What a stranded asset looks like: Line 3 and oil in the time of coronavirus

by Winona LaDuke

On February 3 of this year, Pubic Utilities Commissioner, Matthew Schuerger, opened a pointed line of questioning with Enbridge attorney, Paul Swanson about why the commission should again approve Line 3.

Mr. Swanson was asked by Schuerger about “material new facts” that had come into focus between the time the PUC had originally approved the Canadian corporation’s Certificate of Need and Route Permit for Line 3 in June 2018 and February 2020. Both had to be considered again after the Minnesota Court of Appeals sent back a flawed Final Environmental Impact Statement, eventually forcing another PUC vote for approval of the certificate and permit. Commissioner Schuerger’s “material new facts” of course were primarily the two major 2019 climate change studies – and “the starkest consequences of climate change” – that were issued after the commission’s unanimous approval vote in June 2018. In effect, how carbon and other greenhouse gases caused by fossil fuel and fossil fuel infrastructure like pipelines were a stark carbon-boosting reality, just as the rapid push worldwide toward electric vehicles is a carbon-decreasing reality.

Schuerger asked Swanson if he had read the recent financial trade press piece from a recent S&P Global Market Analysis, written by its regulatory research group. He quoted it directly: “Enbridge may be the only midstream enterprise that has publicly acknowledged that the energy transition may occur more quickly than expected by much of the industry. A swift transformation of the energy industry could devalue or strand, to varying degrees, many of the existing or future infrastructure assets. Enbridge has foreseen the greatest risk of stranded assets in regard to its liquid pipeline business” (italics added).

Shockingly, the Enbridge attorney said he had not read it, as Schuerger then accused him of being “unwilling to share with me what the company has already acknowledged in public.” 

You can watch on it on the PUC website (starting at 4:19-4:30) while you shelter in place, it’s much better – and more important – than binging on Netflix. Squirming in his seat, Swanson attempted to dismiss the direction Schuerger’s questions were going by saying, “What the future holds, the future holds” – an oil industry version of Doris Day singing “Que Sera Sera.”

When the 4-1 PUC vote was finally taken after another day of powerful public comment, Commissioner Schuerger was the only one to vote against the Certificate of Need and Route permit, recognizing that yes, things do change substantially in a 20-month period – and responsible public officials need to respond accordingly. In fact, things can change dramatically in just a few days.

To his credit and integrity, Schuerger had the political fortitude and moral fiber to see the future while his colleagues marched in lockstep with Swanson’s Canadian employer, Enbridge. Just 31 days after the PUC went rogue again with its vote, the global pandemic was on our doorstep. And the oil market – particularly the tar sands segment – bottomed out in tragically spectacular fashion (tragic for all the soon displaced oil workers and the many supporting oil service companies).

On March 18, the price of a barrel of Canadian tar sands heavy crude oil – the type of crude that would be shipped by a new line 3 – fell to its lowest level ever – $5.43 US a barrel – down from approximately $50 per barrel.  

Even with a recent deal among global producers to cut production after increases by Saudi Arabia and Russia created an oil glut during a period of rapidly diminishing demand, today there is nowhere for oil to go but to stay in the ground. What we are seeing now is the tar sands industry collapsing before us.

It’s like watching someone drive a car that was already losing power and having a tire blow out.  

Welcome to Line 3 and oil in the time of Coronavirus.

On April 20, another headline – the unimaginable happened. Oil prices went negative, reaching their lowest ever in history: “Almost by definition, crude oil has never fallen more than 100%, which is what happened today,” said Dave Ernsberger, global head of pricing and market insight at S&P Global Platts, speaking in an Associated Press story. “I don’t think any of us can really believe what we saw today. This kind of rewrites the economics of oil.”

The recovery is not likely to be swift. I would add that to Commissioner Schrueger's “material new facts" column column right next to climate change.

“We could merely be in the eye of the hurricane as the epicenters of its rage remain centered around demand devastation and crude oil oversupply," Stephen Innes of AxiCorp. said in a commentary (also featured in the AP story). “At a minimum, oil prices will be the last asset class to recover from lockdown.”

Given the situation, no tar sands producer is covering its costs of operations

For years, Line 3 opponents have warned that tar sands oil is uneconomic and vulnerable to crude oil prices drops. 

Global response to the coronavirus has profoundly impacted the oil industry due to decreased demand for petroleum fuels as individuals all over the world self-isolate and avoid traveling by motor vehicles, trains, aircraft and ships. 

Hardest hit are producers in the tar sands of Alberta because of the high cost of oil extraction in this region combined with the distance that oil must be shipped to refineries. 

Given the situation, no tar sands producer is covering its costs of operation, such that the tar sands industry is losing money on each barrel of crude oil produced.  Although no one knows how long responses to the coronavirus will reduce demand for petroleum fuels, the impact will likely last months and possibly through the end of the year, or longer. 

This severe impact follows years of relatively low oil prices during which tar sands producers earned little if any profit, instead racking up debt.  As a result, the stock prices of companies whose primary business is tar sands extraction have plummeted to record lows – some by a number by over 95 percent of their peak values – and it is entirely possible that many tar sands producers will soon be forced to declare bankruptcy. 

This price crash also means that all tar sands industry expansion projects are on hold indefinitely, and it is likely that some existing production facilities will be shuttered to avoid substantial losses that the Alberta industry cannot afford.  It is expected that crude oil production in western Canada will significantly fall more, and with it any need for additional pipeline capacity from western Canada will disappear, making Enbridge’s Line 3 Replacement Project even more unnecessary than when Minnesota’s Dept. Of Commerce first opposed the project three years ago based on a lack of need.

The Minnesota counties that depend on Enbridge property tax payments should expect that Enbridge will pay less and less tax as the value of its pipelines and stock shares sink out of sight. 

Minnesota state agencies should cease permitting Line 3 until the pandemic is resolved

Rather than keep the U.S. economy dependent on volatile crude oil markets and uneconomic tar sands crude oil, we should transition quickly to clean renewable energy and electric vehicles. 

Given the threat posed to Minnesotans by the coronavirus, our state agencies should put a hold on their Line 3 permitting processes to allow citizens to focus on their health and the health of those they love. This specific request was made on March 26, 2020, by White Earth Reservation Chairman, Michael Fairbanks, in a letter to Governor Walz. 

It went unanswered. Instead, the Minnesota Pollution Control agency merely extended its public comment period one week longer in mid-April and set up three telephone “Town Hall” meetings that just ended. Which seems totally wrong: Asking citizens to participate in on-line permitting in these frightening and confusing times is profoundly insensitive and unfair. Now the PCA decision has been legally challenged in the petition filed on April 10 by Friends of the Headwaters, Sierra Club, and Honor the Earth, with the White Earth Band of Ojibwe and the Red Lake Band of Chippewa Indians. 

The filing came even as the PCA “acknowledged last week’s suspension of the ‘clean cars’ rulemaking process” earlier in April – delaying the publication of the rule – because of the impacts of Covid-19 on the public process. But it has yet to do the same for an equivocal issue, the carbon-loading properties of Line 3. That’s indefensible hypocrisy no matter what the PCA has said publicly about this blatant double standard. 

Where are the Matt Schuerger’s at these other state agencies? We need you to step forward.

As the petition notes, “the pandemic is posing a significant barrier to public participation, and to the gathering of material information the PCA needs to make final decisions.” 

Even if Minnesota agencies regrettably finish permitting for the Line 3 Replacement Project this year, it is uncertain if and when Enbridge could start construction.  However, Enbridge plans to hire a total of 4,200 workers for this project, and likely at least half would need to travel to northern Minnesota’s rural communities from out-of-state, many of whom could be carrying the virus to poor communities with inadequate healthcare systems.

Minnesotans need to be wary and watchful of anything Enbridge might try during these unprecedented times. As environmental studies scholar and author, Bill McKibben, noted recently in a scathing commentary in The Guardian, “Big Oil is using the Coronavirus pandemic to push through the Keystone XL pipeline: “TC Energy announced it was moving workers from across America into place in states along the pipeline route – although local reporters in Montana discovered they’d actually begun arriving 48 hours earlier, narrowly beating the state imposition of a quarantine.”

It could happen here. There is a substantial risk that Line 3 workers could bring the coronavirus to northern Minnesotans who are not yet suffering from this disease. Moreover, bringing such large numbers of workers onto construction sites risks spreading this disease among the workers themselves. That’s a movie no one wants to see, and given the collapse of the tar sands industry, it’s not one we need to watch.