Enbridge's new pipeline across northern Minnesota not needed, state says

Enbridge's proposed new crude oil pipeline across northern Minnesota isn't needed, and moreover the aging line it's supposed to replace should be shut down, the Minnesota Department of Commerce said in an analysis released Monday.

The report represents a major and unexpected roadblock for Calgary-based Enbridge in its attempt to replace the 1960s-vintage Line 3, which shuttles oil from Alberta, Canada, to the company's terminal in Superior, Wis.

"This document will arouse considerable controversy," Gov. Mark Dayton said in a press statement. "That discord should be recognized as part of the wisdom of the process."

Not surprisingly, Enbridge said it disagreed with Commerce's assessment.

The pipeline project already is controversial: Enbridge sees it as a needed safety upgrade to the corrosion-prone line, while opponents — environmentalists and American Indians — say it could further threaten the region's water sources.

The Commerce Department found that Enbridge has enough capacity in its six-pipeline corridor in Minnesota to meet long-term demand without a new Line 3.

Oil refineries in Minnesota and the Upper Midwest are operating near top capacity, while Minnesota's demand for gasoline and other refined products isn't likely to increase, the department concluded. The department also criticized Enbridge's forecast for the Line 3 project, saying it didn't provide a sufficient analysis of future demand for gasoline.

"The high socioeconomic costs [of a new Line 3] outweigh the minimal benefits to Minnesota of the proposed project," Kate O'Connell, manager of the Commerce Department's energy regulatory division, testified in a document filed with the Minnesota Public Utilities Commission (PUC).

Enbridge said in a statement that oil shippers and refineries served by the pipeline company have attested to the need for a new Line 3.

"The Department of Commerce opinion is only one view, [to] which we and other energy consumers will respond in detail through this process," Enbridge said.

The Commerce Department represents the public interest in matters before the PUC, and Monday was the deadline for responses on whether the commission should grant a "certificate of need" for the project.

The department's recommendations often are weighed heavily by the PUC, as well as by state administrative law judges assigned to PUC cases. A judge will hear all testimony — pro and con — and then deliver a report to the PUC, which is scheduled to make a decision by the end of April 2018.

The new 340-mile pipeline would follow the existing Line 3's route to Clearbrook, where it would jog south to Park Rapids and then east to Superior, traveling near the Mississippi headwaters area and wild rice lakes.

Enbridge's six pipelines together transport 2.9 million barrels of crude oil a day. Since 2010, Line 3 has been operating at 390,000 barrels per day — well short of its 760,000-barrel capacity — because of safety concerns. Enbridge says the replacement line would restore the flow to an average of 760,000 barrels per day, though it would have a capacity of 844,000 barrels.

The Commerce Department found that Line 67 — another of Enbridge's Minnesota pipelines — will take care of the company's needs. In 2012 and 2013, the PUC allowed Enbridge to expand shipments on Line 67 by 350,000 barrels per day, and the pipeline — also known as the Alberta Clipper — now has a capacity of 800,000 barrels per day.

Noting those expansions, Commerce said in filings with the PUC that the "increased capacity on Line 67 is equivalent to Enbridge's stated needed to increase capacity on Line 3."

Line 3 starts in the oil fields of northern Alberta, and Enbridge plans to replace the entire pipeline, an $8.2 billion project. The U.S. portion, most of which is in Minnesota, alone would cost $2.9 billion.

Construction on the pipeline already has started in Canada, as well as on the last 13 miles of a new Line 3 in Wisconsin. Enbridge, North America's largest pipeline operator, has stockpiled thousands of pieces of pipe in Minnesota along its preferred route for a new Line 3.

Enbridge has planned to shut down the 282-mile old Line 3 after the new pipeline is built. The Commerce Department concluded the current Line 3 should be closed regardless.

"In light of the serious risks of the existing Line 3 and the limited benefit that the existing Line 3 provides to Minnesota refineries, Minnesota would be better off if Enbridge proposed to cease operations of the existing Line 3, without any new pipeline being built," O'Connell testified.

As part of its review, the Commerce Department hired the consultancy London Economics International to review oil forecasts submitted by Enbridge's own experts. Enbridge's forecasts used "simplifying assumptions, some of which were unrealistic," concluded Marie Fagan of Boston-based London Economics International.

One forecast implicitly assumed that consumer demand for refined petroleum products would be unchanged from 2019 — when the new Line 3 would go into service — until 2035. Yet the U.S. Energy Information Administration's long-term forecast calls for falling gasoline demand, Fagan noted in testimony filed with the PUC.

But Enbridge said Fagan's own analysis was flawed. The company noted that shippers and refineries in Minnesota and the Midwest have testified that even if fuel demand declined in Minnesota or the entire United States, there would still be a need for Line 3 in the state and the region.

Mike Hughlett • 612-673-7003