Enbridge to undertake mainline replacement programme

Enbridge Inc. and Enbridge Energy Partners, LP have received shipper support for a US$ 7 billion investment in their Canadian and US mainline system running from Edmonton, Alberta to Superior, Wisconsin. The Line 3 replacement programme (L3R) will complement the existing Line 3 segment replacement programme and include all remaining segments of Line 3 between Hardisty Alberta and Superior.

The L3R programme is targeted to be completed by the second half of 2017. Mainline shippers have agreed to support surcharges on all barrels moving on the mainline to provide an appropriate return on the additional capital required. It will be subject to customary regulatory approvals.

Under the L3R programme, all segments of the line between Hardisty and Superior will be replaced with new pipe, using the latest available high-strength steel and coating technology. Long-term integrity costs to maintain the line will be substantially reduced and the reliability of service will be enhanced.

Strategic priorities

"The Line 3 replacement programme is an important project for our customers and for Enbridge and aligns very well with our strategic priorities," said Al Monaco, President and Chief Executive Officer of Enbridge Inc. "We work closely with our customers to understand their needs now and into the future; the L3R programme will provide high reliability and flexibility to accommodate the level of throughput we expect they will require. The increased reliability of throughput on our system will provide our customers with assured service to key markets."

Monaco added, "The L3R programme will be the largest project in our Company's history and will serve to significantly extend our industry-leading earnings per share growth rate well beyond 2017. We not stand at US$ 36 billion of enterprise-wide commercially secured investments which will all be generating additional earnings and cash flow by 2017."

Initial development work is underway to support the regulatory applications that will be submitted in late 2014. This includes an extensive public consultation process with landowners, Aboriginal and Native American communities, municipalities and counties and other stakeholders along the Line 3 right of way. Further information on the project will be shared with the public in the near future through mailouts and public meetings.

Programme specifics

The Canadian L3R programme, between Hardisty and Gretna, Manitoba, is currently estimated to cost approximately US$ 4.2 billion and will be undertaken by Enbridge's wholly-owned subsidiary, Enbridge Pipelines Inc. The US L3R programme, between Neche, North Dakota and Superior, is estimated to cost approximately US$ 2.6 billion. The US programme will be undertaken by Enbridge Energy Partners, L.P. (EEP) with funding provided jointly by Enbridge and EEP at participation levels to be finalized and approved by the EEP Special Committee. The Programme will result in the elimination of US$ 1.1 billion of Line 3 integrity capital which would otherwise be required by 2017, as well as elimination of additional post-2017 integrity capital.

The surcharge on barrels moving on the US mainline will be set to recover a return on and of the incremental US L3R capital. The surcharge will be based on EEP's existing Facilities Surcharge Mechanism cost of service methodology. A separate surcharge will apply to all barrels moving on the Canadian mainline at the Canadian local toll, and another surcharge will apply to the international joint toll (IJT) applicable to all barrels that travel on both the Canadian and US mainlines. The IJT surcharge will be set at a level that will cover the US surcharge plus enough, together with the Canadian local toll surcharge, to provide an appropriate return on the incremental Canadian L3R Programme capital.

The capital costs on which the surcharges will be based will reflect detailed estimates to be finalised in the first quarter of 2014. Shippers will have the option to cancel the L3R Programme in the event that the detailed cost estimate exceeds the current preliminary estimate by more than 15%. In the event of such cancellation, all development costs incurred to that date would be recoverable from shippers.

An ‘attractive solution’

Guy Jarvis, President, Liquids Pipelines for Enbridge said the L3R Programme provides a very attractive solution to Enbridge and our shippers. "In the long run it is the most efficient way to maintain the line," Mr. Jarvis said. "It also improves the reliability of the system, with less down time for inspections and repairs and more operating flexibility. The IJT surcharge structure for the Programme is designed to provide Enbridge with a solid return on its incremental investment."

Mark Maki, President, Enbridge Energy Partners said, "The US Line 3 Replacement Programme will provide a significant attractive investment opportunity for EEP, enhancing our distributable cash flow growth rate. The funds anticipated to be released through projected drop downs of additional interests in our natural gas gathering and processing business to Midcoast Energy Partners, will expand the Partnership's ability to undertake a significant participation level in this Programme."

Line 3 is a 1031 mile (1660 km), 34 in. dia. pipeline that has been in safe and reliable operation since 1968. It is one of six crude oil pipelines that make up the Enbridge mainline system.

Adapted from press release by Hannah Priestley-Eaton

Read the article online at: https://www.worldpipelines.com/business-news/04032014/enbridge_to_undertake_us_7_billion_mainline_replacement_programme/