U.S. Judge Orders Enbridge Line 5 Closure, What’s Next?

Following years of disagreement, a federal court ordered Enbridge Inc. on June 17^th to shut down Line 5 pipeline going through the Bad River Reservation within three years. The court also ordered Enbridge to provide the reservation with compensation of $5.2 million USD and a portion of the pipeline’s profits. The legal battles between the company and Wisconsin, Michigan, and the Bad River Band of the Lake Superior Chippewa have been ongoing since 2018, with the primary issues being the environmental impact of potential oil spills in the Straits of Mackinac and the expiration of the 2013 Easement agreement with the tribe. As a crude and NGL pipeline, the forced closure of Line 5 may have a serious impact on the current crude oil flow system and the NGL market in North America. A comprehensive legal history of Line 5 can be seen below.

Enbridge Line 5 carries 0.54 MMb/d of crude oil and NGLs from its origination in Superior, Wisconsin to Sarnia, Ontario. In addition to providing crude throughput to U.S. refineries and NGLs to the Midwest, Line 5 is also the main supplier of crude to Eastern Canada. The connection between Western Canadian crude and Eastern Canadian refineries is crucial for Canadian energy demand and has invoked Canada’s use of the Transit Pipeline Treaty of 1977, which prevents the U.S. government from intervening in crude oil flow in non-emergency situations. While Enbridge plans to appeal the federal ruling to cease operations and request a stay throughout the legal process, let’s take a look at Enbridge’s possible alternatives should the court order hold.

Enbridge’s Mainline system serves as the largest source of crude supply from Canada into the Upper Midwest, averaging 3.0 MMb/d since 2022. However, 0.67 MMb/d of that total flows into Eastern Canada via Line 5 (as highlighted in the chart above). If Line 5 becomes unavailable, crude and NGLs can flow south to Flanagan, Illinois via Line 6. Crude oil specific pipeline capacity is available on the Enbridge Mainline system via Lines 61 and 14/64, which has a combined capacity of 1.5 MMb/d. From Flanagan, there is only one Enbridge pipe, Line 78A/78B to Sarnia, ON, which exclusively carries crude oil. Enbridge has the option to reroute crude oil volumes via Line 78A/78B, which currently has approximately 0.3 MMb/d of available capacity, but that leaves approximately 0.2 MMb/d of crude that Eastern Canada must source from elsewhere to maintain current refinery outputs.

The flow of NGLs will be the most impacted since there is no reroute capacity of those volumes within the Enbridge Mainline system to Sarnia, ON. As such, an alternative mode of transportation for NGLs, such as trucks and rail, may be required to sustain the current level of output to the Midwest and Eastern Canada. Therefore, additional transportation costs and sourcing challenges associated with these alternative modes of transportation could provide upward pressure on pricing in dependent markets in the Upper Midwest regarding ethane, propane, and other NGLs. Again, as the ruling to close Line 5 is being appealed by Enbridge, the final fate of the pipe remains to be seen. However, what is clear is that if the appeal fails and the order to shutter Line 5 is upheld, crude flows on existing pipeline infrastructure in the region will certainly be impacted.

BTU Analytics will be taking a closer look into the implications of the possible Line 5 closure, its crude volume displacement, possible scenarios producers may consider to deliver volumes, and subsequent flow bottlenecks in the July 2023 issue of the Upstream Outlook.

BTU Analytics is a FactSet Company. This article was originally published on the BTU Analytics website.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.