Enbridge starts $7 billion cross-border pipeline replacement

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by Richard Gilbert last update:Oct 9, 2014

Enbridge is moving forward with a project to replace segments of a cross-border pipeline that moves Western Canadian crude oil from Alberta to Wisconsin, which does not require a new permit from the U.S. State Department.

“This is a very important project for us,” said Al Monaco, president and CEO of Enbridge Inc.

“It represents a major enhancement of our mainline liquids pipeline system. And at $7 billion, it’s the largest project in our company’s history.”

Shippers moving oil on Enbridge’s Canadian and U.S. mainline system have agreed to surcharges, which will provide an appropriate return on the capital required for a $7 billion investment.

The project will result in the restoration of Line 3, which is a 1,660 kilometre, 34-inch diameter pipeline that has been in operation since 1968.

The pipeline moves crude oil out of Western Canada from Hardisty, Alberta, crosses the border near Gretna, Manitoba, and terminates at Superior in Wisconsin.

It is one of the six primary pipelines along Enbridge’s mainline system.

“We’ve been maintaining the line in good order through our regular inspection and maintenance program,” said Monaco.

“And, that includes replacing sections of pipe. We’re doing that because sometimes it makes sense to replace an entire segment of pipe rather than some of the other maintenance alternatives we have.”

This existing Line 3 maintenance program has resulted in the replacement of about 20 kilometres downstream of Cromer, another 28 kilometres downstream of Gretna and 29 kilometres into Superior

“So, the Line 3 Replacement (L3R) Program is going to supersede the current maintenance plan that we have by replacing all the remaining segments between Hardisty and Superior using the latest in high-strength steel and coating,” said Monaco.

The Canadian portion of the L3R program, between Hardisty and Gretna, Manitoba, is estimated to cost about $4.2 billion.

This includes the replacement of a 61-km pipeline segment between Edmonton and Hardisty.

The remaining Line 3 pipeline between Edmonton and Hardisty will be maintained to remain in service.

Construction will be undertaken by Enbridge’s wholly-owned subsidiary, Enbridge Pipelines Inc.

The U.S. L3R portion, between Neche, North Dakota and Superior, is estimated to cost about US$2.6 billion.

The U.S. program will be undertaken by Enbridge Energy Partners, L.P. with funding provided jointly by the company and Enbridge.

“This project is going to be managed by the same team who delivered Alberta Clipper in 2010 and numerous mainline and station projects since then,” said Monaco.

“They’ve been very deeply involved in developing the design and estimate for this Line 3. Another element of good execution is standardizing wherever you can, whether it’s standard design for pumps, utilizing the same contractors, and engineering expertise.”

Initial development work is underway to support the regulatory applications that will be submitted in late 2014.

However, the project will not require a review by the U.S. State Department.

Line 3 already operates under an existing Presidential permit.

The L3R program will restore the pipeline to its original condition and will not increase the capacity of the overall system.

For this reason, Enbridge will use the original U.S. permit, which doesn’t specify capacity, but does limit pipe diameter to 34 inches.

Enbridge is planning to keep the pipeline at 34 inches for a 17-mile stretch from Gretna, Manitoba, to Neche, N.D. that crosses the U.S. border.

The company will widen the pipeline to 36 inches everywhere else along the route and regular permits for this kind of replacement project will be required.

Monaco said a significant portion of the project costs include mainline construction, pump station construction and pumps which have been secured through frame agreements to provide good availability and unit pricing.

The capital cost estimates will be finalized in the first quarter of 2014 and the surcharge to shippers will be in effect for 15 years.

Shippers will have the option to cancel the L3R Program in the event that the detailed cost estimate exceeds the current preliminary estimate by more than 15 per cent.

In the event of such cancellation, all development costs incurred would be recoverable from shippers.

Construction is scheduled for completion by the second half of 2017.

last update:Oct 9, 2014

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