* Enbridge to replace Line 3 by second half of 2017
* Will help increase reliability of crude export network
* Overall mainline system capacity will not change
By Nia Williams
CALGARY, Alberta, March 4 (Reuters) - Canada's No. 1 pipeline company, Enbridge Inc, will nearly double capacity on a major crude export line to the United States through a C$7 billion ($6.3 billion) replacement program, the largest project in the company's history.
Enbridge, whose pipelines carry the bulk of Canada's crude exports to the United States, intends to replace all segments of pipeline on Line 3 between Hardisty, Alberta, and Superior, Wisconsin, by the second half of 2017.
By replacing the existing 34-inch diameter pipeline with 36-inch high-strength steel pipe, Enbridge said the line will be able to run at a maximum capacity of 760,000 barrels per day. It currently runs at 390,000 bpd because of pressure restrictions imposed on the line by regulators.
However, Enbridge Chief Executive Al Monaco said overall capacity on the Enbridge mainline system between Western Canada and the United States will not change as the system is already in balance.
Instead, the project will help tackle bottlenecks and introduce some flexibility into the system, giving Enbridge the option to switch crude from other lines into Line 3.
"What the Line 3 replacement does is provide our customers with enhanced reliability and assurance of moving anticipated end-of-decade throughput levels on our system of 2.6 million barrels per day," Monaco said on a conference call.
"You can think of this project as a buffer to deal with unplanned disruptions and maintenance and additional scheduling flexibility that shippers need."
The Canadian part of the replacement project between Hardisty and Gretna, Manitoba, will cost about C$4.2 billion, while the U.S. part between Neche, North Dakota, and Superior, is estimated to cost US$2.6 billion. It will be undertaken by Enbridge Energy Partners LP, the company's U.S. affiliate.
The project will not require a U.S. presidential permit because it is simply restoring Line 3 to its original condition, Enbridge said. Another cross-border pipeline, TransCanada Corp's controversial Keystone XL project, has been mired in delays for more than five years while awaiting presidential approval.
Enbridge said it decided to replace Line 3, which has been in operation since 1968, in response to industry demand for more reliability and buffering in the system.
The company also looked at maintenance plans over the next five years and concluded it would be more economic in the long term to put in a full replacement pipeline.
Enbridge's president of liquids pipelines, Guy Jarvis, said the company was not expecting abnormal levels of apportionment on Line 3 during the construction process as the new line would be built adjacent to the old one.
He added that the line, which currently only carries light crude, would transport both light and heavy crude oil in future.
"It might lean more towards the heavy side but it will be able to move both," Jarvis said.
Mainline shippers have agreed to support a 15-year surcharge on all barrels moving on the mainline system to provide a return on the investment by Enbridge.
An extra 80 U.S. cents will be added to the benchmark toll for barrels moving between Hardisty and Flanagan, Illinois, for the first 10 years, dropping to 75 U.S. cents for the following five.
Corresponding surcharges will also apply to barrels moving within Western Canada under Canadian local tolls. Enbridge said the surcharges would apply to all volumes, with distance adjusted for longer or shorter hauls.
"Producers are saying to reduce the risk of future disruptions we are willing to pay more now," said David McColl, an analyst at Morningstar. "They are really putting their money where their mouth is."
Enbridge shares were last up 3 percent on the Toronto Stock Exchange at C$48.25.