* 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 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
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.
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
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
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.