March 4, 2019 / 3:12 PM / 21 days ago

Enbridge shares fall on Canadian oil pipeline delay

CALGARY, Alberta (Reuters) - Shares in pipeline operator Enbridge Inc fell 6 percent on Monday after the company said its Line 3 oil pipeline would be delayed until the second half of 2020, dealing yet another blow to the struggling Canadian energy industry.

FILE PHOTO - A storage tank looms over a freeway at the Enbridge Edmonton terminal in Edmonton August 4, 2012. REUTERS/Dan Riedlhuber

Line 3 will carry Canadian crude to U.S. markets and the delay is the latest setback for producers who in recent months have been grappling with bottlenecks on congested export pipelines and record discounts on heavy barrels as a result.

The U.S. state of Minnesota, which Line 3 crosses, told Enbridge it will issue all state environmental permits by November. The company previously expected those permits by the second quarter of 2019.

Once it receives state permits, Enbridge will finalize federal permits 30 to 60 days later and anticipates the pipeline to start running in the second half of 2020. Last month Enbridge told investors it expected Line 3 to be in service by year end.

“The delay to the Line 3 Replacement is yet another blow to a beleaguered Canadian oil industry that simply cannot catch a break,” said RBC Capital Markets analyst Michael Tran.

Other proposed Canadian export pipelines, including the Trans Mountain Expansion, are also mired in regulatory delays and concerns about market access are contributing to slowing investment in the energy sector.

Oil and gas capital spending in Alberta is expected to fall 3 percent to C$25.9 billion ($19.45 billion) this year, according to ATB Financial, less than half of capital expenditure in 2014.

Enbridge shares were last down 5.9 percent at C$46.59 on the Toronto Stock Exchange. Enbridge spokeswoman Tracie Kenyon said the company was pleased to have a firm schedule on the remaining Minnesota permits.

Once completed the $9 billion pipeline project will ship 760,000 barrels per day from Alberta to Wisconsin, doubling current capacity.

Canadian producers have been counting on Line 3 to help ease crude gluts in Alberta that prompted the provincial government to impose temporary production cuts and announce plans to lease 4,400 rail cars to help transport crude to market.

“This kind of uncertainty is exactly why we have a plan to move more oil by rail until new pipelines are built,” said Mike McKinnon, spokesman for the Alberta Minister of Energy.

The delay means the Alberta government could consider extending production cuts, analysts at Tudor Pickering Holt said in a note.

In late 2018 the benchmark heavy grade Western Canada Select plummeted as low as $52 per barrel below U.S. crude. On Monday WCS for April delivery last traded at $11 a barrel below U.S. crude, according to Net Energy Exchange, 25 cents wider than Friday’s settle.

Reporting by Nia Williams; Additional reporting by Collin Eaton in Houston; editing by Susan Thomas and Lisa Shumaker

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