In a blow to the Canadian oil industry, Enbridge has pushed back the timeline for the replacement of its ageing Line 3 oil pipeline by a year because the Minnesota permitting process will take longer than anticipated.
In a March 1 statement, the Calgary-based company said the C$9 billion (US$6.7 billion) project was now expected to enter service in the second half of 2020, and not the end of this year as previously anticipated. This was attributed to the fact that the Minnesota permitting process will not be complete until November, after which it could take up to 60 days to receive the outstanding federal permits.
“We now have a firm schedule from the state on the timing of the remaining permits for our Line 3 replacement project,” Enbridge’s CEO, Al Monaco, said in the statement. “We support a robust and transparent permitting process that includes opportunity for public input. We’ll continue to work closely with state officials during this process.”
The Line 3 replacement overcame its last major regulatory hurdle in June when the Minnesota Public Utilities Commission (PUC) signed off on the project. But Enbridge still needs technical permits from the state Department of Natural Resources (DNR) and other agencies.
The delay is a major setback for Canadian oil producers, which have been struggling with pipeline bottlenecks that have undercut the price of Western Canadian crude. Alberta introduced mandatory production cuts of 325,000 bpd at the start of this year in an effort to deal with the bottlenecks, and the curtailments have succeeded in narrowing the differential between WTI and Western Canadian Select (WCS). Alberta has since announced two increases in allowed production volumes, one of which came on the same day that Enbridge said it was pushing back its timeline for the Line 3 replacement. However, news of the Line 3 delay will force the province – which is already investing in additional crude-by-rail capacity – to consider other short-term measures for dealing with its oil glut and resultant price discounts.
“Absent Line 3, some combination of yet more oil-by-rail capacity and continued production discipline will be required to balance the Western Canadian oil market through 2020 and prevent discounts from experiencing a replay of last year’s blowout sale on Canadian crude,” Scotiabank said in a March 04 note.
The 1,097-mile (1,765-km) Line 3 crude pipeline was built in the 1960s, and runs from Edmonton, Alberta over the Canadian border through Minnesota to Superior, Wisconsin. It is currently operating at half capacity because corrosion and cracking have undermined the pipeline’s structural integrity, and require it to undergo regular maintenance. By replacing most of the existing 34-inch (864-mm) diameter pipeline with a new 36-inch (914-mm) diameter pipeline, Enbridge is aiming to return the link to full capacity of 760,000 bpd, helping to relieve Canada’s pipeline bottlenecks.
But the project has been beset by delays through opposition from environmental groups and aboriginal communities concerned about spills and possible damage to their territory. These groups, along with the Minnesota Department of Commerce, have all filed lawsuits aiming to overturn the PUC’s approval.