Minnesota

MPR News: Oil Pipeline’s Fans, Foes Gear Up For Testimony Over the Fate of Enbridge’s Line 3

June 16, 2018
Oil Pipeline’s Fans, Foes Gear Up For Testimony Over the Fate of Enbridge’s Line 3
By Elizabeth Dunbar

A smiling, cowboy-hat-wearing James Reents is greeting oil pipeline protesters in Minnesota’s lake country this summer in a big way — his picture is plastered on two billboards with the message, “Welcome Water Protectors.”

Reents, who doesn’t normally seek out that kind of attention, is also planning to travel to St. Paul from his home on Ten Mile Lake near Hackensack, Minn., to speak at a state Public Utilities Commission hearing over a pipeline next week. He has been writing and re-writing the 10-minute statement he’ll make, opposing Enbridge Energy’s plan to build a new line to replace its aging Line 3 oil pipeline that runs through northern Minnesota.

“We’re all water protectors,” he said. Reents and his wife began that work by trying to keep invasive species out of their own lake. Now, in retirement, pipelines have their attention.

“What we realized is that the issues of water and water quality are much larger,” he said Thursday.

Beginning Monday, the PUC will hear final arguments for and against the new pipeline. The commission is expected to decide whether — and how — to allow the project to move forward no later than June 28. The testimony and the decision comes after a nearly four-year process, but they will mark the beginning of what could continue to be a long, emotional battle for those invested in the project’s outcome. Protesters from across the country are expected in Minnesota this month, and they might stay.

“When the state rejects Enbridge’s proposal, we will celebrate,” Winona LaDuke, the longtime environmentalist and indigenous rights activist, said Thursday. Her group, Honor the Earth, put up the billboards with Reents’ face on them. If the PUC approves Enbridge’s project? “We will be ready to camp and protect our water,” she said.

At the same time, other Minnesotans are putting up yard signs, signing petitions and knocking on doors to seek support for the project. Enbridge representatives recently greeted gas station customers in Park Rapids, Minn., with free lunch and $20 gas cards. Besides the company itself, labor unions and agribusiness groups are backing the efforts.

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StarTribune: Central to Enbridge’s New MN Pipeline Request is How Much Oil is Needed

March 24, 2018
Central to Enbridge’s New Minnesota Pipeline Request is How Much Oil is Needed
By Mike Hughlett

At Flint Hills Resources’ sprawling refinery in Rosemount, Enbridge’s proposed new oil pipeline is seen as vital. Flint Hills wants to increase production there, but says it needs more oil to do so and Enbridge is its main supplier.

Enbridge says its six pipelines across northern Minnesota are so full that oil is being rationed, hurting refineries across the Midwest including Flint Hills. Enbridge wants to spend $2.6 billion to replace its aging and corroding Line 3. It says without the increased capacity from that project, the rationing — or apportionment as it’s known in the oil business — will just get worse.

“The current Enbridge Mainline fails to meet refinery demand for crude oil, despite a series of expansions over the last 15 years,” Neil Earnest, a consultant for Enbridge, said in testimony filed with state regulators.

And the company forecasts continuing growth in Canadian oil production well into the 2030s, even as changes in the global auto market portend weaker gasoline demand and national experts have predicted market changes because of that.

The need for that oil will play a key role when the Minnesota Public Utilities Commission decides on Enbridge’s request to build its new Line 3, a decision expected in June.

The Minnesota Department of Commerce — tasked with looking out for the public interest in pipeline matters — said the need for Enbridge’s oil isn’t enough to trump the potential risks to society, especially oil spills in pristine waters and wildlife areas.

Further, Commerce has questioned the accuracy of Enbridge’s forecast of future need and so-called negative effects of rationing.

For the oil industry, apportionment is evidence of “a system not running properly,” said Jake Reint, spokesman for Flint Hills’ Pine Bend refinery in Rosemount, one of the largest in the Midwest. Flint Hills is an arm of Wichita-based Koch Industries.

Reint said the refinery is not running as efficiently as it should and continued apportionment could lead to canceling future projects.

Flint Hills has spent about $750 million in upgrades at Pine Bend over the past five years, with some projects still ongoing (and oil output increasing). Another $600 million of investments are planned.

They would allow Flint Hills to further increase production from around 300,000 barrels per day now up to 339,000 barrels per day.

“Without the crude oil, it just doesn’t make as much economic sense,” Reint said.

Canada is the biggest source of U.S. oil imports, and Enbridge’s Minnesota pipeline corridor is the main artery of Canadian crude.

The Minnesota pipeline corridor delivers about 70 percent of the crude oil required at Midwest refineries served by Enbridge, the company says. It would not break out how much is used in Minnesota.

More than 20 percent of the oil flowing through Minnesota goes to the middle of the country or the Gulf Coast, routed through Enbridge’s big terminal in Superior.

As Canadian oil production has increased in the last several years, pipeline backups have followed. “Since 2014, we have been in almost continual apportionment,” Earnest, the Enbridge consultant, said in an interview.

For much of 2017, Enbridge’s apportionment was about 20 percent for Canadian heavy crude, meaning oil producers could have shipped 20 percent more given their own supply coupled with demand from refineries downstream.

The current Line 3, because of its age, can only run at 51 percent of its 760,000 barrel-per-day capacity. A replacement would restore full flow, and allow for 155,000 barrels per day more if eventually needed and approved by regulators.

Without a new Line 3, Enbridge forecasts apportionment of over 20 percent this year through 2020, rising to over 30 percent in 2021 and beyond.

Commerce questions the accuracy of Enbridge’s oil forecasts. Demand for gasoline and diesel fuel, it says, is likely to fall in the long-term as electric vehicles take off and fuel efficiency grows in traditional cars.

Crude demand will be dented, it said in a regulatory filing, potentially causing an oil glut and pushing down petroleum prices: “Global oil oversupply clearly could reduce demand for transportation of crude oil on the Enbridge Mainline which, in turn, could reduce [Enbridge’s] modeling projection of the use of that system.”

The wild card in the oil demand outlook is the future of electric vehicles (EVs).

Now, they’re a very small market. But if costs for EVs fall and demand for them grows as expected, they could displace oil demand and force automakers to increase the fuel efficiency of gas and diesel vehicles, according to a 2017 Wood Mackenzie report.

“For oil producers, the threat of EVs is existential,” the report said.

Boston Consulting Group, in a study released last month, said electric cars could represent more than 20 percent of new vehicle registrations by 2030. The company’s research suggests gasoline demand would drop by 10 to 15 percent by 2025, and by 30 to 35 percent by 2035.

“Global oil demand, as alternatives come online and as efficiency gains are realized, is expected to flatten, peak and decline, though it’s not a disruptive [steep] decline,” said Clint Follette, a managing director at Boston Consulting.

Enbridge doesn’t foresee a decline, at least in the next 20 years or so.

In a PUC filing, the company says that even if electric vehicles capture 75 percent of the North American auto market by 2035, its Minnesota pipeline corridor would still be operating at full capacity.

Canadian oil producers are coping with a bottleneck that goes beyond Enbridge because of a lack of pipeline capacity coming out of Canada, oil industry analysts say.

“They are getting a much lower value for their crude,” said John Coleman, a senior analyst with energy consultancy Wood Mackenzie. (Conversely, the Canadian discount helps U.S. refiners like Flint Hills, since they’re buyers).

Oil analysts expect that Enbridge’s new Line 3 will be the first of three proposed Canadian oil pipelines to come online to help alleviate the capacity shortage. However, like Line 3, the two other big oil pipelines have also faced considerable opposition.

Even with capacity upgrades, Canadian oil has another problem.

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PRESS RELEASE: Midwest Environmental Groups Sound Alarm on Great Lakes Restoration Initiative Cuts & Line 5 Issues

FOR IMMEDIATE RELEASE                          Contact: Judith Nemes

July 6, 2017                                                                      

 

Midwest Environmental Groups Sound Alarm on Great Lakes Restoration Initiative Cuts & Line 5 Issues

ELPC & Groundwork Gathering in Traverse City Urge Attendees to Fight Back Against Trump Administration’s War on the Great Lakes 

TRAVERSE CITY, MI. – Michiganders gathered in Traverse City today to hear two Midwest environmental leaders present strategies to push back on threats to the progress of restoring the Great Lakes and safe clean drinking water. They focused on countering the Trump Administration’s proposed complete elimination of $300 million in funding for the bipartisan-supported Great Lakes Restoration Initiative in the FY 2018 budget, which has provided $2.2 billion for about 3,000 projects since its inception, and persuading Michigan policymakers to decide on an alternative to the dangerous Line 5 pipeline.

“President Trump won his election in the pivotal Great Lakes states, but his misguided policies and practices amount to a War on the Great Lakes,” said Howard Learner, Executive Director of the Midwest-based Environmental Law & Policy Center. “The Trump Administration is eliminating funding for the sensible and successful Great Lakes Restoration Initiative, rolling back Clean Water standards and reconsidering the additions to the Thunder Bay National Marine Sanctuary in Lake Huron. The Trump Administration doesn’t seem to understand how much Michiganders care about protecting the Great Lakes where we live, work and play, and which provides safe clean drinking water for 42 million people.”

Hans Voss, Executive Director of Traverse City’s Groundwork Center for Resilient Communities and a leader in the campaign to protect the Great Lakes from an oil spill from the Line 5 pipeline, urged attendees to comment this month on safer alternatives proposed by the State Pipeline Safety Advisory Board.

“The time for state decision-makers to study and debate what to do about the Line 5 pipeline is over,” said Voss. “Now is the time for citizens to speak up and push for lawmakers to shut down the pipeline once and for all.”

The gathering took place at the Bluewater Event Center in Traverse City.

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Midwest Energy News: ELPC’s Learner Says Volkswagen Settlement Funds Will Help Transition to Cleaner Transportation, Reduce Impact of Climate Change

Advocates Hoped for More Volkswagen Funds for EVs to be Directed to Midwest

By
Andy Balaskovitz and Kari Lydersen

Advocates pushing to expand electric vehicle adoption across the Midwest are “a little disappointed” in the selection of U.S. cities to receive funding for EV infrastructure under last year’s Volkswagen settlement.

Chicago was among 11 major U.S. metropolitan areas — and the only one in the Midwest — selected to receive money under a federal consent decree as a result of Volkswagen’s cheating on emissions tests and deceiving consumers about its diesel engines. The plan will be overseen by Electrify America, a Volkswagen subsidiary established to oversee the $1.2 billion that will be spent over the next 10 years on zero-emission vehicle infrastructure and education.

While they applauded Chicago’s selection, clean energy groups are underscoring the importance of the Midwest in a national transition to electric vehicles, and the importance of collaboration between utilities and other investors in this transition.

The $1.2 billion will be spent in $300 million increments over four 30-month cycles, and it’s possible more Midwest cities will receive attention in the coming years.

Major highway corridors in the region — including interstates 80, 75, 94 and 90 — were also selected to receive EV charging stations under the first funding cycle, though details about where those will be located are not yet available.

“We made the case that a number of cities in the Midwest — the Detroit area, Columbus (Ohio), Minneapolis/St. Paul and arguably some others — have been doing significant work around promoting electric vehicles and would have been other good places for Volkswagen to invest,” said Charles Griffith of the Ann Arbor, Michigan-based Ecology Center.

‘More than just Chicago’

The Ecology Center and other nonprofits recently formed Charge Up Midwest to promote and seek funding for EV adoption in the region. One of Charge Up Midwest’s first projects was obtaining funding from the Volkswagen settlement.

“We would have liked to see more than just Chicago selected as one of the communities,” Griffith said.

Other critics have said the settlement agreement gives Volkswagen a leg-up in the electric vehicle market and that the company will be able to control where infrastructure is located to improve its bottom line.

The other cities selected in this first cycle — New York City, Washington D.C., Portland, Oregon, Boston, Seattle, Philadelphia, Denver, Houston, Miami and Raleigh, North Carolina — were chosen largely based on anticipated EV demand.

Michigan and the Detroit region in particular seemed like a good candidate based on the number of EV registrations there and of major U.S. automakers’ interest in breaking into the sector, Griffith said. The state of Michigan also made a separate pitch to Volkswagen for EV funding.

Also, Columbus — which was selected last year for a $50 million Smart City grant from the U.S. Department of Transportation — has been making strides in the clean transportation sector, he said.

“There’s no explanation (in the announcement) about why that wasn’t convincing enough,” Griffith said of the two cities.

According to the plan, Chicago was chosen because of its existing leadership on EVs, including a $14 million city EV program and the electrification of city buses, and because of its relatively dense population, commuting patterns and consumer interest in EVs. The city was chosen despite past troubles with its EV program, including the indictment for fraud of the owners of the provider the city hired, 350green.

“Electrify America notes that it was not able to select every metropolitan area that submitted a strong proposal, but it intends to expand its Community Charging investments into metro areas with supportive government policies and strong utility integration in future investment cycles,” the announcement says.

A new front

Howard Learner, executive director of the Environmental Law & Policy Center in Chicago, described electric vehicles and transportation more generally as the most important new front in the battle against climate change, since so many coal plants including two in Chicago have shut down in recent years.

“Because of the transition of the electricity sector with coal plants shutting down and more wind power, solar power and energy efficiency coming into the market as well as lower-priced natural gas, transportation is now the largest sector in terms of carbon pollution in the U.S.,” Learner said.

“It’s time for those of us who are interested in accelerating carbon pollution reduction to focus more attention and get more serious about the opportunities for progress in the transportation sector,” he added. “The advent of hybrid vehicles and electric cars is potentially as transformative to the transportation sector as wireless technologies have been to telecommunications and as solar and wind plus storage have been to the electricity sector.”

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Duluth News Tribune: Minnesota Has 100-Plus Renewable Energy Businesses

Duluth News Tribune

Feb 2, 2017

Minnesota has 100-plus renewable energy businesses
By John Myers 

While efforts are underway in Washington and St. Paul to roll-back solar and wind energy efforts and return to a coal-and-oil future for domestic energy, a Minnesota group says renewable energy is creating thousands of jobs in the state.

Minnesota now has more than 100 companies serving wind power and solar energy markets in manufacturing, financing, designing, engineering, installing and maintaining renewable energy projects, according to a study released Thursday by the Environmental Law & Policy Center.

The report identified 82 companies involved in the solar power supply chain and 49 companies involved in the wind energy supply chain.

That includes wind-involved companies like Minnesota Power/Allete and Ventura Wind in Duluth as well as solar-involved companies like Energy Conservation Services in Carlton, Silicon Energy in Mountain Iron, Harvest Energy Solutions in Duluth and Conservation Technologies in Hermantown.

“When a new solar installation or wind farm is built in Minnesota, the economic impact of that project goes well beyond the community that will be delivered the construction jobs and new tax revenue from the project, there can be a web of economic activity that extends across the state,” Howard Learner, executive director of the Environmental Law & Policy Center, said in a statement. “Wind power and solar energy development drives economic and job growth. Every renewable energy project requires engineering, financial, manufacturing and construction businesses and workers.”

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Press Release: New Report Reveals Illinois & Other States Failing to Manage Nitrogen & Phosphorus Pollution in our Waterways, Mississippi River

FOR IMMEDIATE RELEASE
November 17, 2016

Contact: Judith Nemes, Environmental Law & Policy Center
JNemes@elpc.org 312-795-3706

Kim Knowles, Prairie Rivers Network
KKnowles@prairierivers.org 314-341-1641

New Report Reveals Illinois and Other States Failing to Manage Nitrogen & Phosphorus Pollution in our Waterways
Environmental Coalition Calls on EPA to Step Up Efforts to Reduce Nutrient Pollution in Mississippi River

Mississippi River – The Mississippi River Collaborative (MRC) today released a report that implores the US Environmental Protection Agency (EPA) to take specific actions to clean up nitrogen and phosphorus pollution in Illinois and nine other states, because those states have failed to make sufficient pollution reductions. The 10 states included in the report all border the Mississippi River and send their pollution to the river and ultimately to the Gulf of Mexico.

The report, “Decades of Delay,” was prepared by MRC, a partnership of 13 environmental and legal groups, and assesses state progress in reducing the pollution that threatens drinking water supplies for millions of Americans and causes the Gulf of Mexico Dead Zone.

The report finds that nitrogen and phosphorus continue to pose serious threats to Illinois waters, interfering with the public’s use and enjoyment, and threatening the health of people and aquatic life. Illinois lakes have been especially devastated by phosphorus pollution.

“EPA’s hands-off approach is simply not working in Illinois. Every summer our lakes and beaches are fouled by noxious, smelly and sometimes toxic algal blooms,” said Kim Knowles, Staff Attorney at Prairie Rivers Network. “The state lacks a rigorous program for addressing this scourge.”

“For 20 years, we have been told the EPA and the states would address the nitrogen and phosphorus pollution that fouls our rivers and lakes and perpetuates the Gulf Dead Zone,” said Jessica Dexter, Staff Attorney, Environmental Law & Policy Center, an MRC member. “This report demonstrates the falsity of that claim. EPA should use the tools outlined in the report to uphold the Clean Water Act and get us on a path to clean rivers and streams.”

The report suggests six specific steps EPA can take to protect human health and water quality in state waters. Recommendations include setting numeric limits of allowable nitrogen and phosphorus in state waters, assessing more waterways to determine the full extent and impact of nitrogen and phosphorus pollution, and making sure states develop rigorous plans for reducing pollution and for procuring the funding needed to address this significant problem.

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Decades of Delay Executive Summary
Decades of Delay Full Report

Brad Klein Talks To Midwest Energy News: Good News For Rural Solar In Minnesota

By Frank Jossi, Midwest Energy News

Minnesota’s rural distributed generation customers won a major victory this week when state regulators halted the practice by cooperatives of applying fixed charges for solar installations.

Regulators ruled June 9 that cooperatives must file requests for small power production tariffs with the Minnesota Public Utilities Commission, which makes the final determination on those fees. The commission ruled those fees must now be suspended until an investigation is completed.

Rural cooperatives lost their argument that the PUC had no jurisdiction in the matter of fixed charges for solar customers. Co-ops believed their boards would be the final arbiters of those charges.

“It’s a victory for good government and for good process,” said Brad Klein, an attorney for the Environmental Policy & Law Center. “This is an unusually strong statement from commissioners who saw that distributed generation customers don’t have a strong voice on the boards of directors of these co-ops.”

Attorney and Minnesota Solar Energy Industries Association development director David Shaffer represented two individuals who had brought complaints against their rural co-ops over the fees. “It was a near perfect decision for us,” he said. “We pretty much got everything we wanted.”

Jim Horan, legal counsel of the Minnesota Rural Electric Association, said the decision “was not unexpected.” MREA had believed ratemaking was more the purview of their boards and not the PUC, but the investigation the commission has ordered will seek to clarity those roles, he said.

The issue of extra fees being added to solar customers’ bills has become common throughout the country and in the Midwest. The rationale has been the fees cover the fixed cost of serving solar customers, but others argue they fail to account for benefits that distributed solar provides for the grid.

“We believe these types of proposals are motivated by a desire to chill and block distributed generation,” Shaffer said.

Last year the Minnesota legislature passed a law allowing co-ops to charge fees for distributed generation customers as long as they were “reasonable” and based on a cost-of-service study.

Since then 14 co-ops have added monthly fees ranging from $13 to $83. “That has chilled the market in coop territories,” he said.

The current case involved complaints about fixed charge fees by customers of Meeker Cooperative Light and Power Association and Minnesota Valley Cooperative Light & Power Association.

The ELPC and Fresh Energy, publisher of Midwest Energy News, filed a separate complaint that, in essence, argued that fixed fees were not appropriately filed and that co-ops shouldn’t be allowed to charge them.

The co-ops were represented by the MREA. The organization had instructed members to use a cost-of-service study approach which emphasized income lost from a solar customer rather than the actual cost of having distributed generation on the grid, Shaffer said.

The methodology used is more like “a lost revenue model,” he said. “It’s not how expensive it is to facilitate someone getting on the grid.”

The co-ops took no benefits of solar into account in their cost-of-service studies, he said. The PUC has accepted a “value of solar” study  by the Department of Commerce which reveals solar has a net benefit, and therefore distributed generation customers should pay little or nothing to utilities, Shaffer said.

Before the state law passed last year, co-ops charged solar customers anywhere from $2.65 to $5 a month. The state’s investor owned utilities charge from $5 to $10 a month, Shaffer said.

The PUC opened a docket to look at the fees charged by 14 co-ops, and allowed other co-ops to join in. The commission will look at the fixed charge methodology being used and compare it to the statute, which calls for “fixed costs” to be front and center.

“There’s no inherent right of a utility to collect a certain amount of revenue from a customer,” he said. “We certainly believe customers should pay their fair share of the cost of connecting to the grid.”

Co-ops will have to submit data and allow for people to review it, Klein noted. The benefits of solar will have to be included, too, he said.

MREA’s Horan argues co-ops are “at cost providers” without a revenue component that goes to investors. If the cost of service is $45 a month, that’s what the co-op needs to collect from all customers, not just those with solar, he said.

When MREA developed the methodology, clean energy advocates were consulted, he said. “We didn’t get a lot of specific feedback,” Horan said. “We’d be open to suggestions on other ways to do this.”

The benefit of solar is different for distribution co-ops. The value at this point is no higher than what the coops pay now for energy, Horan said, and because their grids cover great distances and have little density even small amounts of distributed energy can be impactful.

One part of the case remains unclear. Meeker Cooperative argued that the complaint brought by Keith Weber over fixed charges was in “bad faith” and “frivolous.” Had the commission ruled against him, he would have had to pay the utility’s attorney fees.

“We were concerned more broadly that if this was how co-ops would respond to customer complaints they would be afraid to come forward and contest these fees,” Klein said.

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Des Moines Register: ELPC’s Mandelbaum Says Iowa Needs Funding & Accountability to Reduce Nutrients in Water

Does Minnesota have the solution to better water quality?
by Donnelle Eller

8:08 a.m. CDT May 22, 2016

In the Land of 10,000 Lakes, where water recreation is a $10 billion-a-year industry, Minnesotans have seen many of their waterways slowly and inexorably become choked and polluted.

The state’s Pollution Control Agency released a report last year that found that at least half of Minnesota’s lakes in watersheds with heavy farming and urban activity weren’t swimmable because of harmful algae outbreaks fueled by excess phosphorus. And high bacteria levels made more than half the streams in those areas unswimmable.

The findings drove home what Minnesota and other surrounding farm states, including Iowa, already knew — they had to figure out ways to significantly reduce nutrient runoff that jeopardized their lakes and rivers.

Minnesota’s approach, fueled with about $100 million annually in dedicated funding, has resulted in perhaps the Midwest’s most comprehensive water quality program — with buffers required on public waterways and ditches, comprehensive testing and monitoring, a watershed strategy designed to cut runoff from rural and urban areas, and established water quality goals.

It’s a more aggressive strategy than Iowa employs, even though both states rely on the voluntary cooperation of farmers.

But Minnesota faces a mountain of uncertainty over its prospects for success. And state leaders say widespread conservation adoption is years away.

“It’s definitely too soon to expect to see major changes on the landscape and in the water from this effort,” said Glenn Skuta, a leader at the Minnesota Pollution Control Agency, pointing to the state’s Clean Water, Land and Legacy fund, approved in 2008, which partially benefits water quality.

“At the end of 25 years, we can expect to see improvement, but at the same time, it’s not like all the water will suddenly be clean,” he said.

Some environmentalists say traditional farm states, including Iowa, Minnesota and Illinois, will never make significant clean-water gains without federal regulations that force farmers to adopt conservation practices.

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ELPC’s Dexter in Duluth News Tribune: NLX Rail Line Good for Economy, Environment

As published in the Duluth News Tribune on Wednesday, April 27, 2016.

This is a great time for Minnesotans to contact state legislators in support of the Northern Lights Express (NLX) rail project that’s expected to result in about $1.4 billion in benefits to the state over 40 years. That’s a handsome return on an estimated total construction cost of about$500 million. The Legislature has the opportunity this session to make a down payment on that investment, yielding important dividends in years to come.

My Environmental Law & Policy Center advocates for projects that are good for the economy and environment. The NLX rail line is a great example.

An estimated 3,100 jobs would be created during construction, plus permanent jobs later. About $355 million in state and local tax revenue would be generated over 40 years of increased economic activity. Tourism revenue would grow by $378 million, and wages related to new tourism would jump by $233 million over 40 years. Trains are safer than cars, and using the NLX would be a relief to travelers during harsh Minnesota winters. Finally, an estimated 750,000 people would ride the train each year, and that’s projected to increase to 1 million by 2040. That’s a lot of cars off the road, resulting in a dramatic decrease in carbon dioxide emissions that are harmful to the planet.

This is an important project for Duluth and is among those that could receive funding before May 23 when the legislative session ends. The project already is on the long-term work plan for the Minnesota Department of Transportation. In addition to Duluth, NLX stops are planned in Superior, Hinckley, Cambridge, Coon Rapids and Minneapolis.

Let’s tell elected officials we want this high-speed rail line so we can grow Minnesota’s economy, improve travel safety, and reduce harmful emissions.

If we build it, they will come.

Learner Op-Ed in Duluth News Tribune on Falling Oil Prices and Controversial Pipelines

Regional View: Falling Oil Prices A Game Changer for Midwestern Pipelines

By Howard A. Learner

February 29, 2016

Bakken shale oil and Canadian oil sands market prices are low, and oil production is falling. Enbridge Energy Partners just announced it is further delaying construction of both the controversial proposed new Sandpiper oil pipeline and the Line 3 replacement oil pipeline for two more years until 2019. Enbridge blamed the Minnesota Court of Appeals’ decision requiring an Environmental Impact Statement process be completed.

However, that’s likely only part of the story.

Pipeline companies are biting the bullet and deferring new projects because of oil price and production uncertainties. Before Enbridge Energy and its partners spend $2.6 billion to $3 billion on each of the Sandpiper and Line 3 replacement oil pipelines through northern Minnesota, they might pause and see whether oil prices stay low and production declines. Markets matter.

The market price for benchmark West Texas Intermediate crude oil is low at around $33 per barrel, having fallen from the $100 per barrel range in 2011 through mid-2014. JP Morgan forecasts West Texas Intermediate crude oil to average $31.50 per barrel in 2016, and Goldman Sachs pro-jects $40 per barrel. Analyst projections for 2017 through 2018 vary considerably. Low oil prices mean fewer rigs, less oil production, and less need for new pipelines.

Bakken shale oil’s break-even prices are around $40 to $45 per barrel, well above the current market price. Production costs vary depending on how rich the particular oil well is, the efficiency of the company’s operations, financing costs, and how close the rig is to infrastructure. Bakken shale oil must be transported by pipeline or rail to distant Midwestern or Texas refineries.

The number of active drilling rigs in North Dakota is the lowest since July 2009. There are now only 38 active rigs in the Bakken area, down from 204 rigs in February 2012.

According to North Dakota Department of Mineral Resources Director Lynn Helms, Bakken output fell to 1.15 million barrels a day in December 2015, down 6 percent below the all-time high in December 2014. Helms stated that oil production could fall to 1 million barrels per day by late 2016. Oil production and service companies are planning more layoffs, and there could be additional bankruptcies in June 2016 when banks often recalculate their debt limits for oil companies.

Unless and until West Texas Intermediate oil prices reach around $45 per barrel, the rig count and oil production will continue to decline in the Bakken shale oil region, meaning less demand for oil pipelines such as Sandpiper and crude shipping by rail. For example, Whiting Petroleum just announced that it will suspend its Bakken shale oil drilling projects due to low oil prices.

Canadian oil sands’ break-even prices for new production are around $80 per barrel for the “best of the best,” $90 to $100 per barrel for the “rest of the best,” and $100-plus per barrel for the “rest of the rest.” Canadian oil production likely will stagnate until global oil prices reach at least $80 per barrel. Some existing oil sands production operations have enormous sunk costs and might continue to operate as a long-term play as producers wait and hope for higher oil prices.  However, expect production to decline and no new oil sands production to start.

Less oil production means less need for new pipelines. Financing for new North American oil pipelines is drying up until bankers and other investors see oil prices rise, leading to more production. That’s the market situation facing Enbridge for its costly new Sandpiper and Line 3 replacement oil pipelines.

Oil prices have dropped dramatically over the past 15 months. That changed reality has unavoidable market consequences for both oil production and the controversial pipelines.

Howard A. Learner of Chicago is executive director of the Environmental Law & Policy Center, an advocacy organization for environmental and economic development with offices in Chicago, Duluth and other Midwestern cities.

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