May 2020, Vol. 247, No. 5


Energy Recommendations for Michigan’s Upper Peninsula Heading to Governor

By Tom Ewing, Energy Writer

After months of speculation, Michigan’s Department of Environment, Great Lakes and Energy (EGLE) posted the UP Energy Task Force’s draft recommendations for Line 5, the 30-inch (762-mm), light crude and natural gas liquids pipeline owned by Enbridge. 

The Mackinaw Bridge, which spans the Straits of Mackinaw, is where Enbridge hopes to build a tunnel for Line 5 by 2024. (Photo: Enbridge)

The draft presents 14 recommendations that include expansion of propane storage, the possible creation of a “strategic propane reserve” and market monitoring to plan for supply disruptions.

Regarding the critical issue of supply, the draft presents two recommendations:

  • The state legislature should review the Michigan Department of Transportation’s (DOT) Freight Economic Development Program to determine greater capacity for “receiving propane delivery by rail and diversifying our supply infrastructure to protect Michigan consumers,” and
  • The state DOT should make recommendations to the legislature regarding upgrades to facilitate propane distribution and “inventory spur lines located in the Upper Peninsula to determine if some of those could be used to park propane rail cars in the case of an energy emergency.”

Industry representatives on the Task Force contacted for this report either did not respond to emails or phone calls or advised that they did not want to comment individually.

These low-key supply proposals are presented without any larger context regarding Line 5. It might be inferred that this is simply discretionary public policy that prevents a shift from pipeline transport to, say, rail or possibly even trucks.

The more complete picture is that Line 5 is an energy gusher, singularly critical for moving up to 540,000 bpd of light crude oil and natural gas liquids.  Line 5 provides 65% of the Upper Peninsula’s propane needs and 55% of Michigan’s statewide demand, according to Enbridge, a volume that would require 1,600 rail car roundtrips every day.  

Line 5 has been, and remains, quarrelsome infrastructure for Enbridge and Michigan officials. In 2018, in a nerve-wracking event, a ship’s anchor struck Line 5, causing a dent, but no leak. For Gov. Gretchen Whitmer, that “anchor strike demonstrated that Michigan is one mistake away from a catastrophic oil spill in the Great Lakes.”

The governor is on record as wanting Line 5, at least as it operates now, to shut down. Hence, the interest in alternate supply options.

The pipeline, built in 1953, has never leaked, according to Enbridge. In addition to the Task Force’s work, Line 5 faces other significant issues in 2020. One is Enbridge’s effort to build a pipeline tunnel by 2024, under the Straits of Mackinac, below the lakebed.

An Enbridge spokesman said the task force recommendations were “thoughtful and well researched.” Enbridge is not on the Task Force. Bottom line for the company is that the short-term draft recommendations all rely on Line 5’s continued operation.

The Task Force references a “technical report” and its rail recommendations.  That report is a background document prepared by Public Sector Consultants (PSC), a Michigan firm that worked under contract for EGLE and the state Public Service Commission. PSC’s job has been to “identify alternative approaches to meeting the propane needs of Michigan’s residents and businesses.”

The PSC report, “Analysis of Propane Supply Alternatives for Michigan, March 2020,” is a hefty and detailed analysis of Michigan’s propane markets, supply, transport and logistics.

Compared to the low-key rail study ideas in the draft recommendations, the PSC report, in sharp contrast, evaluates a huge scale-up for propane delivery via rail.  Remember, Part II is to advance long-term ideas for Upper Peninsula energy supply and reliability.  

PSC developed a model to evaluate supply alternatives for any potential supply disruption, including Line 5. First, PSC evaluated propane costs at four major North American propane hubs: Edmonton, Alberta; Conway, Kansas; Sarnia, Ontario; and Mont Belvieu, Texas. Edmonton is particularly important in this analysis because of low rail transport costs to Michigan.

Using those hub prices along with transportation and logistical costs, PSC developed estimated prices from Edmonton for comparison with historical prices at six Michigan propane delivery points.

For each region there is one important common element – propane shipped by rail from the Edmonton hub would be price-competitive with propane currently delivered by pipeline.

For example, for the Western Upper Peninsula, PSC found:

“The average spot market prices for Rapid River were $0.79 per gallon in 2017, $0.83 per gallon in 2018, and $0.60 per gallon in 2019. The four lowest cost alternatives identified for propane delivery to Rapid River range from $0.64 to $0.82 per gallon. The lowest cost alternative for propane supply to the Western Upper Peninsula is propane purchased in Edmonton, Alberta, that is shipped via rail to Escanaba, Michigan, and subsequently transported to Rapid River by truck. This option was the closest to the spot price observed at Rapid River for 2019, at $0.04 more per gallon.”

There are challenges – important ones – including locations that require transloading of trucks and offer limited storage. Also, Edmonton’s low prices could change because, as PSC noted, “North American energy markets are rapidly evolving and changing.”

Importantly, the PSC report does not discuss who might pay for rail upgrades.  There are no railroad industry representatives on the Governor’s Task Force.  Michigan’s Freight Economic Development Program, an agency within the state DOT, helps to cover 50% of the costs for a company looking to add rail infrastructure.  

These are relatively small and local projects, linking a facility to a main line. In the past five years, the program has helped fund 31 projects, with DOT financial contributions ranging from $84,805 to $1.18 million.

When officially submitted, according to  Bobby Leddy, deputy press secretary to the governor, “the administration will review the report as it builds a pathway forward to ensure that our state can protect the Great Lakes and provide accessible and affordable energy options for Michigan residents.”  

A next-steps timeline will follow, as the Task Force continues its work on the second part of its energy analysis, which is due in late 2021.


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