Pipeline Opponents Help Free Cash Flow

Several major pipeline developments last week might well represent a key turning point in how the industry operates.

Berkshire Hathaway (BRK-Aacquired Dominion Energy’s natural gas pipeline and storage assets for an enterprise value of $9.7BN, which included BRK using $4BN of its cash pile. Although some estimated the price on the low side, Buffett clearly sees a long positive future for natural gas pipelines. This was a welcome endorsement.

At the same time, Dominion (D) and Duke Energy (DUKcanceled their planned Atlantic Coast gas pipeline project (ACP). This has been the subject of numerous court challenges from environmental extremists. The project appeared to be proceeding, with capacity 90% subscribed, and legal challenges successfully rebuffed. However, the possibility of further court proceedings with additional ongoing delays and cost uncertainty led Dominion and Duke to abandon the effort.

In other news, the U.S. Supreme Court over-ruled a lower court, which had blocked a permit program that several pipeline projects were relying on for construction. But at the same time, it rejected a request from the Trump Administration to allow construction of the Keystone XL crude oil pipeline that had been blocked by a Federal judge in Montana.

But the most stunning legal development was the ruling by U.S. District Judge James E. Boasberg that the Dakota Access Pipeline (“DAPL”) must immediately cease operations and remove all the crude in it within 30 days. DAPL’s construction under Lake Oahe, ND, near the Standing Rock Sioux Reservation, drew fierce protests from local Native Americans and others opposed to its construction. The Obama Administration was opposed to it. Following Trump’s election, the Army Corp of Engineers gave their approval and DAPL was completed. It has capacity of up to 570,000 barrels per day, moving crude from the Bakken in North Dakota to Patoka, IL.

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