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The Dismal Science of the Standing Rock Pipeline Protests

The protests against the Dakota Access Pipeline at the Standing Rock Indian Reservation in North Dakota are, on the surface, about water quality. The pipeline’s planned route—which closely mirrors the path of the would-be Keystone XL pipeline—goes right through the tribe’s water source. And like Keystone XL (which President Obama vetoed this February), the Dakota Access Pipeline has taken on larger significance as a conduit for worsened global climate change.

There is no question as to whether the protest, if successful, would protect the tribes water. No pipe, no possibility of a spill. But do protests like these significantly lessen the impact of global climate change? One waymaybe the only wayto know is to look at how protests affect the price of oil. “We have to look at if it is impacting the industry, and potentially discouraging or constraining their profits, so they have less incentive to produce oil,” says Lorne Stockman, research director for Oil Change International, a nonprofit that tracks fossil fuel economics.

Fossil fuels are great energy sources because they are cheapand transportable, and storablebut let’s focus on the cheap. If fossil fuels get more expensive, things like electronic vehicles and renewable energy sources become more attractive to investors and consumers. Then, theoretically, the market goes green. (Economics are way more complicated than that, but I’m gonna keep this 101-level.)

The first thing to consider is the Dakota Access Pipeline’s cost$3.8 billion to connect the Bakken oil fields in North Dakota to another pipeline (leading to refineries on the Gulf Coast) in Pakota, Illinois. An analysis by RBN Energy says oil producers will pay around $8 per barrel to move their crude through Dakota Access. At max capacity, the pipeline could carry about 570,000 barrels per day. So, if the pipe runs at peak, the pipeline will earn its owners, Energy Transfer Partners, roughly $1.7 billion a year. That means the pipeline only needs a few years to put the investment back into the black.

No surprise there: Moving oil makes money. But the Dakota Access Pipeline was built on promises, and can only move oil (and make money) if it delivers. Energy Transfer Partners promised to have the pipeline finished by the end of December 2016. In return, oil refiners promised to buy oil delivered through the pipeline for a certain cost. That stuff is in contracts, signed back in 2014.

Do you know what the price of oil was back in 2014? Seventy to 80 bucks a barrel, buddy! Currently, oil prices are way down, and profit margins in the oil industry are (by oil standards) pretty thin. Prices hover around $40 or $50 a barrel. “For sure, Energy Transfer Partners are concerned with delivering the pipeline by the end of the year, because otherwise they have to renegotiate their contracts, and no shipper who made terms in 2014 wants to renegotiate in 2017, says Stockman. Energy Transfer Partners probably can’t count on making $8 per barrel.

And maybe nothing at all. The global oil market is overstocked. With thin margins and a flooded oil market, producers might have little incentive to drill, baby, drill. Which would leave the Dakota Access Pipeline way under capacity, and the pipeline’s owners shortchanged.

That’s just if the protestors succeed in delaying the pipeline. But let’s say they shut down the whole ordeala long shot, considering Energy Shipping Partners is already moving ahead with other sections of the pipeline. In that case, oil companies drilling and fracking and pumping in the Bakken might have to use trains to move their crude to Gulf Coast refineries. According to the same RBN Energy report, rail adds about $7 per barrel to the price of shipping Bakken crude.

Stockman estimates that shutting down the pipeline would keep nearly 30 coal-fired power plants worth of CO2 from the atmosphere each year. But really, that’s only if some other, cheaper-to-ship oil-producing region doesn’t pick up the slack.

In the US, oil fuels mostly cars. And really, the world’s oil markets are too complicated and noisy for this hypothetically successful protest to really cause gas prices to jump so much that they’d cause a mass shift to electronic vehicles. And that’s not the problem with EVs, anyway. “It’s already much cheaper to run an EV than a gas car, so its not really a cost competitiveness issue,” says David Timmons, a clean energy economist at the University of Massachusetts, Boston. “Its a matter of acceptability.” As in, consumers aren’t really interested in an electric car that can’t go more than 200 miles on a charge for less than $60,000, or charge its battery on a highway outside, say, California or the I-80 corridor. (Although, the Chevy Bolt and Tesla Model 3 will definitely change the math on all this.)

But that’s all short time scale stuff. Oil companies operate on 30 to 50 year horizons. If the Standing Rock protest is successful, it could cause other companies to reconsider the risks of investing in other pipeline projects.

And that works both ways. Say the protests fail, and the Dakota Access Pipeline operates for several more decades. Meanwhile, the US has promised to cut its emissions by 26 to 28 percent by 2025. “Should we really be building infrastructure for resources we don’t plan to use if we want to stop climate change?” says Stockman. That’s a pretty significant question that economics can’t answer.

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