilderness Committee.

In August, FERC also halted the construction of $3.5 billion Mountain Valley Pipeline , chiefly operated by EQT Midstream Partners, LP EQM and partnered by NextEra Energy, Inc., Consolidated Edison, Inc., WGL Holdings, Inc. and RGC Resources, Inc.Opposition from Sierra Club, Wild Virginia and Appalachian Voices led to the setback. The opponents believed that the U.S. Forest Service and the Bureau of Land Management had not evaluated the project well enough before issuing permits. Environmental safety is certainly the heart of the matter as the opposition parties believe that the pipeline project would pollute forests and lands.

While FERC approved the PennEast Pipeline in August, allowing it to proceed, the decision has been highly criticized by green campaigners.The $1.3 billion PennEast project is a joint venture between Southern Company SO , New Jersey Resources Corporation, South Jersey Industries, Enbridge Inc. and UGI Corp, each holding 20% stake. However, just a few days after the FERC verdict, a New Jersey conservation group requested a federal appeals court to review the FERC approval of the pipeline. In fact, the agency does not even see the requirement of the pipeline and views it as a threat to residents, land and water supplies.

Also, while Energy Transfer Partners L.P.'s ETPDakota Access Pipeline marked its one-year anniversary in June, it is still drawing criticism from Native American tribes and environmental groups. In fact, Iowa landowners recently appealed to the Iowa Supreme Court and any ruling in favor of the landowners may cause a major blow to the pipeline, leading to suspension of operations. The plaintiffs claim that the builders of the pipeline have not acted within Iowa's eminent domain laws and seized private land illegally. Notably, the Iowa case is not the only obstacle; The Standing Rock Sioux tribe and three other Dakotas tribes seek to shut down the pipeline and have filed lawsuits related to that in the District of Columbia.

Notably, William Partners' Transco Northeast Supply Enhancement pipeline is also facing setbacks in state reviews in New York and New Jersey. In fact, the FERC has postponed the environmental review of the pipeline for almost two years.

Just a week back, Plains All American Pipeline LP PAA was found guilty of the major oil spill in Santa Barbara County in 2015. In May 2015, Plains All American's Line 901 Pipeline rupture led to the spilling of around 100,000 gallons of oil, leading to death of marine and wildlife species. While the jury also found the Zacks Rank #3 (Hold) company guilty of not having any response plan in place following the spill, Plains All America claims to have spent $150 million in oil spill response even before the case was filed against the company. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

The verdict certainly raises alarm and also comes at a time when a lot of midstream players have been working on building more pipelines to meet the surging oil output, especially in Texas. The latest ruling will also amplify the already cumbersome scrutiny process of the pipelines. With the opponents still concerned of emission levels and safety issues, they want the pipeline operators to have proper oil spill response plan in place.

While environmental concern is the crux of the matter, how practical are these oppositions amid the pipeline shortages and oil boom?

Final Thoughts

Pipelines are an integral part of the energy industry engaged in the transportation of oil, gas and petroleum products in an efficient manner. Apart from helping in creating additional job opportunities and a reliable fuel supply for the future, pipelines are also the best option to transport oil and gas instead of railway and trucks, which are much costlier and more environmentally unsafe modes for the industry.

While one should not overlook the environmental safety, methane emissions, oil spills among other dangers and drawbacks associated with pipelines, the ever-increasing protests and oppositions are certainly not the solution to the problem. Building a new pipeline is not an easy process. In fact, the ones already approved and built are also being suspended amid escalating lawsuits by environmental groups and others.

Pipeline players, on their part, should ensure that they minimize methane emissions by introducing efficient engines at compressor stations along with best designed maintenance practices for leak detection and prevention.

With production soaring and pipelines challenges raging amid dysfunctional policies and protests, prospects of the North American energy sector will shine bright with a sound regulatory and environmental framework, which is crucial for the development of pipeline projects

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Southern Company (The) (SO): Free Stock Analysis Report

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Kinder Morgan, Inc. (KMI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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