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Enbridge sees US Line 3 in-service date as late as November 2019

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Enbridge sees US Line 3 in-service date as late as November 2019

Enbridge Inc.'s C$8.2 billion project to increase the capacity of its Line 3 crude conduit linking Canada's oil sands with refineries in the U.S. Midwest may not be in service until late 2019 as Minnesota's state regulator mulls the need and environmental impact of the project.

The company expects to take a year to construct the 375,000 bbl/d project through Minnesota once it obtains the permits required from the state, Guy Jarvis, head of Enbridge's liquids pipeline business, said at the company's investor day Dec. 12. He expressed confidence that the company would obtain the needed authorizations from the Minnesota Public Service Commission, or PUC, even though the regulator has challenged its environmental reviews and the state's commerce department claims the line is not needed.

The Line 3 expansion project would restore the original capacity of the 34-inch line which went into service in 1967. Calgary, Alberta-based Enbridge plans to replace the entire 1,097-mile network, which has been operating at decreased pressure, with new, larger pipe. Many of the company's U.S. assets are run by its Texas-based limited partnership, Enbridge Energy Partners LP.

"We remain confident in the regulatory timeline that has been established in Minnesota, which we expect will lead to a PUC decision in the second quarter of 2018 and we continue to believe in the strength of our application and preferred route," Jarvis told the New York gathering of analysts and investors. "At this stage, until we get to the point where our construction plan can be fully optimized, it's very difficult to be precise about exactly when the project can come into service. Our goal is to be in service as early as possible in Q3 [2019], with an outer range for the window of expectation at Nov. 1, 2019."

SNL Image

Work on the Canadian portion of Enbridge Inc.'s Line 3 expansion continues even as the project has been delayed by Minnesota regulators.

Source: Enbridge Inc.

The state regulator rejected an Environmental Impact Study of the project Dec. 7, calling it "inadequate" and ordered the Minnesota Department of Commerce to correct shortcomings and resubmit the document within 60 days. The PUC is not expected to rule on the need for the 340-mile stretch of line and its route until at least April, according to a report in the Minneapolis Star Tribune.

In the meantime Enbridge expects to complete about 400 kilometers, or about 250 miles, of construction on the Canadian portion of the line this season as above-normal temperatures have extended the building season. The Wisconsin portion of the line is complete and ready for tie-in, Jarvis said. Line 3 terminates at Enbridge's Superior, Wisconsin hub, near the Minnesota border. "Our construction program in those jurisdictions where the project is fully permitted has gone very well," he said.

Canadian shipments constrained

Even with the late 2019 in-service date, Line 3 would be the first of a number of projects aimed at increasing the takeaway capacity from Canada's oil sands region. Kinder Morgan Inc.'s Trans Mountain Pipeline expansion has been delayed until the third quarter of 2020 and TransCanada Corp.'s Keystone XL pipeline has no firm in-service date. Canada's oil sands output is expected to grow as projects started before the drop in crude prices in late 2014 come into service.

An outage on TransCanada's main Keystone system in November underscored the problem with pipeline capacity out of the oil sands region. While the line has been restarted, it is operating at reduced capacity, which has had a ripple effect in the producing zone.

While "the Keystone outage is no longer in the headlines, it continues to wreak havoc in the physical market," analysts at Tudor Pickering Holt & Co. said in a note. The difference between the price of Western Canada Select, a blend of oil sands and lighter crudes, and U.S. benchmark crude has widened as producers are forced to store oil that would normally be shipped down the pipe to U.S. refiners, the analysts said. The bottleneck has also affected light oil and condensate producers, whose product is blended with tar-like bitumen to allow it to move on pipelines.

"Late last week, Enbridge indicated that light oil deliveries into Edmonton would be limited as a result of high inventory levels," the analysts wrote. "It's clear that volumes in western Canada have not shifted materially towards rail and are backing up, with storage levels the highest in recent years."