Potential Permitting Delays Could Raise Line 3 Costs

CALGARY, Alberta, (Reuters) - Enbridge Inc, Canada's largest pipeline operator, said on Friday there is a risk its Line 3 replacement project could exceed its previous cost estimate of C$9 billion ($6.71 billion) because of delays to permits in the United States.

Line 3 construction. Photo courtesy of Enbridge

Once complete, Line 3 will carry 760,000 barrels per day of western Canadian crude to U.S. markets. In March Enbridge said the in-service date would be delayed by almost a year until the second half of 2020 because of slower-than-expected permitting in the U.S. state of Minnesota.

Enbridge told analysts on a quarterly earnings call as long as permits are in hand by year-end the project will start running in the latter part of next year.

"The late schedule likely means higher costs on the U.S. side although we are running under budget in Canada," Enbridge chief executive Al Monaco said, adding that returns remained "very robust" and the company did not expect any cost overruns to be material to its financial outlook.

Canada is the world's fourth-largest crude producer but companies in landlocked Alberta are desperate for new export pipelines to help alleviate congestion and increase access to higher-priced markets.

Enbridge is also in talks with shippers about introducing long-term, set volume contracts on its 2.85 million bpd Mainline system, moving away from the current monthly allocation system.

The company addressed concerns from smaller oil producers that they may struggle to meet the minimum terms being proposed.

"We are going to great lengths in terms of the way our offering is being developed to accommodate many of the issues and concerns and opportunities that our shippers are putting in front of us," said Guy Jarvis, Enbridge president of liquids pipelines, adding that small producers can contract for as little as 6,000 bpd.

Enbridge plans to launch an open season in mid-July.

The Calgary-based company beat analysts' estimates for quarterly profit as it benefited from transporting more oil and gas across its pipelines.

Enbridge shipped 2.7 million bpd on the Mainline system during the first quarter, up from 2.6 million bpd in the year-ago quarter.

$1 = 1.3420 Canadian dollars

Reporting By Shradha Singh in Bengaluru; Editing by Shailesh Kuber and Phil Berlowitz

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