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Oil pipelines in the Straits of Mackinac raise tension

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"Mackinac Bridge" by CaptPiper is licensed with CC BY-NC 2.0. To view a copy of this license, visit https://creativecommons.org/licenses/by-nc/2.0/
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The legal and political battles over the oil pipeline that runs through the Straits of Mackinac are getting more intense.

One argument environmentalists make is fossil fuel infrastructure is a bad investment.

The Canadian pipeline company Enbridge Energy plans to spend a half-billion dollars building a four mile long tunnel to encase the part of Line 5 that runs under the Straits of Mackinac. But how much financial sense does that make?

After all, automakers plan to stop making gasoline powered cars. More businesses, governments and homeowners are looking to renewable energy.

Kate Madigan at Michigan Climate Action Network told us that some of the big money people are simply getting out of fossil fuels.

"The largest investors on Wall Street are moving away from fossil fuels, said Madigan. "BlackRock, which is the biggest investor in the world, they announced that they are going to be moving away from risky fossil fuel projects."

But, Enbridge Energy sees things from a completely different perspective.

Mike Fernandez is a Senior VP with the pipeline company. He says studies suggest the demand for fossil fuels is not going away any time soon.

“They showed demand continuing for fossil fuels, even as we see more and more renewables coming on board,” said Fernandez.

Fernandez says you’ve got to remember, most of the cars and trucks on the road today still need gas or diesel. Airlines still need jet fuel.

And 90 percent of all plastics come from oil and natural gas.

"The reality is we're going to have fossil fuel to some extent in our in our lives for many more decades," Fernandez said.

Both Governor Gretchen Whitmer and President Joe Biden want to be carbon neutral by 2050. Even if the U.S. and Canada got really serious about reducing oil consumption, energy analysts say it will take decades.

Enbridge -- which, we have to mention, is one of Michigan Radio’s corporate sponsors -- is a huge company. It’s expected to take a half-billion or even a billion dollars to build a tunnel under the straits. But, that’s a small fraction of the money it’s set aside for construction projects.  

And… refiners in the Midwest and in Ontario and Quebec want that cheaper western Canada oil that Line 5 carries.

Daniel Raimi is a Fellow at Resources for the Future. He’s an expert on oil and gas markets and climate change. He says Enbridge would recoup its investment pretty quickly.

"So the large majority of the sort of real world profits that they would hope to gain would be mostly in the first 10 or 20 years and anything after that is gravy," says Raimi.

Maybe you heard that President Biden canceled the Keystone XL pipeline. People wonder what that means for federal approval of Enbridge’s tunnel. Daniel Raimi at Resources for the Future says that actually makes Enbridge’s Line 5 even more valuable.

"The fewer pipelines that are available to take oil away from Alberta keeps those Alberta oil prices low, which benefits existing pipeline operators," said Raimi.

And that makes investment analysts like Enbridge even more. We talked with Andy Pusateri, an analyst at the brokerage firm Edward Jones.

He told us Enbridge gets high marks because it’s not as vulnerable to the ups and downs of crude oil prices. For the most part, Enbridge is not buying and selling.

They get paid just to pipe the oil from one end of Canada to the other.

With some stops in the U.S. along the way.

"So they're earning a fee on having available capacity for people to to send products through those lines," said Pusateri.

And Pusateri told us that Enbridge has long term contracts for Line 5.

"So they're ensuring that not only are they recouping the money they're paying for it," says Pusateri. "I think what they're more interested in is earning a return on that investment for years to come. That's far above what they're paying for that line."

So, at least for now, the economics work for Enbridge.

But renewable energy technology is getting better and cheaper. Public opinion about climate change is evolving. Governments and businesses seem to make new climate commitments every day.

And all of THOSE changes might make the political odds more complicated. But, that’s a whole other story.