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The Backstory of Delayed and Canceled Energy Projects

With the Dakota Access Pipeline being highly publicized through protests and media coverage, many people are wondering what will come next for this project. 

Although knowing the future of any particular delayed or canceled energy project is highly unlikely, it’s good to know the typical steps and factors that energy projects tend to take into account during these situations. Delays and cancellations of energy projects affect not only the backers of the energy projects, but everyone in the surrounding areas as well. Here at Think Energy, we believe it’s good to know what could possibly be happening to energy projects near you and how they may affect you.

There are many reasons why an energy project could be delayed or canceled. Some common reasons include: financial issues, failure to obtain permits, severe public backlash and catastrophic failure. Whatever the reason may be, there are certain steps that tend to be considered and explored in order to save an energy project.

If the failure of a project is due to political or legal reasons, the company backing the project typically tends to fight back. Fighting to overturn the decision of delay or cancellation is an easy first step that can prevent future complications for an energy project. Not to mention if successful, an energy project can continue on schedule.

If fighting back is not successful or not an option, companies explore how to reroute an energy project. Even though rerouting a project is not ideal, it is a much better alternative than completely canceling a project. For example, an LNG project in Australia was rerouted from an onshore site to an offshore floating concept in attempts to please opposition from local communities earlier this year.[1]

If none of the above options pan out, sometimes a company will simply decide to wait for a possible change that could eventually allow the project to continue on as planned. In regard to the Dakota Access Pipeline, Energy Transfer Partners is hoping that the decision of the Army Corps of Engineers to reassess the current pipeline construction route will be reversed during Trump administration, allowing them to continue on with the pipeline construction process as planned.[2]

Although all of these options can be expensive for a company backing a delayed or temporarily canceled energy project, it is far less expensive than the amount of money they have already invested in the project and the loss they will feel as a result of an official cancellation.

IHS Economics produced a study called “The Economic Impact of Crude Oil Pipeline Construction and Operation,” which gives us a good look into the possible costs and losses of a canceled energy project, specifically new pipeline construction projects. Based on an estimated $11.57 billion spent to construct 6,805 miles of proposed new crude oil transmission pipelines in the United States in 2015, IHS Economics was able to calculate some mind-blowing data. Depending on the actual size of a pipeline project, it was determined that average capital costs were $548,000 to $763,000 per mile, average construction costs were $1,551,000 to $1,867,000 per mile, and that average operation and maintenance costs over the first several years were $136,000 to $175,000 per mile. On a national level, these 6,805 miles of pipeline created 164,111 jobs, $10.3 billion in labor income, $32.3 billion of output and a $15.6 billion contribution to GDP.[3]As you can see, any disruptions create great losses of money and opportunity and not only affect the company itself but the surrounding people as well.

If a project is unable to begin or continue, it will be officially canceled or abandoned. In this case, the company will record any financial losses and move on to another project.[4] If a project is abandoned during construction, sometimes another company will buy the existing elements of the project for a drastically discounted rate and try to utilize them in the future through rebranding or reconfiguring. Although the original company still suffers from major losses, selling the existing pieces of a project can help a little.

As for the surrounding people who feel the loss of jobs or other economic advantages, not much can be done. This is a shame, especially since a lot of recently protested or failed projects have actually been for renewable energy. Some examples include Apex Clean Energy’s wind turbine project in Michigan,[5] Grits’ wind energy project in rural Ontario[6] and hydropower development in Panama.[7]

Here’s a chart from Inside Climate News that actually shows all of the large-scale energy projects that have failed in the past year since the rejection of the Keystone XL pipeline:[8]

 Fossil fuel project cancellations

With such a large number of energy projects being delayed and canceled across the country, from power plant construction to pipeline construction, both the companies and the consumers are losing out in multiple aspects. We at Think Energy believe that while there is not much that can personally be done in these situations, it is best to stay up to date on project news as well as know all of the possible outcomes and effects.

[1] http://oilprice.com/Energy/Energy-General/40-Billion-LNG-Project-In-Australia-Cancelled-Amid-Low-Prices.html

[2] http://www.latimes.com/nation/la-na-dakota-pipeline-20161205-story.html

[3] http://www.nam.org/Issues/Energy-and-Environment/Crude-Oil-Pipeline-Impact-Study.pdf

[4] http://blogs.wsj.com/moneybeat/2015/10/29/shell-posts-loss-on-write-downs-energy-journal/

[5] http://wlns.com/2016/12/07/shiawassee-county-residents-not-exactly-blown-away-by-proposed-wind-turbine-project/

[6] http://www.lfpress.com/2016/10/03/grits-failed-wind-energy-to-face-tough-test-in-2018

[7] http://www.circleofblue.org/2015/world/panamas-hydropower-development-defined-fierce-resistance-tough-choices/

[8] https://insideclimatenews.org/news/06052016/fossil-fuel-projects-cancellations-keystone-xl-pipeline-oil-coal-natural-gas-climate-change-activists

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