The U.P. Energy Task Force and other proponents of shutting down Line 5 point out that it would be possible to transport propane to Michigan’s Upper Peninsula by truck, from a propane fractionating facility in Superior, Wisc., to Michigan’s Rapid River facility. An assessment, conducted by Dynamic Risk[7] and prepared for the Michigan Public Service Commission and the National Wildlife Federation, found this method of transportation would increase the cost of propane by between $0.10 and $0.35 per gallon, depending on the supply location.[8]
A second and similar study was completed by London Economics International.[9] The Dynamic Risk study had assumed the increased costs would all be borne by customers. Using the Dynamic Risk study as its foundation, the LEI study focused on the lowest-cost option of trucking propane from Superior, Wisc. That study reported a price impact of $0.11 per gallon, but then estimated that consumers would pay only five extra cents per gallon of the expected increases.[10] It is reasonable, however, to expect that these increased costs will eventually be passed on to consumers in one way or another.
Furthermore, both studies assume that the Superior, Wisc., facility would have sufficient “excess fractionation capacity, storage, and loading infrastructure to replace Rapid River production during peak demand.” If incorrect, both studies reported they would need to alter their findings.
At least in the short-term, restrictions on supply have historically pushed prices higher in the U.P. MPSC reports that a short-term propane shortage, referred to as the “2013-2014 Propane Emergency,” had substantial supply and price impacts. The emergency caused average Michigan propane prices to “spike” from approximately $2.10 per gallon in 2012-2013 to $3.76 in 2013-2014, nearly an 80% increase.[11]
The state government’s additional litigation to close the pipeline after Enbridge discovered a damaged support also highlighted these costs by once again bringing the loss of supply to the forefront. The Michigan Petroleum Association contends that, “a short-term [Line 5] shutdown of a few days won’t noticeably impact [MPA] members or result in fuel higher prices for consumers. But the longer it lasts, the worse it means for the cost of petroleum products.”[12]
But it isn’t just businesses that operate in the petroleum products industry that are predicting cost and supply impacts. The MPSC’s Michigan Statewide Energy Assessment admits, “In the long-term, migrating away from pipeline supply will remove a layer of redundancy to the system, thus decreasing our resilience to future supply issues or infrastructure outages.”[13]
Reports that Silver Wolf Midstream had purchased the Michigan Express Pipeline with intentions to reverse its current flows are also highlighting the importance of maintaining the Line 5 pipeline.[14] If carried out as it is being envisioned by the pipeline’s new owners, the altered flows would move as much as one million gallons of propane daily from Sarnia, Ontario, to the pipeline’s terminus in Kalkaska.
While this change would certainly help to increase both the amount and reliability of propane supplies and to lower costs across the state of Michigan, the plan would substantially increase demand for natural gas liquids at Sarnia’s refineries. Those refineries are supplied, in large part, from the Line 5 pipeline. Therefore, closing Line 5 would have a profound negative impact on the viability of this proposed new project.
Any energy infrastructure that has a goal of high availability or reliability must ensure sufficient and affordable supplies. Michigan’s policy of deliberately working to close a primary piece of essential energy infrastructure, and to stifle efforts to relocate this pipeline to a safer location, is regressive, dangerous and undesirable.
Based on the likelihood for supply restrictions and price increases, as reported by both the Dynamic Risk and London Economics International studies, as well as historical and current industry examples, and the state government’s own Statewide Energy Assessment, the task force should re-examine and address the likely price impact of tightened supplies of natural gas liquids to refineries and propane supplies in the region.
[7] Dynamic Risk is a strategic consulting firm that focuses on managing and minimizing the risks associated with pipelines. For more information, see: http://www.dynamickrisk.net/about
[8] Travis Warner and Ethyan Kramer, “UP Propane System” (Michigan Public Service Commission, Aug. 5, 2019), http://perma.cc/DTC3-L8CA.
[9] London Economics International is a strategic consulting firm with expertise in energy, water and infrastructure. For more information, see: http://www.londoneconomics.com/ about/.
[10] Travis Warner and Ethyan Kramer, “UP Propane System” (Michigan Public Service Commission, Aug. 5, 2019), http://perma.cc/DTC3-L8CA.
[11] Travis Warner and Ethyan Kramer, “UP Propane System” (Michigan Public Service Commission, Aug. 5, 2019), http://perma.cc/DTC3-L8CA.
[12] Kelly House, “Enbridge Line 5 Shutdown Prompts Michigan Debate over Risks vs. Economic Harm” (Bridge Magazine, June 25, 2020), https://perma.cc/F6R8-BN2T.
[13] Sally A. Talberg, Norman J. Saari and Daniel C. Scripps, “Michigan Statewide Energy Assessment: Initial Report” (Michigan Public Service Commission, July 1, 2019), https://perma.cc/8F8Z-TR7X.
[14] Chad Livengood, “Deal will reverse pipeline, provide propane to Michigan” (Crain’s Detroit Business, Aug. 30, 2020), https://perma.cc/LF8V-SF78.