Get Used To The Idea: Canadian Energy Requires Tidewater Access

A future U.S. circuit court ruling in Boston – depending on whether it upholds a lower court ruling from Maine – may mean more American cities on both coasts adopt […]
Published on February 17, 2020

A future U.S. circuit court ruling in Boston – depending on whether it upholds a lower court ruling from Maine – may mean more American cities on both coasts adopt restrictive ordinances prohibiting the bulk loading of crude oil tankers in their city’s ports, thus severely restricting Western crude oil from reaching tidewater out of American ports. 

The case involves a pre-existing pipeline route from Montreal to Portland, Maine. This pipeline has been sending Venezuelan and other foreign crudes to eastern Canadian refineries since 1941. At its height, it sent about 600,000 barrels-per-day. Since 2016, the companies involved did not utilize the 388- kilometer pipeline to its potential. The city of South Portland in Maine learned of the company’s plans to “reverse” the flow of oil to get more Canadian crude from the West out to tidewater on the Eastern Seaboard. In retaliation, it passed a local ordinance that prohibited the bulk loading of crude oil tankers in South Portland, Maine. The local ordinance was called the Clear Skies Ordinance because municipal officials and politicians wanted to emphasize that the ordinance was addressing air quality issues. The effect, however, would be to prohibit pipeline activity out of that port. 

There is also considerable evidence of environmentalists working closely with municipal officials to use the ordinance to limit “dirty oil” from the Alberta Oil Sands. Some environmentalists even called the ordinance a “tar sands ban,” revealing how they viewed the issue strategically. Moreover, there were other local and state regulations that dealt with air quality and health issues which brought into question the city’s argument the ordinance was only about health and the environment. 

In 2018, the district court ruled that the ordinance was constitutional and did not violate the Commerce Clause in the Constitution which gives Congress sole power over interstate and foreign commerce. The company involved was alarmed the court ignored its compelling arguments how these kinds of ordinances could give local communities the ability to stifle energy commerce out of American ports.  

The company appealed that ruling and the First US Circuit Court of Appeals in Boston will decide over the next few weeks or even months on whether to uphold the prior ruling. The court has been hearing submissions and just recently the circuit court declared Maine’s highest court must get involved and address whether the city’s ordinance is preempted by state law before the federal appeals court can determine whether the ordinance is federally preempted.

While these matters are sorted out, the federal government and the provinces should get used to the idea that Canadian energy may have to increasingly come to tidewater by way of Canada instead of the United States. 

American courts are not something Canada can control, so Canadian energy producers may have to depend increasingly on exporting their oil and natural gas out to Canadian tidewater, including out of Churchill, Manitoba’s Arctic port. Canada should attempt to revive the Energy East pipeline or work with Quebec separately on a pipeline deal. 

The situation in Canada is different and is in Canada’s control. Canadians should be pleased with the recent Supreme Court of Canada decision to unanimously deny British Columbia’s appeal of the Trans Mountain pipeline expansion project. 

The ruling reiterated what Canadians already know – that the federal government has jurisdiction over inter-provincial pipelines. British Columbia’s arguments that their jurisdiction over the environment somehow trumped that power was summarily rejected by all nine federal justices. Ottawa’s role over this kind of infrastructure was declared paramount. 

The same thing occurred when the city of Burnaby in British Columbia attempted to use local bylaws to prevent Kinder Morgan from building the Trans Mountain expansion. The National Energy Board ruled these bylaws unconstitutional, finding they interfered with federal jurisdiction over inter-provincial pipelines. Our Supreme Court declined to even hear the case in 2018.

In Canada, the battle over who controls pipelines is over. Federal jurisdiction always trumps provincial, territorial, and local municipal law. The provinces and territories – and by extension municipalities- cannot use their jurisdiction on the environment to try to defeat projects. 

This is good for all Canadians. We should be concerned about the ability of our energy producers to get their product to tidewater and on to foreign markets. Accessing tidewater is so important because this allows us to stop being a captive market for the United States that can charge us less for our energy exports. 

While Alberta producers have focused on Asian markets via the west coast, Canadians have been exploring eastern Canada for alternate routes. Energy East was not the only viable path for oil and gas for energy producers to access tidewater. 

However, if the circuit court ruling mentioned above upholds a lower district court ruling, U.S. towns and cities on the coasts will feel emboldened to work with environmentalists to pass these restrictive ordinances and prevent Canadian crude from leaving American coastal ports. 

Joseph Quesnel is a research associate with the Frontier Centre for Public Policy.

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