BISMARCK — The operators of the Dakota Access Pipeline say that shuttering their pipeline, as a federal judge ordered them to do last month, would deal a devastating blow to the North Dakota economy.

In one especially catastrophic prediction, cited in Dakota Access' request for an emergency stay, the company argues that shutting down DAPL “would inflict $7.5 billion in losses on North Dakota companies, employees, and that state’s budget alone through 2021.”

It's a huge number. But is it right?

Energy Transfer Partners, the parent company to Dakota Access, would not elaborate on the numbers included in their legal briefs. But insight from economists, energy market analysts, and North Dakota state officials suggests that the $7.5 billion figure likely overshoots the actual impact of a DAPL shutdown, which is on hold pending the decision of an appeals court.

And while business interests in North Dakota have argued that the court's decision could rock the oil industry in an already difficult year, Native American and environmental activists argue that the stalled production in the Bakken would minimize the economic losses of a DAPL shutdown. "The devastation arguments are wildly overblown and I think neutral observers would agree," wrote Jan Hasselman, a lawyer for EarthJustice who represents the Standing Rock Tribe against Dakota Access, in an email to The Forum responding to the $7.5 billion estimate.

Over the last month more than a dozen legal briefs have flowed into the U.S. Court of Appeals in Washington, D.C., each laying out a different argument in the DAPL shutdown appeal. At the heart of the case is a disagreement over the economic effects of cutting off DAPL, and the fate of the pipeline may hang in the court's approximation of those numbers.

Trouble forecasting

Even in normal times, economic forecasting is a dangerous game. The process relies on chains of assumptions about oil price and production, fickle quantities that have been even trickier to pin down during the pandemic. So far in 2020, the price of U.S. oil has wavered between nearly $60 a barrel and negative $37 a barrel, an all-time low.

"The adage is, 'Every forecast is wrong,'" said Dean Bangsund, a researcher at North Dakota State University who leads a biannual study on the petroleum industry’s contribution to the North Dakota economy. "I would have a real high confidence predicting what the price of oil will be tomorrow," he explained, "but my confidence would go way down if I was trying to tell you what the price of oil would be a year from now.”

The pandemic throws a big wrench into this forecasting process, and the actual cost of restarting oil production in the Bakken is not clear either, since no one has seen production stalled to this level before. Ryan Kellogg, an energy economist at the University of Chicago who has studied crude oil transport in the Bakken, said the number of shut-in oil wells in the region is "so unprecedented" that "it's just not something that (he's) really put a lot of thought into" before this year.

"You’ve got two things at work here," Bangsund said. "One’s risk, and the other one’s uncertainty. Risk is something you can quantify and say, well there’s a 10% chance or a 40% chance something might happen based on past data. Uncertainty is something that you can’t quantify because there isn’t any bounds by which to measure it."

There is little confidence in estimating the actual costs of the DAPL shutdown a year or more into the future, but to weigh their decision, that's precisely what the judges in Washington will have to do.

Contrasting opinions

If DAPL shuts down, the price of North Dakota oil will likely take a hit as the state reroutes 570,000 barrels a day to rail transport — about $5 per barrel, according to the state's Department of Mineral Resources. "With that $5, that hurdle of expanding and bringing in investment to North Dakota just got $5 higher," said Justin Kringstad, director of the North Dakota Pipeline Authority, noting that even a few dollars a barrel "is not an inconsequential number at today's price point." It may be enough to prompt an exodus of oil operators from the Bakken to more lucrative drilling sites in Texas and Oklahoma.

But exactly how much activity North Dakota would lose in a DAPL-less future is subject to debate and wild speculation.

Some veteran market-watchers have theorized that the pandemic has initiated a long fade for the Bakken, with the region never getting back to the production levels it achieved just last year. Similarly, other analysts have argued that the $7.5 billion in losses estimated by Dakota Access assume a level of Bakken production that just isn't likely for as long as the pandemic is dragging down oil demand.

In an analysis commissioned by Standing Rock's legal team, economist Marie Fagan estimated that the predictions of earlier Dakota Access testimony, which pinned 2020 to 2021 damages of a shutdown between $5.21 billion and $9.12 billion, were "overstated by a substantial $2.5 billion to $5 billion." Fagan predicted that Bakken production will languish "substantially below" its early 2020 levels for up to two years because of the pandemic, making the next year a prime window to reassess the pipeline. "If one had to choose a time in which to shut down a pipeline temporarily, now would be it," she wrote.

Clark Williams-Derry, an analyst at the Institute for Energy Economics and Financial Analysis and a fellow at the sustainability think tank Sightline, also suggested that the Bakken's best days could already be behind it and said there seems to be "real factual disconnect" in Dakota Access' $7.5 billion figure.

"When I look at that I think, 'OK yeah, you just get to invent whatever number you want,'" he said. "Make whatever assumptions you want, and because you’re business, people are going to trust you or believe your numbers, when it has absolutely nothing to do with reality."

Williams-Derry points to North Dakota’s gross state product, the aggregate value of goods and services produced in the state, as a reference point: total GSP for North Dakota was about $51 billion in 2016, before DAPL was completed, and about $54 billion after its completion in 2019. And only a small part of that $3 billion growth, according to Williams-Derry, should be attributed to DAPL. "At a minimum, it looks like it's a stretch. A real stretch," he said. “It seems like they're saying that shutting down DAPL would have a bigger impact on the economy than building it in the first place."

But while most oil industry watchers agree that the Bakken is in for a long recovery, DAPL proponents argue that demand and production will rebound enough in the next year for North Dakota to suffer major losses if it can't match returning oil demand with proportional production. North Dakota Tax Commissioner Ryan Rauschenberger has done his own calculations to predict the tax hit of a DAPL shutdown and says he can easily see how the numbers would reach into the several billions. "Billions of dollars will be lost by the industry, for sure, if DAPL is not able to continue to flow. And that is an absolute fact," he said.

By Rauschenberger's estimate, the pipeline shutdown would drain the state of $250 million in tax revenue and levy a $2.5 billion blow to the state's oil industry. Still, it takes some fudging to get the tax commissioner's numbers to line up with those of Dakota Access. Rauschenberger squares this number with the $7.5 billion figure, in part, by doubling it, a calculation he says is fair since DAPL was on the cusp of doubling its pump station capacity before the court ruling came down.

Rauschenberger explains that Dakota Access may have gotten the rest of the way to $7.5 billion with "multiplier effects," tools used by economists to account for an event's ripple effects across other industries. Representatives from North Dakota's agriculture sector, for instance, have argued that shifting oil transport to rail would supplant the state's grain transport, a spillover effect that could significantly hamper another key local industry.

But while Rauschenberger says he "would totally agree" with the use of multiplication effects, other analysts suggested they may be disingenuous. Williams-Derry called the use of multipliers "informative but sketchy." And, in her May analysis, Fagan argued that the shift to rail transport would pump new money into the economy, rather than sapping it out. "The losses to DAPL and the increased cost to transport by rail is a loss to oil producers, but a gain to railroads and railcar lease companies," she writes, adding that concerns about the displacement of agricultural shipments are "misguided" and based on outdated rail transport data in North Dakota.

For now, DAPL is running under a short-term "administrative" hold issued by the federal appeals court last month. Both sides await a more consequential verdict from the judges in Washington on Dakota Access' requested emergency stay, a decision that could come down anytime in the coming weeks.

Readers can reach reporter Adam Willis, a Report for America corps member, at awillis@forumcomm.com.