US Army Corps to require new Enbridge Line 5 review but defends Line 3 permit

The US Army Corps of Engineers delivered a mixed bag for Enbridge's contested US oil pipeline projects this week in requiring an environmental impact statement for the Line 5 tunnel replacement but defending its decision not to require such a review for the Line 3 expansion.

The new Line 5 review could delay startup by a year to 2025, analysts said. The project is set to replace an underwater crossing on the aging 540,000 b/d pipeline that carries crude and propane to Michigan and Ontario.

Katie Bays, managing director of FiscalNote Markets, predicts that given the wave of anti-pipeline activism, the Army Corps might default to requiring an EIS in most pipeline reviews going forward rather than the less-stringent environmental assessment.

"Facing litigation, the Corps most likely believes that cases like this, where the project is controversial, constitute a 'significant' action requiring the EIS," Bays said of Line 5. "Ultimately, despite the near term delay, the Corps decision to invest time now in the EIS likely will save time later."

Enbridge continues to operate Line 5 in defiance of a May 12 order by Michigan Governor Gretchen Whitmer to halt the pipeline. A US appellate court directed the state and Enbridge to enter mediation, but no agreements have been reached.

Enbridge spokesman Michael Barnes said the new EIS will delay the start of construction, but the company is still determining by how long.

"Enbridge remains intensely focused on project permitting and the sustained and safe operation of Line 5 until the tunnel is completed," Barnes said by email.

James Coleman, an energy law expert and professor at Southern Methodist University, said the EIS for Line 5 might make it harder for Michigan to pursue its argument that its shutdown order does not violate a 1977 pipelines treaty because it is only temporary.

Line 3 on track

On Line 3, the Corps defended its use of an environmental assessment for the replacement project that will increase capacity to 760,000 b/d from 370,000 b/d on the system that carries heavy crude from Alberta to Superior, Wisconsin.

Line 3 is more than 60% complete in Minnesota, where an appeals court in June allowed the work to continue and upheld its permits.

Enbridge's Barnes said Line 3 is still on track for completion in the fourth quarter of 2021.

"The replacement of existing Line 3 is a safety and maintenance focused project that was ordered by a federal consent decree during the Obama Administration," he said. "Work has already been completed in Canada, North Dakota and Wisconsin."

Biden pipeline stance

Western Canadian oil producers were banking on the Line 3 expansion to help move more crude to the US and reduce their reliance on rail shipments.

S&P Global Platts Analytics expects Canadian oil output to reach new highs in Q4 2021, and the added pipeline capacity will keep WCS price differential to WTI tight into 2022.

Energy law professor Coleman said the split decisions on the two Enbridge cases does not tip the Biden administration's hand on how it might handle future pipeline approvals.

"So far, the Biden administration seems to be working to avoid taking a comprehensive stance on pipelines, preferring to wait until it has to file a response in each case," he said by email. "In Dakota Access, it even asked for more time to respond and then declined to respond despite the courts' repeated requests. So it seems the Administration is doing everything it can right now to preserve flexibility."