Canada, U.S. Ties Could be Undermined if Michigan Shuts Pipeline

CALGARY, Alberta (Reuters) — A day before Michigan's deadline to close down a key crude oil pipeline, Canada on Tuesday issued its strongest remarks so far about the move, warning that it could undermine relations with the United States, its closest ally and trading partner.

Canadian company Enbridge Inc is preparing for a legal battle with Michigan and courting protests from environmental groups, betting it can ignore the state's Wednesday deadline to shut down Line 5, which runs under the Straits of Mackinac.

The Canadian government, intervening in the case to back Enbridge, said in a U.S. federal court filing that Michigan had no right to act unilaterally since a 1977 Canada-U.S. pipeline treaty guarantees the free flow of oil between the two nations.

"This case raises concerns regarding the efficacy of the historic framework upon which the U.S.-Canada relationship has been successfully managed for generations," Ottawa said.

Michigan's move "threatens to undermine important aspects of that cooperative international relationship", it added.

The brief said Canada would suffer "massive and potentially permanent disruption" from a shutdown. Line 5 brings 540,000 barrels-per-day of oil from western Canada to Ontario, Quebec, Michigan, Ohio and Indiana.

Canada has been lobbying Washington officials to keep the pipeline open in what is likely to be an election year in Canada. The White House has so far kept quiet.

"We don't weigh in on that ... it will be decided in court," U.S. Secretary of Energy Jennifer Granholm told reporters on Tuesday when asked about the White House's position on Line 5.

The government of Alberta, Canada's main crude-producing province, welcomed the federal government's intervention. Energy Minister Sonya Savage said Michigan's attempt to shut down an operating pipeline set a dangerous precedent for future oil and gas projects.

In November, Michigan Governor Gretchen Whitmer gave Enbridge six months to shut down the pipeline that runs four miles (6.4 km) along the bottom of Lake Michigan-Huron, citing fears it could rupture.

The order needs a confirmatory order from a judge to enforce it, and Enbridge and Michigan are disputing whether the issue should be heard in state or U.S. federal court.

The sides are in court-ordered mediation, with the next session scheduled for May 18.

"We will not stop operating the pipeline unless we are ordered by a court or our regulator, which we view as highly unlikely," Enbridge spokeswoman Tracie Kenyon said in a statement this week.

Michigan Governor Gretchen Whitmer wrote to Enbridge on Tuesday threatening to seize company profits if Line 5 continues to operate past the Wednesday deadline.

"The State intends to assert claims for trespass and unjust enrichment against Enbridge at the appropriate time," Whitmer wrote, adding Michigan was confident it would win the ongoing legal battle.

Litigation could drag on until at least 2024, said Joe Comartin, Canada's consul general in Detroit who is arguing on behalf of Ottawa.

"I don't see a court jumping the gun and ordering it closed ... until the litigation and constitutional issues are resolved," he said by phone.

Ontario estimates the city of Sarnia, across the border from Michigan, could lose 5,000 refinery and chemical plant jobs. Industry lobbyists say thousands of U.S. jobs are in danger.

Environmentalists and indigenous groups opposed to Line 5 say the potential job losses are exaggerated. They plan "Evict Enbridge" rallies in Mackinaw City, Michigan, on Wednesday and Thursday.

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