A Federal Judge Just Sentenced You to Higher Food and Fuel Costs

Get ready to pay more money at the gas pump and the grocery store.

Many Americans are already struggling to keep food on the table, thanks to COVID-related unemployment and supply chain disruptions.

Now, thanks to a federal judge in Washington, D.C. (where else?), the situation is poised to get much, much worse.

Federal judges, after all, have a lot of power. Just ask President Trump, who has seen numerous policies shot down with the stroke of a jurist’s pen.

The idea behind federal courts is to adjudicate over federal matters… of which there are many, to be sure.

Rulings are not necessarily confined just to the parties before the court, either. Not just to the “case or controversy” in front of the judge.

No, federal judges sometimes issue nationwide “injunctions.” That is, a judge in some faraway courthouse issues an order that affects matters across the country.

We see that play out today, thanks to a federal ruling that has the potential to shut down a significant chunk of the nation’s energy supply.

If this action carries through, the repercussions will spread outward — severely impacting hundreds of companies in dozens of industries.

Eventually, it will hit you right in the wallet.

Millions of lives will be impacted, one way or another. It all hangs on the word of one judge… one ruling… one case…

That’s power.

And it’s problematic.

Let’s dig in…

To me, the matter started a few years ago, when I attended an energy conference in Houston.

The sessions and panel talks were a mix of arm-waving forecasts by energy economists and government regulators, interspersed with technical presentations by oil and gas companies.

It was a nerdy kind of thing, but fascinating if you’re into it. (I was… and still am!)

At any rate, after lunch one day I returned to the hall with time to spare and retook my seat near the front. (As a general rule, I like to sit up front where I can better see the slides and hear the speakers.)

As I settled in, three men started walking towards the speaker and presentation area. They wore button-down shirts and blazers, like the rest of the attendees. So sartorially speaking, they didn’t stand out.

But once they reached the stage and podium, the three pulled out handcuffs, a length of metal chain and a couple of large U-bolts from backpacks.

Immediately, two of the men chained, handcuffed and bolted the third guy to a metal frame that held up projection screens and the speaker’s platform. It was all quite crisp; they were well-practiced.

The bolts and locks snapped, and there was no getting rid of this chained-up man.

He faced the audience and began loudly shouting about the Dakota Access Pipeline (DAP), a major interstate energy transport system designed to move oil out of North Dakota.

Clearly, this fellow opposed it… He was protesting. Non-violently, of course. But disruptively.

At the time, DAP was in advanced stages of development. And there I was in a front-row seat, witness to this noisy pipeline protest!

As you can imagine, conference organizers were apoplectic. Their carefully scripted event had been crashed by pipeline protesters.

But the people running the show were prepared as well… Not their first rodeo, so to speak.

Immediately, a conference rep walked to the front of the hall and firmly instructed everyone to exit and proceed to another room. That is, they had Plan B, a different room, ready just in case!

I began to take pictures. But one of the staff walked over and politely asked me not to do that.

Meanwhile, security personnel showed up with a dolly — conveniently handy — and quickly moved several large potted plants in front of the shouting protester. This blocked him from view and dampened his voice.

Eventually, Houston police arrived and used bolt-cutters to remove the metal bindings. Then they arrested the protester and charged him with trespassing or such.

All in all, it was quite a spectacle of “protest theater.”

It was effective, too, in that it stopped the show for a while.

But it didn’t stop DAP. That line of pipe has been built. It’s up and running successfully for three years now.

You’d think that would be the end of the story…

But no.

At the technical level, DAP is a marvel of modern engineering — a 30-inch pipeline that crosses four states over 1,172 miles. It’s buried for most of the way, and even runs underneath rivers through double-lined pipe with spill detection technology up and down the line.

It connects North Dakota oil to refineries and other pipelines in Illinois, where it spreads out across the entire U.S. energy complex.

Dakota Access Pipeline

Dakota Access Pipeline (DAP); 1,172 miles across four states.1

DAP was approved during the Obama administration, under environmental regulators who scrutinized the system from end to end.

DAP cost $3.8 billion to construct in 2016–17, and oil began flowing in May 2017.

Today DAP carries 570,000 or so barrels of crude every day, out of North Dakota — about 5% of overall U.S. domestic oil production.

But unless something changes soon, that figure will be reduced to zero barrels in less than a month.

Over 1,172 miles of critical energy infrastructure will be rendered moot.

That’s because the protestors never gave up their dream to kill DAP, even after construction and three years of safe operation.

They still argue that DAP is hazardous. It passes over, under and through all manner of environmentally sensitive areas. It might leak. And somehow, the Obama administration environmental review was just not good enough.

Last week, they finally convinced a federal judge in Washington, D.C., to agree.

He ruled that the original environmental permits for the DAP were inadequate.2 Per this judge, DAP must cease operations within 30 days of his order, meaning by early August.

So here we are…One judge in Washington is effectively strangling a multibillion-dollar energy asset that currently serves the energy needs of people across the heartland of the nation.

But you may not have heard much about this pipeline case…

In the current age of COVID-19 and nationwide racial protests, this is but one court proceeding in our faraway national capital. The matter has been lost in the noise of other news.

But this DAP matter is important in the big scheme of things.

In fact, it’s a bombshell decision that raises all manner of questions about U.S. energy and food supply… including how much it will end up costing you.

The recent order saddles North Dakota’s oil industry with the prospect of being unable to transport the petroleum it lifts out of the ground. Without transport, operators will begin shutting down wells.

Arguably, there’s rail transport available for North Dakota’s oil. But by every metric, rail is less energy efficient for transporting oil versus pipelines. More dangerous too, in terms of barrels spilled.

That’s not the only problem.

On the best of days, there’s limited rail availability. There are only so many rights of way, owned by a small number of railroads (the two biggies are Union Pacific and BNSF).

And 30 days is not nearly enough time to locate, arrange and move thousands of tank cars into the region, nor schedule new freight service on busy rail lines.

It will be even trickier because tracks and locomotives in the region are already reserved to haul North Dakota’s grain harvest in August and well into the fall.

If railroads begin moving large volumes of oil, it will displace the goods of farmers and farm co-ops. The inability to move agricultural products will disrupt U.S. food supply and interfere with export markets.

In other words, under the judge’s order, people and businesses up and down the line will likely have to pay higher shipping costs for both oil and grain.

Yes, a couple of rail companies will benefit from higher prices. But the energy and agricultural sectors will pay those costs and pass them on to consumers… Meaning you.

Meanwhile, if North Dakota oil output falls due to lack of transport, expect to see hits to the state’s oil companies and banks, as well as to local and state taxes in North Dakota and along the DAP pipeline right of way.

Refineries from Illinois to Texas are at risk, too.

Typically, a refinery is geared to process oil with a well-defined chemistry. So refineries at the far end of DAP handle 570,000 barrels per day of well-understood North Dakota crude. If that flow is interrupted, it could lead to refinery slowdowns and refined product shortfalls.

All this because one judge in Washington has determined that several years of environmental review — by federal agencies under the Obama administration no less — were inadequate. And that three years of successful pipeline operation by DAP doesn’t somehow prove its overall safety.

Worst of all, the decision may be a harbinger of how difficult it will be to build a new industrial economy in the U.S. after decades of deindustrialization.

Here in Whiskey & Gunpowder, we’ve often ripped into globalization trends of the past 40 years and described how these led to widespread deindustrialization of the U.S.

Routinely, we critique financialization as well, discussing how Wall Street has bled money from American companies. We chastise greedy managers for asset-stripping their companies in an effort to show some semblance of “return” from their dubious ministrations.

But home-grown U.S. environmentalism has also helped take the U.S. down from its former perch as the world’s leading manufacturing power. A long string of environmental laws and near-endless regulations have made much basic business impossible to conduct in the U.S.

Business also must deal with costly litigation with quirky, sometimes draconian, results… Like when one judge, who sits thousands of miles away, orders a shutdown of the system that currently moves 5% of national U.S. oil capacity.

More broadly, many an old mine, mill, factory, energy complex and more has gone out of business due to domestic environmentalism rather than competition from foreign firms. Some industries — some entire industrial sectors — are just too difficult to make work in the U.S.

In many cases, it may well have been a great idea to shut down old factories, etc. I’m old enough to remember the smoky steel mills and coke ovens of Pittsburgh, long ago.

But keep in mind that the alternative to the U.S. supporting its own industry is to import vast quantities of… well, everything. Made elsewhere.

This kind of import-focus is exactly how the U.S. enabled China to rise to the level of industrial and military near-superpower, along with numerous other industrial competitors across the globe.

Some other time, let’s have a long discussion about the environmental and economic merits, or not, of maintaining industrial capacities in the U.S.

The point for now is that the recent DAP decision illustrates a major problem with U.S. environmental law. One judge in Washington has looked backwards, reinterpreted what happened and determine that a long-ago “environmental review” was flawed.

He then issued an order to shut down a major industrial system that is already up and running, providing critical support to the U.S. energy complex. All this, with many second- and third-order effects up and down the line…

That’s the power of a federal judge, yes… But in this case, that faraway judge has also disrupted U.S. energy, railway and agriculture systems… all of which will end with you spending more of your money during a recession.

Something is more than wrong — it’s a deep flaw, really — in a country when it’s so hard to get things done and keep things working. It may even be the hallmark of a truly broken system.

On that note, I rest my case.

That’s all for now… Thank you for subscribing and reading.

Best wishes,

Byron King

Byron King
Managing Editor, Whiskey & Gunpowder
WhiskeyAndGunpowderFeedback@StPaulResearch.com

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1 Wikimedia Commons

2 Associated Press

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Byron King

A Harvard-trained geologist and former aide to the United States Chief of Naval Operations, Byron King is our resident gold and mining expert, and we are proud to have him on board as the managing editor of Whiskey & Gunpowder.

This “old rock hound” uses his expertise and connections in global resource industries to bring...

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