Latest setback to Enbridge's Line 3 pipeline is more bad news for oilfield workers, industry warns

A court ruling in Minnesota that could further delay Enbridge Inc.'s Line 3 oil pipeline replacement project spells more bad news for Canadian oilfield workers, says the CEO of the Petroleum Services Association of Canada (PSAC).

Investor confidence in Western Canada's oil industry is at a low ebb and that has resulted in less producer spending on exploration and production, said Gary Mar.

"Whenever there is a delay or some impediment to takeaway capacity, that has a direct affect on the interest of producers in committing capital to projects," he said.

"Without producers committing themselves to capital projects, there's no work for our members."

On Monday, the Minnesota Court of Appeals said state regulators must conduct a further review of the Line 3 project by Calgary-based Enbridge because its environmental impact statement doesn't address the possibility of an oil spill into the Lake Superior watershed.

The state's Public Utilities Commission last year signed off in what was intended to be the Minnesota Department of Commerce's final environmental review of the project.

Several environmental and Native American groups appealed that decision, however. A three-judge panel voted 2-1 to send the case back to the commission on the Lake Superior question, but rejected all the opponents' other claims.

'Extensive' assessment

In a statement, Enbridge said it was disappointed in the decision given that the utilities commission had previously found the environmental statement adequate, "based on the most extensive environmental study of a pipeline project in state history."

It said it is analyzing the court decision and will consult with the commission and other state agencies about next steps.

The potential delay is the second this year.

Enbridge said in March that the project, which is to add 370,000 barrels per day of export capacity of Canadian crude, wouldn't be commissioned until the second half of 2020, a year later than expected, due to state permitting issues.

Production quotas

Oil companies in Canada have cancelled or delayed spending on oilsands and conventional oil projects and the province of Alberta has imposed production quotas because of wider-than-usual price discounts last fall blamed on crude output exceeding pipeline capacity.

PSAC cut its 2019 drilling forecast last month to 5,300 wells, well off the pace of last year when 6,948 were drilled.

The problem with getting oil to Canada's main customer illustrates the importance of being able to export to other markets around the world, said Beth Lau, manager of oil supply and transportation, at the Canadian Association of Petroleum Producers.

"Increased transportation capacity in all directions is needed to reach new and growing markets to ensure Canada remains globally competitive," she said.

"Line 3 provides access to U.S. Midwest and Gulf Coast refineries for Canada's sustainably produced exports. With improved market access, Canada has an opportunity to obtain full value for our resources and help reduce net global greenhouse gas emissions."

Increasingly corroded, cracked

The $9-billion replacement pipeline would carry Canadian crude from Alberta across northern Minnesota to Enbridge's terminal in Superior, Wis., which lies just south of Lake Superior.

The current Line 3, which was built in the 1960s, is increasingly subject to corrosion and cracking, and runs at only about half its original capacity for safety reasons.

Indigenous and environmental groups in the U.S. argue that the project risks oil spills in pristine areas of the Mississippi River headwaters region where Native Americans gather wild rice, and that the Canadian oilsands oil that the line would carry accelerates climate change.

The utilities commission's green light for construction of Line 3 earlier this year was separate from its approval of the environmental impact statement.

Project opponents and the state Commerce Department are appealing that approval separately, raising different legal issues.

Meanwhile, regulators are still considering several permit applications.

Winona LaDuke, executive director of the Indigenous environmental group Honor the Earth, which is a party to the case, said she was "elated" about the ruling affecting Lake Superior.

But she said they're considering appealing on the arguments that the court rejected, including their assertion that state law requires completion of a survey on the potential impacts on tribal historical and cultural resources as part of the environmental review.

Republicans legislators tried unsuccessfully during the recent session to try to block the Commerce Department from participating in the various Line 3 appeals. But Democratic Governor Tim Walz has said he wants to let the legal process play out.