Ontario could see bump in gas prices if Enbridge’s Michigan line stays shut
Court battle erupts as state judge orders halt to operations on key pipeline
A Michigan judge’s decision to shut a key Enbridge Inc. oil pipeline running across North America, could send gasoline and diesel prices soaring in Ontario and Quebec and refineries scrambling to secure oil supplies.
On Thursday, North America’s largest pipeline operator suffered a major setback after a Michigan judge sided with the state’s attorney general and ordered operations to halt at Line 5. Enbridge had shut down the pipeline completely last week after an underwater anchor shifted on the east leg, but resumed operations on the west leg after two days. The decision was disputed by the state’s attorney general which sought an injunction.
Line 5’s shutdown could be a blow for every refinery in southern Ontario, which depends on it for its crude supplies.
“Should Line 5 remain out of service for an extended period, into mid July, production rates at our two refineries will be reduced,” Imperial Oil Ltd. spokesperson Jon Harding said Friday. Imperial operates two refineries in Ontario. The company’s Sarnia refinery processes 119,000 barrels of oil per day and its Nanticoke refinery processes 113,000 bpd.
“Reducing rates will likely result in shortfalls of gasoline, diesel and jet fuel in our distribution points in southern Ontario. That would happen within approximately a week,” Harding said.
Suncor Energy Inc. and Shell Canada Ltd. also operate refineries in Ontario that depend on Line 5 for oil deliveries.
“We are working hard to continue to deliver the products our customers need and depend on,” Shell spokesperson Tara Lemay said in an emailed statement.
Suncor spokesperson Sneh Seetal said: “Due to our integrated model and vast logistics network, we have some flexibility to mitigate any short-term impact. For example, we can bring in crude into Montreal by ship and the Portland Montreal Pipeline.
“That said, Line 5 is a critical line that feeds our refining assets which in turn provides valuable end use products for consumers,” Seetal said, adding the company’s other options are more costly. Line 5 runs through the Straits of Mackinac between Lake Michigan and Lake Huron, from Alberta through Michigan en route to Ontario, and is part of Enbridge’s massive North American Mainline network that connects Alberta to U.S. Midwest refineries.
A regulatory filing from Enbridge shows southern Ontario refineries are dependent on Enbridge’s Line 5 and to a lesser extent Line 78 and Line 95 pipelines.
With Line 5 shut down, analysts say the other secondary lines, such as Line 78 and Line 95, might be overwhelmed and Enbridge would be forced to allocate space on those lines, so there would still be supply shortfalls as companies scramble to move crude onto other pipes.
A source in the refining industry said those refineries are “all screwed without Line 5.”
As many as seven refineries rely directly and primarily on Line 5 for oil deliveries, analysts believe. In addition to the four refineries in Ontario, Marathon Petroleum Co.’s 147,000-bpd refinery in Detroit, Mich. relies mainly on Line 5. Similarly, BP Plc. and PBF Energy Co. both operate refineries in Toledo, Ohio.
Unlike Canadian refineries however, those American refineries have links to other pipeline networks. The real pinch will be felt in Ontario and, to a lesser extent, Quebec.
“It’s going to be felt at the pump,” said Phil Skolnick, an energy analyst at Eight Capital in New York.
“There’ll be less product in the market in that Greater Toronto Area, so naturally prices will go up. Gasoline goes up. Diesel goes up.”
Enbridge had shut down the line after discovering an anchor holding the pipeline in place at the bottom of the Straits of Mackinac had shifted. After inspecting the anchor and line, the company attempted to restart one of the two underwater pipes — prompting a reaction from Michigan’s state government.
The next court hearing on the case is scheduled for June 30 and analysts say if the line doesn’t restart then, there could be supply shortages and price spikes in southern Ontario and potentially Quebec and the U.S. Midwest shortly thereafter.
Stifel Firstenergy analyst Michael Dunn said companies are likely trying to make contingency plans ahead of the June 30 court date and “scrambling to make other logistical arrangements and not just wait.”
One issue that may dampen the effect of the oil supply disruption is the COVID -19 pandemic, which had reduced demand for crude.
“Given reductions in demand for petroleum, while Line 5 is a key asset linking oil producers to refiners in Sarnia and Detroit, I don’t yet see this being a major problem that would impact prices,” said Patrick De Haan, head of petroleum analysis at Gasbuddy, a gas-price tracking site. However, the impact could lead to higher prices depending on the length of the shutdown, he said.
Mobility data from Apple Inc. show that after a sharp decline in car traffic when the coronavirus pandemic forced people to stay at home, car trips in Toronto have recovered. In fact, on June 24, there were 10 per cent more people driving than on Jan. 13, 2020.
Should Line 5 remain out of service for an extended period, into mid July, production rates at our two refineries will be reduced.
A court hearing in the battle between Enbridge and the state of Michigan is scheduled for Tuesday and analysts say if the key Line 5 doesn’t restart then there could be supply shortages and price spikes in southern Ontario and potentially Quebec shortly thereafter.