The Morning Brief – 03.18.21

By Bruce Carson


The U.S. administration cancelled the permit for one cross border pipeline, Keystone XL (KXL) will it make it two by cancelling the easement for Enbridge’s Line 5?

The approach to cancelling KXL while different from Line 5 could have the same result; an energy pipeline no longer in service.

Will it matter to the U.S. administration that the pipeline has been operating for 65 years, within a legal easement; Line 5 is not KXL with portions yet to be constructed?

If the future of Line 5 becomes a political decision, will Prime Minister Trudeau be able to stand up to President Biden?

It is impossible to discuss the possible closure of Line 5, without first looking at what happened with KXL. The presidential cross border construction permit issued by President Trump was cancelled on January 20, as one of Biden’s first acts of his presidency on the first day of his presidency.

There was hope that Biden would be able to see beyond his campaign promise to cancel the permit, and keep the promised jobs and investment coming, allowing the pipeline to be completed. On November 8, then Foreign Affair Minister Champagne said that KXL was “top of the agenda” and Canada is the most reliable energy exporter to the United States.

Alberta mounted a full court press, dealing directly with counterparties in Washington. It was argued that times have changed between 2015 when President Obama cancelled the pipeline and now. Canada has upped its environmental game with a nation-wide carbon tax, a focus on carbon capture and storage and the development of alternative sources of fuel such as hydrogen and small nuclear reactors.

It was argued that Canada and the U.S. join in a North American approach to fighting climate change.

However, the reality is that the Biden administration is not a fossil fuel or pipeline friendly group, including Janet Yellen and John Kerry as Special Envoy for Climate.

It was thought in the lead up to January 20, with the continuing economic recession and job creation being top of mind, the presidential permit would remain in place. Both Democrats and Republicans are supporters of the jobs created as the pipeline is built.

While the permit was cancelled, one could hope that the positive arguments and actions taken by Canada on climate change would carry over to the discussion on Line 5 in Michigan.

As opposed to KXL, Line 5 has been in operation for years, fully constructed and Enbridge has gone to federal court to ensure that the easement for the pipeline through the Straits of Mackinac remains in place.

Cancellation of the pipeline as sought by Michigan Governor Whitmer will result in a shortage of 14 million gallons of gasoline and other transportation fuels affecting Ontario, Quebec, Wisconsin, Indiana, Pennsylvania and Ohio resulting in fuel being shipped by either 2,000 trucks or 800 rail cars daily.

Job losses in Sarnia will approximate 5,000 with 1,000 out of work in Michigan and Ohio. Six refineries in Ontario, Quebec and the United States rely on Line 5 as does the petrochemical industry, manufacturing plastics.

Gary Mar who now heads up the Canada West Foundation has said that Line 5 is critically important to Canada’s energy security and crucial “that we make sure it remains open.” In fact, Canada’s former Ambassador to the United States Derek Burney argued after the KXL permit cancellation that “Canada needs a wholly Canadian pipeline system.” He added “we need an energy strategy that better serves Canadians.”

Enbridge has applied for a permit to build a tunnel to encase the pipeline and one permit has been approved for the project. Enbridge has also taken measures to increase pipeline safety.

At the February 24 meeting between Biden and Trudeau, the fate of the pipeline was apparently discussed but details are scarce. In question period the following day, Conservative MP Marilyn Gladu asked about Line 5. The response from Trudeau was “in our conversations with the Americans yesterday, we brought up Line 5 because it continues to be an important issue for people in Ontario and Quebec and across the country.” He added “we spoke yesterday about how Canada is a reliable source of energy contributing to U.S. energy security and economic competitiveness. We are strong advocates for Line 5’s continued operation and our government continues to engage at the highest levels.”

In response to a direct question from Conservative leader Erin O’Toole, Trudeau did say “we raised Line 5.” However it is still unclear if Washington will intervene.

Last week Sean Strickland, Executive Director of the Canadian Building Trades Union wrote that Line 5 delivers oil and by-products to thousands of businesses in Michigan, Ohio, Ontario and Quebec and shutting it down would have negative consequences for Michigan, adjoining states and Canada.

Strickland argued that “we need a long term, continental energy policy that brings together labour, industry and government to tackle addressing our energy needs safely, while moving towards a greener economy.” He added “but until then Line 5 is too important to shut down.”

On Tuesday, Vern Vu, Executive Vice President of Enbridge appeared before the Special Committee of the House of Commons dealing with Canada-U.S. relations.

His initial concern is that US courts could take many, many years to resolve the Line 5 dispute with Michigan. He believes that a mediated or negotiated diplomatic solution should be found.

Vu explained that Governor Whitmer revoked the 1953 easement that has allowed the pipeline to operate for years and accused Enbridge of violating the terms of the easement. Enbridge, as noted, is fighting this in U.S. Federal Court. Enbridge does not see a court granting Whitmer’s request for an injunction shutting down Line 5.

There is a court hearing scheduled for May 12 to see if the case belongs before a state court or in the Federal Court system. Enbridge has asked the federal government to support its arguments that the matter rightfully belongs in federal court as virtually all legislation and regulation of pipelines in federal.

But the cancelation or shut down of Line 5 is both a legal and political matter.

All of the environmental arguments that were used in an attempt to persuade the Biden administration not to cancel the KXL permit are applicable as part of the argument to keep Line 5operating.

In addition, it is hard to believe that the Trudeau government would not do all it can to keep the pipeline operating rather than cause massive economic disruption and job losses to those in seat rich Ontario and Quebec with a federal election looming sometime this year.

To Come

  • The PBO will release 3 reports dealing with costing of COVID-19 measures
March 19
  • Michael Spavor goes on trial in China
  • Retail trade numbers for January are to be released
March 22
  • Michael Kovrig goes on trial in China
March 31
  • GDP numbers for January to be released

The Morning Brief will return on Wednesday, March 24.

– BC