Is Biden Closing Another Pipeline? Michigan L5 Controversy

Mohit Oberoi, CFA - Author

Nov. 10 2021, Published 8:21 a.m. ET

There have been reports that the Biden administration plans to shut down another pipeline. The pipeline in focus is Line 5, or L5, which transports crude oil from Canada to the U.S. Is Biden really closing the pipeline and what are the possible implications?

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One of the first decisions that Biden made after becoming the 46th U.S. president was to cancel the permit for the Keystone XL Pipeline. The 1,200-mile pipeline would have carried 830,000 barrels of crude oil drilled from oil sands in Alberta to Nebraska. The pipeline was always controversial due to its environmental impact.

Trump's energy policies

President Biden’s energy policies are a stark contrast to his predecessor Donald Trump. Trump was a climate change denier. He even mocked climate change activist Greta Thunberg. Trump also withdrew from the Paris Climate deal. The administration eased the policies for oil drilling and was generally favorable towards the fossil fuel sector.

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Trump saw fossil fuel exports as a key pillar of job creation as well as a means to lower the country’s burgeoning trade deficit. Trump called upon trading partners to increase energy imports from the U.S. to bridge the trade deficit. The move paid off and the U.S. became a net energy exporter in 2019 and 2020.

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Biden revoked the permit for the Keystone XL pipeline.

However, the Biden administration has been pivoting towards green energy. From canceling the permit for the Keystone pipeline, rejoining the Paris climate deal, mandating the conversion of federal fleet to zero-emission vehicles, and allocating billions towards electric vehicle charging networks, the administration has been taking several measures to support the green energy transition.

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While these measures will help address climate change in the long term, in the short term they might increase the pain. Crude oil prices recently increased to the highest level since 2014. After higher gasoline prices, Americans are now bracing for higher heating oil prices as the winter approaches.

Is Biden really shutting the L5 pipeline?

To separate the smoke from the fire, Biden isn't shutting down the L5 pipeline yet. However, the administration is studying the impact of shutting the pipeline. Energy Secretary Jennifer Granholm spoke at a news conference and said, “That is inaccurate, that is not right. Any reporting indicating that some decision has been made, again, is not accurate.” She clarified that “the Army Corps of Engineers is preparing an environmental impact to look through this.”

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Several indigenous tribes in Michigan have called upon the Biden administration to shut the pipeline. They are concerned about environmental damage from any leak in the pipeline. However, Republicans aren't impressed with the Biden administration wanting to close the pipeline, especially at a time when oil prices are at multi-year highs and OPEC isn't in a mood to increase production significantly.

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What would shutting down the Michigan pipeline mean?

Republicans have cautioned Biden about shutting down the pipeline and warned about the economic impact. In a letter, Republicans said that tens of thousands of jobs would be lost while billions of dollars of economic activity would be at risk if the pipeline shuts down.

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Republicans also questioned the environmental impact and added that transporting oil through tankers and railroads would be a bigger risk for the environment. They said that the move would “undoubtedly” increase the shortage and lead to price hikes for heating fuels.

Another aspect worth considering, and which was also raised by the Republicans, is that closing the pipeline would impact U.S. relations with Canada, which the letter described as “our closest ally and economic partner.”


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