A ‘positive step’: Enbridge says Canadian portion of Line 3 pipeline is ready for oil

CALGARY — Enbridge Inc. is calling for Canadian oil producers to begin filling up its Line 3 oil pipeline, a sign that relief may finally be on the way for oil companies dealing with a multi-year pipeline shortage that has left a glut of crude trapped in Western Canada.

“Line fillings underway (on Line 3) and we should be fully operational by Dec. 1 and will start generating cash with the parcel surcharge,” Enbridge president and CEO Al Monaco said on his company’s third-quarter earnings call Friday.

“More broadly, though, we’re very pleased that we are putting new pipe in the ground as it enhances overall safety and reliability of the system and gives us more operating flux,” Monaco said.

In recent days, Enbridge has called for line fill on Line 3, a pipeline replacement running from Alberta to the Midwestern U.S. that will eventually add 370,000 barrels per day of pipeline capacity out of Canada at a time when all other pipelines leaving the country are chock full.

Enbridge still faces additional regulatory steps in the U.S. to finish the American portion of the Line 3 project, but analysts expect the entire line to be in operation in the second half of 2020.

Enbridge said on Friday’s call that Minnesota regulators are due to submit a revised environmental impact statement on the Line 3 project by Dec. 9. Depending on the final in-service date of the pipeline, the final cost for the project may rise above its estimated $9-billion price tag.

In addition to the partial operation of Line 3, Monaco announced Friday that the company is on pace to free up an additional 100,000 bpd of pipeline space on its lines through optimization by the end of this year.

“Together, these actions provide much needed additional takeaway capacity out of the (Western Canadian Sedimentary Basin),” Monaco said.

Right now, the lack of pipeline export capacity from Alberta and Saskatchewan is exacerbated by a recent spill on TC Energy Corp.’s Keystone pipeline, taking the pipeline offline and causing the discount for Canadian oil to rise relative to U.S. benchmarks like West Texas Intermediate.

On Thursday, the price of Western Canada Select heavy oil blends averaged US$34.09 per barrel, which is US$22.01 per barrel below the WTI benchmark price of US$56.10 per barrel.

However, TC Energy has said that pipeline will resume oil shipments this weekend and oil producers are also expecting the company to complete an optimization on the line by the end of the year, which will further expand oil shipments out of Western Canada.

“When you add all of these up, it’s a pretty significant positive step forward for Alberta in that it’s 225,000 barrels per day. From my perspective, I look at is as little steps but positive steps,” Canadian Natural Resources Ltd. president Tim McKay said in an interview this week.

McKay reached the 225,000 bpd number by adding up various optimizations and expansions on Enbridge’s systems, on TC Energy’s Keystone system and the coming operation of the long-delayed North West Refinery, in which CNRL owns a 50 per cent stake.

“What has to happen is we have to have some positive events,” McKay said, adding that the domestic energy industry needs to string a few wins in a row before institutional investor sentiment toward the sector begins to improve.

“If you can start to see some positive momentum then investors start to take a different view on it,” he said.

Enbridge shares jumped 2 per cent Friday, up $1.05 to $49.55 per share, after the company’s earnings release showed it had continued to pay down its debt and also recorded higher revenue and earnings figures.

Enbridge reported total operating revenue of $11.6 billion in the quarter, up from $11.3 billion during the same period in 2018. Its earnings were up more markedly — rising 398 per cent to $1 billion in the third quarter, up from $213 million a year earlier.

— With a file from Bloomberg

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