Right Through Here
Posted on: December 14, 2016
Enbridge’s Line 3 project (red and blue line) runs between Hardisty, Alberta and Superior, Wisconsin.

It is near certain that an additional 760,000 barrels per day of oil will soon be flowing right through here – directly to the shores of Lake Superior.

If you are on the U.S. side of Lake Superior you might have missed it. On the Canadian side however, the recent announcement by Prime Minister Justin Trudeau to approve two pipelines and reject a third, was the leading news item for several days. Trudeau rejected the “Northern Gateway” project from Bruderheim, Alberta to the British Columbia coast at Kitimat. He then approved the “Trans Mountain” project from Edmonton, Alberta to Burnaby, B.C.

Enbridge’s “Line 3” project from Hardisty, Alberta to Gretna, Manitoba, near the North Dakota – Minnesota State line was also approved. On the U.S. side, Line 3 will then continue across Minnesota to Superior, Wisconsin on the shores of Lake Superior, just across the St. Louis River estuary from Duluth, Minnesota.

Trudeau’s approval is for the Canadian side of the project. Proposed work on the U.S. side is still being considered by Minnesota but the pipeline has been much less controversial than other projects . The Line 3 project essentially involves replacing the existing, aging pipeline. The $7.5 billion project will be the largest in Enbridge’s history. The purpose of the refurbished pipeline is to contribute to overall U.S. mainline supply of 3 million barrels a day. Enbridge has scheduled Line 3 to be up and running by 2019.

Line 3 replacement does not mean oil will be shipped on the Great Lakes. At nearly double the capacity of the existing older line however, it does mean that 760,000 barrels of oil per day will arrive in the Lake Superior basin. This is in addition to any petroleum products already being shipped to the Lake Superior basin by rail, truck or other means. A plan by Superior Calument Refinery to construct a dock in Superior, Wisonsin for shipping oil across Superior was put on hold in 2013 when the company couldn’t find a partner for the project. Inbound petroleum products are already shipped across Lake Superior to the Thunder Bay Suncor liquid bulk handling facility on the lower Kaministiquia River.

On another front, TransCanada Corporation’s Energy East pipeline is proposed to run through the Lake Superior basin just north of Thunder Bay and then eastward across the Nipigon River, the largest river entering the Great Lakes. Plans call for the pipeline to be built from Alberta to “tidewater” in New Brunswick and to carry 1.1 million barrels of oil per day. The line is extremely controversial within Canada, some solidly in favour and some adamantly against. Financial analysts however, are betting that Energy East may not be built. This assumption is based on the fact that recent approval of the Trans-Mountain and Line 3 pipelines will already provide enough capacity to handle Canadian supply for a couple of decades. Also, with a change in government on the U.S. side, these same financial analysts are betting the Keystone Excel line will be quickly approved, thereby making Energy East redundant.

Factor into this the huge glut in world oil supply, in part due to production from the Bakken Field in North Dakota, forcing major world producers to cut back production as recently as this week. The downward sprial in oil prices over the last several years may make it difficult for TransCanada to justify Energy East’s $11.9 billion U.S. price tag.

Exactly five years ago on December 14th, 2011 the price of Brent Crude (the benchmark price on the world market) stood at $105.76 U.S. while West Texas Intermediate (the benchmark price on the North American market) stood at $95.49, a difference of $10.27. On December 14th, 2016, Brent stands at $54.89, while WTI stands at $51.95, a difference of $2.94. The price of oil is almost half of what it was five years ago. Not only that but the margin, or premium for getting oil to the world market has fallen by over 70%. This is a major concern given the billions to be spent to get oil to tidewater and the world market.

This is only the current situation and prices may rise, especially the differential between North American and world prices. Given the glut in supply however, such a change does not appear to be on the horizon. You don’t hear much about “peak oil” anymore.

Bottom line, despite a much increased awareness about oil use and all manner of positive initiatives to burn less of the substance, we’ll likely be using it for some time yet. “Big picture” moves like world price, North American price, Canadian approval of Trans-Mountain and potential U.S. approval of Keystone Excel are likely to affect the amount of oil flowing through the Lake Superior basin. Whichever side of the pipeline issue Lake Superior watershed residents come down on – we should be watching closely.

LINKS:

Article: Canada Approves Replacement of Enbridge’s Line 3

Canadian National Energy Board Line 3 Overview

Enbridge Information About the Line 3 Replacement Project

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