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Enbridge moves closer to Line 3 construction while Line 5 shutdown is threatened

Highlights

Minnesota Dept. of Natural Resources approves bevy of Line 3 permits

Enbridge doesn't expect Biden to intervene in opposition

Michigan governor orders Line 5 shutdown in 180 days

Houston — Enbridge moved closer to approval for its massive Line 3 crude pipeline replacement project after receiving new permits in Minnesota, but its Line 5 pipeline in Michigan faces additional hurdles now that Gov. Gretchen Whitmer is pledging to shutter the NGL and crude system as soon as May.

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The two pipeline systems run from Western Canada to the Midwestern US and serve as major arteries for crude oil and propane. The mixed bag of news for Enbridge puts the Canadian pipeline giant closer to starting construction on Line 3 next year, while the future of Line 5 and its planned Great Lakes tunnel replacement project are entirely in doubt.

Whitmer, a Democrat who has opposed Line 5 since becoming Michigan's governor in 2019, said she is revoking Enbridge's 1953 easement for Line 5, setting in motion the potential for a pipeline shutdown in as soon as six months, as well as a likely and lengthy court battle. She cited "persistent and incurable violations of the easement's terms and conditions," including structural issues with the dual pipelines that provide Michigan customers with more than half of their propane supplies.

Most recently, the 540,000 b/d Line 5 was partially shuttered for much of this summer after an anchor support for the pipeline was damaged and eventually repaired.

"Enbridge has imposed on the people of Michigan an unacceptable risk of a catastrophic oil spill in the Great Lakes that could devastate our economy and way of life," Whitmer said in a Nov. 13 statement. "That's why we're taking action now, and why I will continue to hold accountable anyone who threatens our Great Lakes and fresh water."

There's been greater scrutiny of Enbridge in Michigan since a significant 2010 oil spill from a separate Enbridge pipeline along the Kalamazoo River.

Alberta responds

Alberta Energy Minister Sonya Savage called the move by Whitmer the latest in her "long-standing efforts" against Line 5. Savage predicted a "long, protracted process in the American court system."

Enbridge described the matter as a distraction from the "fundamental facts" of Line 5's safety. The 645-mile line stretches from Wisconsin through Michigan and into Ontario and is part of Enbridge's larger Mainline and Lakehead systems.

The Line 5 tunnel replacement project under the Great Lakes' Straits of Mackinac has progressed despite state opposition, although project completion isn't expected until late 2024, according to Enbridge.

"Enbridge is currently seeking permit approval for the tunnel project and replacement pipeline which, upon completion, will make a safe Straits crossing even safer," Enbridge spokesman Michael Barnes said on Nov. 16.

Matthew Taylor of Tudor, Pickering, Holt & Co. said there's a "low likelihood" of the pipeline actually shuttering given the protracted legal fight involved, according to a recent note.

And Canadian crude differentials have thus far failed to move on the news. Western Canadian Select crude at Hardisty, Alberta, was heard to trade at WTI CMA minus $9.30/b, up 50 cents from the prior day and in line with its 30-day moving average.

"I don't think it will have any market impact as of right now," one trading source in Calgary said of the attempt to shut Line 5. "They have up to 180 days to shut, but I don't think it will get there. I assume it drags in courts."

More bullish for Line 3

Despite the Line 5 roadblocks, Enbridge is bullish on commencing further construction on its larger, $6.75 billion Line 3 replacement project next year.

The 370,000 b/d Line 3 project would bring the system up to 760,000 b/d as it moves Canadian crude from Alberta to Superior, Wisconsin.

The pipeline runs more than 1,000 miles, including its largest 337-mile segment in Minnesota. Enbridge received the remainder of its Minnesota Department of Natural Resources permits last week, leaving final approval to the US Army Corps of Engineers.

When CEO Al Monaco was asked recently whether President-elect Joe Biden could slow or halt the Line 3 developments, Monaco said the process already was well underway and should be approved "relatively quickly."

Biden has publicly opposed TC Energy's competing Keystone XL Pipeline project, but not Line 3.

Enbridge completed the $3.75-billion Canadian portion last year, and the remaining construction is expected to last up to nine months once it begins.

"Replacing an aging pipeline with new, modern construction is the safest and best option for protecting the environment and communities for generations to come," said Enbridge spokeswoman Juli Kellner, noting that work should begin "as soon as" final approval is received.

Monaco has contended there's plenty of crude oil pipeline demand that will return as soon as the pipeline is built.

He noted that the oil sands region of Alberta was facing significant pipeline shortages before the coronavirus pandemic took hold. Indeed, Canada's crude-by-rail exports fell from an all-time high of 411,991 b/d in February to an eight-year low of 38,867 b/d in July. Exports have since rebounded to more than 50,000 b/d, according to the Canada Energy Regulator.