National Post (National Edition)
ROUND THREE
ENBRIDGE AND MICHIGAN WILL FACE EACH OTHER IN COURT FOR THE THIRD TIME AFTER THE STATE FILED LEGAL ACTION TO SHUT DOWN A KEY PIPELINE.
CALGARY Enbridge Inc. warned of “devastating consequences” on Friday after Michigan Gov. Gretchen Whitmer took new legal action to shut down a key pipeline that supplies Central Canadian refineries.
Whitmer's office and the state's Department of Natural Resources served Enbridge notice and filed a lawsuit seeking to cancel an easement granted in 1953 to cross the Straits of Mackinac, which connects Lake Michigan and Lake Huron.
If the easement were pulled, Enbridge would need to stop flowing oil and natural gas products such as propane through its Line 5 pipeline, which links Western Canadian production with refineries in Ontario and across the U.S. Midwest. A shutdown of the line could send gas prices soaring, particularly in Toronto.
The notice is the latest salvo in a prolonged legal tussle between Enbridge and Whitmer's administration over the oil pipeline. It states that the easement “is being revoked for violation of the public trust doctrine, and is being terminated based on Enbridge's long-standing, persistent, and incurable violations of the Easement's conditions and standard of due care.”
In the related suit filed Friday, Michigan Attorney General Dana Nessel is also asking for a permanent injunction requiring Enbridge to cease operating Line 5 within 180 days and “permanently decommission the Straits Pipelines in accordance with applicable law and plans approved by the State of Michigan.”
Enbridge has fought court battles over the Line 5 pipeline in Michigan before. It said Friday it would review the state's analysis of its compliance with the easement and respond “through the legal process.”
“The notice and the report from Michigan Department of Natural Resources are a distraction from the fundamental facts,” Enbridge executive vice-president and president of liquids pipelines Vern Yu said in an emailed statement.
“Line 5 remains safe, as envisioned by the 1953 easement and as recently validated by our federal safety regulator,” Yu said.
Enbridge said the pipeline is an “essential source of energy for not only Michigan” but also the states of Wisconsin, Indiana, Ohio, Pennsylvania, and Ontario and Quebec on the Canadian side, and said that “any disruption would have devastating consequences.”
Enbridge shares erased earlier gains following news of the latest legal action and closed down 1.6 per cent to $37.38 in Toronto.
A shutdown of Line 5 would likely lead to higher gasoline prices in southern Ontario and several U.S. Midwest states, analysts said.
“It could have an impact on regional natural gas prices in the regions that those refineries serve, so the GTA (Greater Toronto Area) and southern Ontario and, to a limited degree, Michigan and Ohio,” said Patrick De Haan, head of petroleum analysis with GasBuddy in Chicago.
De Haan said he expects that Enbridge will have the ability to change how it operates its broader Mainline pipeline network to flow more oil through other pipes if Michigan's motion passes.
Suncor Energy Inc., Imperial Oil Ltd., Husky Energy Corp. BP PLC, United Refining Corp., PBF Energy Co. and Marathon Petroleum Corp. operate refineries that rely on Line 5, according to documents filed with the Canada Energy Regulator.
A shutdown of the pipeline could therefore affect refineries processing 846,000 barrels of oil per day — a major chunk of total refining capacity in Ontario, Michigan, Ohio and Pennsylvania.
Line 5 also supplies about 65 per cent of the propane used for winter heating in Michigan's Upper Peninsula and 55 per cent of the state's total propane, New Yorkbased Eight Capital analyst Phil Skolnick said.
“It's kind of political suicide,” Skolnick said of the motion to cancel the easement, noting that Whitmer has tried as recently as June to halt shipments of oil on the pipeline after one of the anchors at the bottom of the Straits shifted.
He said he expects Enbridge will likely win the court challenge, as the Calgary-based company has in the past.
“This will be a third time. Third time's a charm, I guess, but I give (Michigan's suit) a low chance,” Skolnick said.
The last time Michigan filed suits to block the flow of oil on the line, in June, Canadian oil producers including Suncor, Imperial and Husky had to scramble to try to secure alternate routes to ship their oil to refineries in Sarnia and Ohio.
“In this case, they have 180 days, so there'll be a chance to get rail capacity on short-term rail agreements if need be,” Skolnick said.
If Line 5 were shutdown, Enbridge would suffer a roughly 3 per cent hit to its expected earnings before taxes, interest, taxes, depreciation and amortization, according to a research note from BMO Capital Markets analyst Ben Pham.
Pham said the impact to Enbridge would likely last until 2024, at which point a Line 5 replacement project is expected to be in service, which includes a new tunnel under the Straits of Mackinac.