What a Line 5 shutdown would mean for Michigan's energy

Beth LeBlanc
The Detroit News

If a state lawsuit succeeds in shutting down Enbridge Energy Co.’s controversial Line 5 oil pipeline, Michigan consumers could experience price hikes for fuel, natural gas and propane while increasing the risk of a spill on land, industry experts said.

Fuel industry officials and independent experts estimate closing the dual pipelines beneath the Straits of Mackinac would cut off not only thousands of gallons of propane a day in the Upper Peninsula but also light crude shipments to Detroit, Toledo and Sarnia, Ontario, refineries that convert the oil into gas, diesel and jet fuel.

If a state lawsuit succeeds in shutting down Enbridge Energy Co.’s controversial Line 5 oil pipeline, Michigan consumers could experience price hikes for fuel, natural gas and propane.

The 66-year-old pipeline has been targeted for shutdown by environmentalists who fear the implications of a spill in the Straits of Mackinac could be similar to the 2010 oil spill near the Kalamazoo River in Marshall. Enbridge ended up paying $1.2 billion for the cleanup and restoration of the southern Michigan area that experienced the largest inland oil spill in U.S. history. 

Michigan Attorney General Dana Nessel's lawsuit seeking the shutdown of Line 5 is pending before an Ingham County circuit judge. In the meantime, Enbridge continues pre-engineering work on a planned $500 million tunnel to house the controversial pipeline, saying it would take four years to build and nearly eliminate any environmental impact of a potential rupture.

A cutoff of the Straits segment would likely have an unknown impact on regular unleaded gas prices in Michigan depending on market conditions, according to industry experts. But it would be more likely to spike the price of propane, which many residents in the Upper Peninsula and northern Michigan rely on for heat during the six-month-long cold season. 

Such a shortage would require a flotilla of trucks to replace the 540,000 barrels-a-day capacity of Line 5, a logistical nightmare that would drive up costs and increase the likelihood of an oil spill on Michigan roads, Enbridge and independent energy analysts said. 

The price increase for Michigan consumers likely would depend on other circumstances in the industry and the timing of a potential shutdown, said Tom Kloza, global head of energy analysis for the Oil Price Information Service, an energy consulting firm based in Rockville, Maryland.

"When you have shutdowns of logistics or refining, you are going to pay more," Kloza said. "I think the question, the moral question, is: Is it worth it?”

Environmental groups have questioned the dire industry predictions, arguing that Line 5 is not critical energy infrastructure and could be replaced easily by a handful of extra trucks or rail cars. The shutdown would have a minimal effect on cost, they contend. 

“While you don’t want to see any oil and gas spill, if a truckload spills, it’s limited to one truckload,” said Sean McBrearty, state legislative and political director for Clean Water Action. Relative to a pipeline spill in the Straits, he said, “one truck spill is orders of magnitude smaller."

Upper Peninsula resident Pat Egan is apt to agree.

"If we are as beholden to Enbridge as apparently they say we are, then we better cut the cord," Egan said. "The system is way too brittle.”

Gov. Gretchen Whitmer earlier this year formed the Upper Peninsula Energy Task Force to address energy needs in the U.P., but the group isn't likely to release its first report for another three months. Whitmer wanted the tunnel built in two years, a deadline Enbridge said it couldn't meet.

Upper Peninsula quandary

The much-debated 30-inch dual span crossing the Straits of Mackinac can transport 540,000 barrels of light crude oil and natural gas a day. 

Environmental groups, joined by Nessel and Whitmer, both Democrats, want the 66-year-old pipelines closed as soon as possible to avoid a potential oil spill and environmental disaster.

After several state studies, Enbridge negotiated a pact last year with the outgoing administration of Republican Gov. Rick Snyder to build a tunnel beneath the Straits of Mackinac to ensure safe passage of fuel through the vital waterways. 

“We are part of the regional infrastructure that’s supplying Michigan and supplying the region, and it’s a system that’s working,” Enbridge spokesman Ryan Duffy said. “To make sure it’s not interrupted, that’s why we started looking at other solutions.”

Environmental groups, joined by Nessel and Whitmer, both Democrats, want the 66-year-old pipelines closed as soon as possible to avoid a potential oil spill and environmental disaster.

Line 5 transports natural gas liquids to a facility in the Upper Peninsula town of Rapid River, where propane is extracted and distributed by truck to roughly 22,000 U.P. homes. About 65% of the propane demand in the U.P. is met through Line 5 and 55% of the state’s overall propane demand. 

The amount of natural gas liquids unloaded at Rapid River each day amounts to roughly 81,000 gallons, a little more than 2% of the daily 3.4 million gallons transported through the line. The remaining 98% of the natural gas liquids, about 3.3 million gallons, go straight to a Sarnia plant to be separated into individual fuel products; and about 1 million gallons of the product is shipped back to Michigan after the process called fractionation. 

If Line 5 were closed, Enbridge estimates the state would grapple with a 756,000-gallon-a-day propane shortage that it would arguably meet through additional trucking.

Ferrell Gas, one of the largest propane suppliers in the Upper Peninsula, said it is prepared to begin trucking natural gas liquids for the U.P. straight from Wisconsin if Line 5 were to close. The company’s propane prices would increase by 5 to 10 cents per gallon, said Don Steckman, general manager for Ferrell Gas in the Upper Peninsula. 

“We’d be sharing the cost increase, but other smaller companies, their costs would increase exponentially,” he said. A shutdown of Line 5 overall, Steckman said, is “bad for the state, it’s bad for the industry and it’s bad for Michigan residents.”

A resident of the eastern Upper Peninsula near White Fish Bay, Egan does not rely on propane pulled from Line 5. He's concerned about the rest of the area's reliance on the line but argued the resilience and independence of Yoopers would help to weather any energy storm in the wake of a shutdown.

"If people were told that they had to find alternatives to propane in a year, they would do it because they want to keep their independence," Egan said. 

Residents would need time to find an alternative, especially as the coldest spell of winter sets in, Ishpeming City Council member Jason Chapman said. 

The prospect of a court-ordered timeline for shutdown, even a generous one, left Chapman fearful for U.P. residents like his neighbor who relies solely on propane or his aunt and uncle who spend half their year at a propane-heated camp.

A flotilla of trucks would be required to replace the 540,000 barrel-a-day capacity of Line 5, which would drive up costs, analysts say.

"What’s a reasonable amount of time?" said Chapman, the former chairman of the Marquette County Democratic Party. "Is it a year? Is it three years? Is it five years? I don’t believe we have the infrastructure in place, especially with rail, to allow this to happen within a year.”

A 2017 study commissioned by Snyder and prepared by Dynamic Risk pegged the propane cost increase at 10 to 35 cents per gallon. But the National Wildlife Federation in 2018 commissioned its own study that estimated a smaller increase in cost. 

The federation's London Economics International study put the increase at 11 cents per gallon in the Upper Peninsula, 5 cents of which would be borne by the consumer, an increase the study concluded was "small compared with the usual volatility of weekly propane prices."

Risks for refineries

The impact on oil delivery in Michigan would be two-fold, industry stakeholders said. A shutdown would affect the delivery of light crude oil from Wisconsin to refineries in Detroit, Toledo and Sarnia, and it would affect the oil generated in Michigan and transferred elsewhere through Line 5.  

Much of Line 5's light crude oil is delivered to Sarnia, Ontario, then transported to refineries in eastern Canada and the United States, according to the 2017 Dynamic Risk study. Some of the crude oil goes to a Marysville terminal, where it connects with a Sunoco line and is transported to the Marathon Refinery in Detroit and two others in Toledo.

More than 50% of the oil produced within the state is loaded into Line 5 at Lewiston. 

The Michigan Oil and Gas Association argued the stoppage of oil and natural gas liquid flow on Line 5 would add roughly half a million more trucking miles in Michigan each month. Enbridge has pegged the increase at 2,150 more tanker trucks a day on state roads. 

But that’s assuming there would be enough drivers and trucks to replace the half a million barrels of light crude oil pumped through Line 5. Some estimates placed the need at an additional 7,500 drivers, said John Dulmes, executive director of the Michigan Chemistry Council.

“We can barely keep our customers in fuel today with the number of truck drivers we have,” Dulmes said. “Who’s going to drive a truck? Where are we going to get the truck?”

The additional trucks and rail cars needed to transport the product could pose a greater spill risk than any pipeline, said Phil Flynn, senior energy analyst at The PRICE Futures Group in Chicago. 

"That in and of itself is another environmental risk," Flynn said. "In a world that moves oil, there is no safer way known to man to move it than through a pipeline.”

If the sought-after shutdown were to happen quickly, it could cause havoc with the just-in-time delivery system on which refineries rely, said Kloza of the Oil Price Information Service. 

Without the infrastructure needed to transport the light crude oil, shipments to refineries would stumble, arguably causing shortages and affordability issues with gas, diesel and jet fuel in Michigan. 

Two Toledo area refineries supplied by Line 5 provide about 43% of southeastern Michigan's gasoline and the vast majority of jet fuel to the Detroit airport, said Brendan Williams, vice president for government relations at PBF Energy, one of the refineries in Toledo supplied by Line 5. 

“A lot of the focus has been predominantly on propane supply for the Upper Peninsula,” Williams said. “But we believe given the potential impact on consumer fuel supplies, propane probably pales in comparison.”

If the line were shut down, the industry would need to find "other more expensive modes of transportation," which would trickle down to the consumer, said Chris Kozak, a spokesman for the Detroit Marathon Refinery.

"Generally speaking, alternative pipeline routes into Michigan do not have space available to support the Line 5 volumes," he said. Kozak declined to comment on the impact a shutdown would have on the Detroit facility, saying information on its crude oil sourcing is proprietary. 

The Detroit Marathon refinery doesn't deal with much of Line 5's light crude, Kloza said. In 2012, the company invested $2.2 billion in renovations to maximize the use of "heavy, cheap Canadian oil," he said. 

"I believe they’re very dependent on it," Kloza said of the heavy crude.

The Snyder-commissioned 2017 study examining a Line 5 closure pegged the cost increase at 2 cents more per gallon. 

The east pipeline of Line 5 suffered damage from an anchor strike in April 2018.  Environmental groups want the 66-year-old pipelines closed to avoid a potential oil spill and environmental disaster.  

But the maze of pipelines, refineries and economic unknowns constitute “a lot of moving parts” that make an exact estimate of the loss to Michigan somewhat nebulous, said Pete Langley, executive director of American Petroleum Institute of Michigan, which  represents various oil and natural gas companies, including Enbridge. 

“There’s so many different aspects to the market that you can’t zero in on the exact impact,” Langley said. “Suffice it to say, it wouldn’t be good for the Michigan consumer.”

A 2-cent gas increase or small increase in propane's cost in Northern Michigan or the Upper Peninsula is a small sacrifice to make to ensure the Straits are secured, said Leonard Page, a resident of Cheboygan and vice chairman of the citizens group Straits of Mackinac Alliance. 

"Why would the state of Michigan put up with any risk of a devastating oil spill in the Great Lakes?” Page said. "We live on tourism in Northern Michigan and think of the impact to not only tourism jobs but the property owners along the shore up here.”

'Reasonable' shutdown?

Even if a court sides with Nessel and orders Line 5 be shut down, Nessel’s lawsuit appears to allow for some leeway for the timing of the closure. Her complaint asks the court to order a halt to the pipeline “after a reasonable notice period to allow orderly adjustments.”

"There was no question that that was a prevailing issue, that there had to be a plan in place to ensure that there was energy that was available and accessible to U.P. residents," said Kelly Rossman-McKinney, a Nessel spokeswoman. "We were not going to leave them without power.”

Even before the specter of a Line 5 shutdown hovered, high energy costs were an issue of great concern for residents north of the bridge — a crisis Whitmer tried to address in June by forming an energy task force to study propane delivery alternatives in the Upper Peninsula.  

The task force has met five times and is expected to deliver its first report to Whitmer in March on the status of U.P. propane use and possible alternatives. 

It’s small comfort to industry officials, who see the effort by Nessel, Whitmer and environmental groups as an overall campaign to stop any reliance on fossil fuel. 

Environmental groups “have done a good job of selling fear” surrounding Line 5, said Mark Griffin, president of the Michigan Petroleum Association.  

“They’re anti-petroleum, while they want to hide behind their desire to protect the environment,” Griffin said. “They got out early and often on this issue, and they were able to get some public support.”

Even if Enbridge were given time to build an alternative pipeline to replace the controversial infrastructure, the regulatory environment across the nation makes the effort all but futile, said Williams of PBF Holdings. 

A flotilla of trucks would be required to replace the 540,000 barrel-a-day capacity of Line 5, which would drive up costs, analysts say.

“We’re in a time where it gets harder and harder to build and rebuild infrastructure,” he said. “Interest groups attack any energy project that gets up and going.”

If anything, regulatory restrictions are tepid when considering the risk a Great Lakes oil spill would have on the state and region, McBrearty said. 

“Building pipelines is a very dangerous endeavor for our environment,” he said. ”There ought to be a long, drawn-out regulatory process where they’re checking every box to make sure it will not have a negative impact on the environment.”