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Potential impacts to regional propane production in eastern
Canada and the Upper Midwest and Northeast parts of the United
States could be substantial with Line 5 shutdown. Residential and
commercial demand in these areas would need to be supplied by
other, more physically distant sources, increasing the cost of
propane to consumers along with the potential for logistical
challenges to overcome in high demand periods. Even with Line 5
operational, the Michigan governor issued an energy state of
emergency this past February to ensure adequate propane
distribution.
The Michigan Propane Gas Association has estimated that in
Michigan alone, 45,000 more trucks or 15,000 more railcars would be
needed to replace Line 5 shipments. This amount equates to 123 more
trucks or 41 incremental railcars per day, which could raise safety
concerns in certain communities.
Propane delivery is crucial to the supply requirements in
Michigan, with an average demand of approximately 9.5 million
barrels per year. Total consumption of propane is greater in
Michigan than in all but five other states, and Michigan has the
largest residential sector propane consumption in the nation.
On 13 November 2020, Michigan's governor filed legal action to
force the closure of the Enbridge Line 5 pipeline. This legal
action could result in the stoppage of oil and NGLs by 12 May 2021.
However, on 25 November 2020, Enbridge filed a complaint, seeking
an injunction in Federal court to prevent the shutdown of the
pipeline, stating that pipeline regulation is a federal and not a
state matter. The two parties started mediation talks on April 16,
2021.
Aside from severe impacts on propane supply to Michigan,
Ontario, Quebec, and other Northeast regions, a shutdown of the
line would impact the fractionation of the NGL mix currently done
in Sarnia, Ontario, and require this mix from western Canada to be
fractionated either locally or elsewhere.
Logistical issues in providing enough propane by rail from
western Canada to service these eastern markets could become a real
concern and potentially impact consumer prices in these
markets.
Line 5 delivers approximately 75,000-85,000 b/d of mixed NGLs
from oil and gas production in western Canada to depropanizers at
Superior, Wisconsin, and Rapid River, Michigan, as well as the
Sarnia fractionator in Sarnia, Ontario. The Sarnia fractionator
also supplies substantial amounts of propane into Michigan and the
US Northeast along with the Canadian provinces Ontario and Quebec
and the Maritimes region of Canada.
Many other Great Lakes states rely on propane that is delivered
via Line 5 to either the Sarnia fractionation facility or to
Superior and Rapid River, along with many Canadian provinces,
including Ontario and Quebec.
If not Line 5, how will the product be delivered?
In the event of a shutdown of Line 5, the northeastern United
States and eastern Canada will be left with only rail and truck
options to supply the fuel needed, although the costs would be
considerably more for consumers. Truck options are limited owing to
the logical distance and relatively smaller volumes that trucks can
carry versus railcars. Propane by rail is normally delivered to
terminals that reduce large parcels of LPG into smaller portions
that can be delivered to other terminals, to retailers, or to end
users via truck.
Sourcing product from lengthier distances will increase
logistics costs owing to incremental costs of railcars, rail
tariffs, and delays in deliveries.
As the mediation process continues, outcome remains uncertain.
However, with the deadline of May 12th looming, it may be a very
interesting rest of the year for the NGL market.
Access IHS Markit's full report, The clock is ticking
toward a 12 May deadline for Enbridge's Line 5, via the link on the
right side of this page.
Posted 07 May 2021 by Bill Rawlusyk, Executive Director, North American NGL Markets, IHS Markit
