U.S. midterms could resurrect pipeline drama

With the U.S. midterms completed, it now means we’re at the halfway point in this political three-ring circus. The clown costumes may have changed, but they’re still clowns, and clowns can be scary. With the Democrats now in control of the House, it makes me wonder how anything that can’t be vetoed by a Trump executive order will ever get passed.

Will the dawning of a renewed left-wing only create the resurrection of an Obamian environmental shadow? Will pipelines south of the border get mired in the same political quagmire that politicians happily roll around in north of the border? Don’t look now, or maybe you should.

One of the many Enbridge pipelines crosses from Michigan to Ontario via the Straits of Mackinac, bringing 540,000 bpd of WCS to the Sarnia refining hub. The newly elected Democratic governor, in pre-election speeches had vowed to decommission the pipeline despite the Enbridge proposal to upgrade the under-water portion to the tune of between £350 and £500 million. So here we go again.

To the best of my knowledge, international pipelines fall under the jurisdiction of the Secretary of State, who reports to the president, in much the same way that interprovincial pipelines follow Ottawa’s rules or ruler, so they say. We know what happened to the XL pipeline when it reached Obama’s desk. Will we have a repeat of the theatrics with this project?

We are in clear and present danger of having the Trans-Mountain never-ending comedy of mismanagement morphing into a Trans-Michigan copycat killing. Will the governor of Michigan be forced into a head-to-head with President Trump? I’ll pay to watch that one after I’ve seen the Justin Trudeau versus Doug Ford carbon tax battle in the warm-up match.

So why is this Mackinac line to Sarnia such a big deal? In a recent Weekly Energy Report, I described how western refiners in Canada and the U.S. Midwest use the discounted WCS as their feedstock.

If you look at the Q3 refining margins, you’ll see record highs for any refiner using WCS as feedstock. The October refining margins illustrate why the Mackinac line will be a political line in the sand in Ontario. The margins are as follows: Vancouver, 61 cpl; the Prairies, 48 cpl; Ontario, 37 cpl; Montreal, 8 cpl; while Halifax and St.

John were at 3 cpl. As Sarnia is home to all of Ontario’s refining capacity, if the Mackinac line is indeed XL’d, the refining input characteristics and meaning costs will change from bargain-basement WCS to top-shelf priced Brent. This means Ontario refining margins could fall 30 cents per liter.

As oil companies do not head the class in economic altruism – a course they never even registered for -you can bet your bippy that Ontario will pay the piper for the lack of pipe.

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