UPDATE 4-U.S. court ruling deals another blow to Dakota crude pipeline

(Adds industry reaction, prices, new throughout)

Jan 26 (Reuters) - A U.S. appeals court dealt a blow to the Dakota Access crude oil pipeline on Tuesday, upholding a lower court’s decision to throw out a key federal permit and order a lengthy environmental review that will determine if the pipeline can keep operating.

The decision is the latest in a series of legal and regulatory setbacks for the U.S. energy industry. In the last week, regulators denied permits to notable natural gas pipelines, while the new Biden administration effectively killed the Keystone XL pipeline project and is soon expected to limit oil and gas drilling on federal lands.

Tuesday’s ruling by the U.S. Court of Appeals for the District of Columbia raises the chances that Energy Transfer’s 557,000 barrel-per-day Dakota Access Pipeline (DAPL) will be shut pending an environmental review.

The line is the primary artery for delivering crude from North Dakota’s Bakken field, the second-largest shale development in the country, where more than 1 million barrels of oil is produced every day.

The ruling means the U.S. Army Corps of Engineers will have to conduct another environmental review, expected to take more than a year, because it invalidates a permit needed to operate the pipeline.

DAPL will remain open for now, as the appeals court disagreed with a lower court ruling ordering the line shut. But DAPL still faces multiple threats of closure including from the White House and federal district court.

Energy Transfer was not immediately available for comment. The company’s shares were up 1% to $6.63 in afternoon trading.

In July, the district court ruled the U.S. Army Corps of Engineers violated federal environmental law when it permitted Energy Transfer to construct and operate a portion of DAPL that crosses Lake Oahe, a vital drinking water source for native tribes that brought the suit.

U.S. President Joe Biden has vowed to boost renewable energy development in the United States and reduce carbon emissions. Biden canceled Keystone XL oil pipeline’s permit last week on his first day in office, prompting additional calls from environmentalists to move against other pipeline projects.

“Especially after the Keystone XL decision, the pressure is increasing for the Biden administration to take action here,” said Jan Hasselman, attorney at Earthjustice, which represents the Standing Rock Sioux in the fight against the Dakota pipeline.

“We look forward to showing the U.S. Army Corps of Engineers why this pipeline is too dangerous to operate,” said Standing Rock Sioux Tribe Chairman Mike Faith.

A coalition of businesses, trade associations and labor groups called Grow America’s Infrastructure Now (GAIN) urged the Biden administration to allow the pipeline to keep running.

“The Biden Administration has an opportunity to bring sanity and clarity to this discussion by.. allowing the regulatory process to move forward – unhindered by political influence,” said Craig Stevens, spokesman for the GAIN Coalition.

If DAPL is shut, the industry is widely expected to rely on rail shipments, considered less safe than pipelines.

Shippers who use the line told Reuters on Tuesday that because the line can remain open, it is, for now, a win for Energy Transfer.

Since the appeals court upheld the rulings, the district court could issue another injunction to shut the line, said Height Capital Markets analyst Josh Price. He said he thinks the Biden administration “will attempt to find a middle ground” to allow the pipeline to keep operating during the review.

Bakken crude at Clearbrook, Minnesota traded as little as $1.75 a barrel below benchmark futures for the second half of 2021, dealers said, near the strongest level in about two months. (Reporting By Laila Kearney Editing by Chizu Nomiyama, Marguerita Choy and Cynthia Osterman)