Explainer: Canada invokes 1977 treaty to keep crude pipeline running

CALGARY, Alberta, Oct. 6 (Reuters) – Canada has relied on a 44-year-old contract to begin negotiations with the administration of US President Joe Biden over a pipeline that the state of Michigan will close over concerns entering the US could try to close Great Lakes.

Michigan is trying to force operator Enbridge Inc (ENB.TO) to shut down the large oil export pipeline. read more Canada says Enbridge is authorized to operate the pipeline under the 1977 transit pipeline contract between Ottawa and Washington.

Legal experts who studied the treaty told Reuters that Ottawa had strong arguments.

Here is the link to the contract: https://www.treaty-accord.gc.ca/text-texte.aspx?id=101884

Below are details of what is at stake and what could happen next:

WHAT IS LINE 5?

Line 5 is a key link in Enbridge’s mainline system that carries the majority of Canada’s crude oil exports to the United States.

Built in 1953, the pipeline transports 540,000 barrels of Canadian crude and refined products daily from Superior, Wisconsin, to Sarnia, Ontario. A four-mile stretch of underwater crosses the Strait of Mackinac between Lakes Huron and Michigan and splits into twin tubes that run along the lake floor.

WHAT’S THE DISPUTE?

Last November, Michigan Governor Gretchen Whitmer revoked Enbridge’s right to operate the pipeline and ordered the company to halt oil flow until May. Enbridge ignored this order and Line 5 continues to deliver crude oil.

Michigan officials fear the aging pipeline could spill oil into the Mackinac Strait. Calgary-based Enbridge says the pipeline is safe but has proposed building a $ 500 million tunnel to house Line 5. The tunnel project would last at least until 2024, pending permits. Continue reading

Ottawa said a shutdown of Line 5 would massively disrupt Canada and warned of undermining ties with the United States, Canada’s closest ally and largest trading partner.

So far, the Biden administration has refused to interfere. In May Canada threatened to invoke the treaty. read more US Secretary of Energy Jennifer Granholm said at the time that the matter would be decided in court.

WHAT’S THE LEGAL SITUATION?

Michigan sued Enbridge in state court in November to enforce its order to cease operations on Line 5. Enbridge took the case to US federal court, a move Michigan denies, arguing that pipeline permits are a state matter.

Judge Janet Neff of the US District Court for the Western District of Michigan is asked to determine which court should hear the case.

Enbridge and Michigan participated in court-ordered mediation until Michigan notified the mediator that the process was unproductive and unwilling to proceed, according to a September 15 letter from Attorney General Dana Nessel.

WHAT DOES INVOLVING THE CONTRACT MEAN?

By invoking the treaty, Canada triggers arbitration that essentially forces the Biden government to negotiate.

The treaty guarantees an uninterrupted flow of petroleum products between the United States and Canada. It states that all disputes should be resolved through negotiation as much as possible, and if that fails, either the United States or Canada can seek arbitration. The first step would be to appoint three arbitrators under the terms of the contract. Kristen van de Biezenbos, a law professor at the University of Calgary, said the whole process could easily take months.

“The appointed arbitrators … decide on all disputes, including appropriate legal remedies, by a majority. Their decision is binding on the parties,” says Article 9 of the contract.

Canada also asked the court to terminate all proceedings related to the closure order during the ongoing negotiations.

WHAT HAPPENS NEXT?

The federal judge will likely hold up the case until there is a solution, said Biezenbos. Washington could step in and ask Michigan’s Governor Whitmer, an ally of Biden, to allow Line 5 to operate.

Lawrence Herman, legal advisor at Herman & Associates in Toronto and a senior fellow of the CD Howe Institute’s think tank, said Canada has the stronger case as the contract aims to keep pipeline flow going.

“It is very likely that Canada will win in arbitration,” said Herman.

Washington has not yet responded to requests for comment.

Additional coverage by Sebastien Malo in New York; Editing by David Gregorio

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