The Canadian pipeline industry just hit another major setback. After receiving a number of regulatory clearances and approvals, Enbridge’s (TSX:ENB)(NYSE:ENB) Line 3 replacement was delayed by a Minnesota court in a hearing on the company’s environmental impact statement. Enbridge’s Line 3 replacement would increase the line’s capacity, adding much-needed transportation infrastructure to the Canadian oil and gas industry.
With Monday’s ruling, however, the future of the project is called into question. Although the decision is not an outright rejection of the Line 3 replacement, it’s a major delay that will stall the project for months. To understand what impact this could have on Enbridge stock, we need to look at what exactly the Minnesota judge ruled.
Environmental assessment statement rejected
Earlier this year, the Minnesota Public Utilities Commission granted Enbridge approval for a replacement to its Line 3 pipeline, which had been in operation since 1968. The line, which has been described as “corroded,” ships 390,000-760,000 barrels of oil per day to Wisconsin. The replacement project would increase that capacity to over 800,000. However, the replacement was challenged in court after receiving a crucial regulatory approval, and an appeals court judge ruled that its environmental impact statement was inadequate.
What this means for the future of Line 3
The Line 3 replacement is a major project, not just for Enbridge but for the Canadian oil industry.
Pipeline delays have resulted in Canadian oil exports being shipped by train, a slower transportation method than pipelines. With pipelines filled to capacity and trains moving all they can, oil is beginning to accumulate in Alberta, unshipped. Line 3 would allow more of this oil to be transported to the States. In addition to helping the Canadian oil industry move its product, the updated line would be a revenue booster for Enbridge, since it would use wider pipes that can fit more oil than the existing ones.
On the surface, the Minnesota ruling does not threaten Line 3 in the long term. The judge in question did not “ban” the replacement but merely delayed its construction until a better environmental impact statement can be submitted and approved. However, to the extent that the ruling signals negative political attitudes toward pipelines in Minnesota, it could be a taste of more legal trouble to come.
Is the stock a buy without Line 3?
The good news for investors is that Enbridge is a solid stock with or without Line 3. As a pipeline company that earns money from toll fees, it’s a rare oil and gas play that can pump out earnings even if oil is swinging lower. From 2015 to 2018, Enbridge grew its net income from US$250 million to US$2.8 billion, even though oil prices were extremely low in the second half of 2018. This shows that Enbridge can grow regardless of what happens to the prices of the commodities it ships.
