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Enbridge vows to get Line 3, Line 5 oil pipeline projects back on track

Highlights

Not contemplating Line 5 shutdown despite Michigan governor's threat

Wisconsin tribe contests expired easements

Enbridge waiting for Minnesota PUC to set new Line 3 timeline

Washington — Facing court challenges on two key Midwest oil pipelines, Enbridge remains confident it can get the 370,000 b/d Line 3 replacement and 540,000 b/d Line 5 tunnel projects back on track through negotiations, CEO Al Monaco said Friday.

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Monaco said the company was not contemplating a shutdown of Line 5, despite Michigan governor Gretchen Whitmer's June warning that she aims to see the system decommissioned "as soon as possible."

The 540,000 b/d pipeline carries light crude and NGLs, supplying 40% of Michigan's refined product demand and is "absolutely essential to the entire region," Monaco said.

"It's hard to see how you compensate for that level of disruption," Monaco said. "You're going to see massive increases in energy-consumer costs if that low-probability event were to happen, and that's why we're saying it's low probability."

MICHIGAN'S TIMELINE 'SIMPLY NOT POSSIBLE'

Enbridge agreed to replace Line 5 where it crosses the Straits of Mackinac, and the only "misalignment" with the state was over timing, Monaco said. The state wants the tunnel project done in two years.

"It's simply not possible, as the tunnel needs to be engineered, permitted and constructed, and that takes time to do right," Monaco said, adding that Line 5 needs to remain in operation during the tunnel project to prevent price and supply disruptions.

Despite a lawsuit by the state and several breakdowns in talks, Enbridge continues to plan for the tunnel project and aims to apply for permits early next year, executives said Friday.

"Hopefully we can put all the legal wrangling aside and focus on collaboration with the state to get the project done as quick as possible," Monaco said.

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In an unrelated challenge to Line 5 in Wisconsin, the Bad River Band of the Lake Superior Tribe of Chippewa Indians is contesting expired easements. Enbridge needs to renew the easements to continue operating the pipeline, which crosses 12 miles of the reservation.

Monaco sounded optimistic about reaching an agreement with the tribe, although he said the company might have to reroute the system around the reservation.

LINE 3 DELAYED BY MINNESOTA APPEAL

On the delay to Enbridge's Line 3 replacement and expansion, Monaco said he was "very disappointed" with a Minnesota appeals court decision revoking state regulators' approval on the grounds that it failed to address oil spills in the Lake Superior watershed.

The state's Public Utilities Commission's 16-month review was "comprehensive and thorough, to say the least," Monaco said.

Enbridge will set a new in-service target for Line 3 once the state Public Utility Commission signals how long it will take to re-certify the environmental impact statement.

"We've got to get on with it and replace the line," Monaco said. "After all, this is a safety and reliability project. In the meantime, we'll continue to prepare for construction."

S&P Global Platts Analytics expects the Line 3 expansion to begin moving crude from Hardisty, Alberta to Superior, Wisconsin in mid-2021. Line 3 will be followed by TC Energy's 830,000 b/d Keystone XL pipeline and the Canadian federal government's 590,000 b/d Trans Mountain expansion to British Columbia, expected to be completed by late 2022.

Lack of sufficient pipeline and rail capacity to move mounting volumes of Canadian crude oil caused price discounts for Western Canadian Select to widen to as much as $51/b to Cushing WTI in late 2018, causing the Alberta government to implement production curtailments for producers. The curtailments have been adjusted each month as market conditions warrant.

WCS has since narrowed to a $12-$14/b discount to WTI, Platts data shows. It was assessed at $12.50/b Thursday.

-- Meghan Gordon, meghan.gordon@spglobal.com

-- Edited by Zac Aiuppa, newsdesk@spglobal.com