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US judge gives conditional approval for Enbridge crude oil pipeline expansion

Houston — Enbridge's plans to proceed with its Line 3 replacement projectdelivering an additional 380,000 b/d of Canadian crude to refineries in the USMidwest, was boosted Monday when an administrative law judge in Minnesota gavea conditional approval for the planned expansion.

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Judge Ann O'Reilly has recommended to the Minnesota Public UtilitiesCommission that an approval be granted for the project as long as thepipeline expansion is carried out along the current corridor rather thanan alternate route for which Enbridge is seeking regulatory approval.

Adhering to the existing pipeline route would isolate the risk of a spillin an environmentally sensitive part of the state and also prevent theabandonment of nearly 300 miles of steel pipeline, the judge said.

"We will be taking time to review in more detail the recommendation thatwe use the existing right-of-way, and will have additional comments tofollow," Enbridge said, adding Monday's recommendation on the Line 3replacement project is an important step in the regulatory process.

Line 3 currently ships 390,000 b/d of Western Canadian crude fromHardisty, Alberta to Superior, Wisconsin, with the pipeline passing throughMinnesota.

Enbridge is planning to replace the existing pipeline that was built inthe 1960s with 1,031 miles of new pipeline and related facilities on eitherside of the Canada-US international border, besides nearly doubling its totalcapacity to 760,000 b/d.

The Minnesota Public Utilities Commission is due to issue a finaljudgment in June, according to information on its website.

Enbridge has already received Canadian government approval for theproject in 2016 and is now targeting to complete the facility in 2019, thecompany said in its last earnings call in February, noting work is alreadyunderway on the Canadian side to replace the pipeline.

Line 3 is a key piece of infrastructure that will supply crude torefineries in the Midwest and also keep gasoline prices there low, Enbridgesaid then.

The lack of pipeline access from Western Canada has resulted in heavycrude and oil sands producers in Alberta and Saskatchewan of late seekingmarket access, particularly pipelines, to expand output and also dealwith a widening of the benchmark Western Canadian Select and WTI price spread.

Besides Line 3, two other pipeline projects are also planned: KinderMorgan's Trans Mountain expansion, which is facing mounting opposition inBritish Columbia; and Keystone XL pipeline system for which TransCanada is yetto take a final investment decision.

Crude is also being loaded onto rail cars as an alternate expensiveoption.

Last week, Canadian Pacific Railway said it had moved 17,000 car loads ofcrude from Western Canada.

A car load can typically move 560-600 barrels depending on the grades ofcrude.

Fellow railroad, Canadian National Railway, said on its earnings callMonday it had signed contracts to also move crude for the second half andinto 2019.

It did not indicate the volume, but said 60 locomotives along withinfrastructure investments and hiring of staff is underway to increasecapacity and improve services across its network for all commoditiesincluding crude.

-- Ashok Dutta, ashok.dutta@spglobal.com-- Edited by Irene Tang, irene.tang@spglobal.com