Varcoe: Canada wades into Line 5 legal scrap, warns of ‘devastating’ oilpatch fallout

If anyone believes the struggle to shut down Line 5 only affects consumers, a new federal court filing dispels that notion, saying such a step by Michigan would have “a devastating impact” on the energy industry and economy in Western Canada.

On Tuesday, the federal government unloaded a volley in the latest cross-border pipeline brawl, filing a legal brief with U.S. courts detailing why Michigan shouldn’t unilaterally shut down Enbridge’s existing line that moves oil to Central Canada.

The legal document makes a strong case: Closing down Line 5 would hurt consumers on both sides of the border, as well as energy sector jobs in Alberta and Saskatchewan.

It also points out a

1977 treaty is in place

to prevent the very kind of interruption of oil shipments between the two countries being advocated by Michigan Gov. Gretchen Whitmer as she strives to stop Line 5, citing safety concerns.

“The shutdown order that Michigan seeks poses grave concerns … for Canada’s ability to rely on bilateral treaties that are at the heart of the U.S.-Canada relationship, and second, for Canada’s energy security and economic prosperity,” states the brief to U.S. District Court.

Line 5 transports about 540,000 barrels of oil and natural gas liquids per day from Western Canada into Ontario, with the route running under the Straits of Mackinac, moving product through Michigan to Sarnia.

Michigan is seeking to revoke the 1953 easement granted for Line 5 to pass under the straits and has said the pipeline must cease operating by Wednesday.

University of Calgary law professor Kristen van de Biezenbos said the filing by the federal government makes strong arguments in the case.

“It strikes the right balance. It does a good job of communicating to the court the magnitude of this decision from Canada’s perspective,” she said.

“But it also lays out a convincing legal case that the treaty applies and that it would potentially be a treaty violation to allow Michigan to go ahead and do this.”

 In this June 8, 2017, file photo, fresh nuts, bolts and fittings are ready to be added to the east leg of the pipeline near St. Ignace, Mich., as Enbridge prepares to test the east and west sides of the Line 5 pipeline under the Straits of Mackinac in Mackinaw City, Mich.

Much of the talk about the fallout from a potential Line 5 closure has focused on the impact on fuel supplies and gasoline prices in Ontario, Quebec and the Great Lakes region — concerns which are all valid.

Closing Line 5 would boost the price consumers pay for fuel across Quebec and Ontario, according to the brief.

“In western Canada, the loss of Line 5 would have a devastating impact on the industry and economy. In the context of an already full pipeline system, it would strand up to 400,000 barrels per day of oil originating from western Canada,” the filing by states.

“The shutdown would cause massive revenue losses and potentially significant job losses in the energy sector in western Canada.”

It pegs the additional cost to move Canadian oil by rail into the region at about $2 billion annually.

While the economic arguments are obvious, legal experts say the document’s discussion about the 1977 treaty — one that prevents public authorities from impeding the transmission of hydrocarbons in transit between the neighbouring countries — is noteworthy.

The feds argue there should be no shutdown before Canada and the U.S. complete their efforts to resolve the matter, noting the treaty contains a mechanism for solving disputes at the national government level.

“This court should prevent Michigan’s shutdown order from taking effect while treaty-related discussions between Canada and the United States are ongoing,” the document states.

On Tuesday, Whitmer wrote a letter to Enbridge executives, warning Michigan will go after any profits that flow from the company’s “wrongful use of the state’s property” if it keeps operating.

Calgary-based Enbridge has maintained the existing pipeline is safe, noting the state doesn’t have the authority to require Line 5 to stop operating as the pipeline is under federal regulatory authority.

It has asked the U.S. District Court to dismiss Michigan’s action.

 A tank farm at the Enbridge pipeline’s terminal in Sarnia is shown here.

In an interview, federal Natural Resources Minister Seamus O’Regan said mediation is going on between the two sides and it’s extremely unlikely an order shutting the pipeline down would be issued at this time.

“We’ve gone to the court and said, ‘Look, there is a treaty here … that we have with the U.S. and it applies to Line 5.’ Michigan should not be able to unilaterally close it,” O’Regan said.

“In the event mediation fails, the federal court shouldn’t just order Line 5 to shut down before Canada and the U.S. have had a chance to work out everything under the provision of that treaty.”

In Alberta, Energy Minister Sonya Savage welcomed the court brief and stressed blocking Line 5 would set a dangerous precedent by shuttering a safely operating pipeline.

Legal watchers on both sides of the border said the federal filing is significant.

“It’s obviously huge for Enbridge because the courts are going to take that much more seriously when there is a government indicating that it believes the treaty is implicated,” said James Coleman, a law professor at Southern Methodist University in Dallas.

Oil producers in Canada are also watching the case closely.

Suncor Energy and Imperial Oil have previously talked about putting alternative plans in place to move oil to their refineries in Central Canada if the pipeline is stopped.

“My hope is this will still be resolved. The governor is sort of playing with fire here,” said Tristan Goodman, head of the Explorers and Producers Association of Canada.

“When our pipeline capacity in Canada and generally in most parts of North America are so tight on the oil side, this will have ramifications that flow back to producers.”

Chris Varcoe is a Calgary Herald columnist.

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