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The Secret To Survival For Canada’s Oil Sands

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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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The Next Headache For Canada’s Oil Patch

Canada’s oil sands industry just can’t catch a break.

Enbridge’s Line 3 pipeline is facing the prospect of more delays as it was hit with a legal setback in a Minnesota court. On Monday, a court ruled that the Minnesota Public Utilities Commission’s decision to approve the Line 3 replacement, based on an environmental impact statement, was not supported with “substantial evidence” that it would not harm the environment. Specifically, the court cited the inadequate assessment of how an oil spill would affect Lake Superior and its watershed. The case was brought by a coalition of environmental groups and native communities.

While this may seem like a problem only for Enbridge, it is yet another in a long line if headaches for Canada’s oil industry. The graveyard of major cross-continental oil pipelines from Alberta grows with each passing year. Northern Gateway, Energy East, Trans Mountain Expansion, Keystone XL – each of these pipelines has been vociferously opposed by ranchers, local communities, environmental groups and First Nations.

A year ago, the Canadian government of Justin Trudeau has nationalized the Trans Mountain Expansion in an effort to keep it alive, taking the beleaguered project off of the hands of Kinder Morgan. It will decide in the next few weeks whether or not to move forward on the project. Meanwhile, the Trump administration has spent two years trying to force Keystone XL into reality, but it too has faced legal setback after legal setback. Related: OPEC+ Has Only One Choice As Oil Prices Slide

The Line 3 replacement project was supposed to be different. Because it consists of replacing an existing pipeline, albeit an aging and increasingly troubled one, the construction was supposed to be relatively straightforward and easier to pull off.

Earlier this year, Enbridge delayed the in-service date for Line 3 from late 2019 to the second half of 2020 due to a longer-than-expected permitting process.

But the latest court decision could impose more delays. “I think they’re going to have to take (a potential spill) much more seriously than just some hypothetical modeling and really be conscious about the headwaters of the Great Lakes,” Frank Bibeau, lawyer for the Honor the Earth environmental group, told Reuters.

Enbridge’s shares fell more than 4.5 percent on the news. “We believe that the market will negatively view the court decision that casts uncertainty with respect to the timeline for the Line 3 Replacement (L3R) project and specifically the ability to bring L3R into service in H2/20,” RBC Capital Markets analyst Robert Kwan wrote in a report.

It wasn’t all bad news for Enbridge. The company cited the fact that the court dismissed claims from environmental groups that the environmental impact statement did not adequately address climate change concerns. Instead, the court upheld most of the review.

It’s unclear how the latest court decision will impact the timing of the project. Enbridge is reviewing its options, while the Minnesota PUC may need to conduct a deeper assessment of the impact of the project. Enbridge had hoped to obtain all necessary permits later this year, clearing the way for construction. But those permits cannot be issued until the revised environmental impact statement is completed, which could take months. Thus, more delays are possible. Related: China-Made Tesla Sells In 3-Minute Blitz

Earlier this year, the province of Alberta implemented mandatory production curtailments as the region’s midstream capacity was completely tapped out, leading to painful price discounts for Western Canada Select. WCS prices rebounded sharply after producers were forced to lower output. Alberta announced that it would keep the cuts in place through July, unchanged from June levels at 175,000 bpd (or about half of the original cut).

The fact that the province has to maintain mandatory production curtailments in place is a direct result of the industry’s inability to build new pipelines. 

On Monday, a handful of protestors disrupted a construction site in Minnesota related to the pipeline route. If construction moves forward, protests could mushroom.

By Nick Cunningham of Oilprice.com

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