In a report Wednesday, Moody's said the Line 3 replacement, or L3R, project doesn't affect the credit ratings of Calgary-based Enbridge Inc. (TSX:ENB) or its U.S. affiliate, Enbridge Energy Partners.
But Moody's said the project — the largest in Enbridge's history — carries more execution risk than other company projects.
"The investment is expected to provide predictable cash flow once in service," said Moody's vice president Gavin MacFarlane. "However, given the L3R program's high profile, political, regulatory and public scrutiny of the project could lead to increased costs and delays, which would be at the sole expense of Enbridge."
Late Monday, Enbridge announced plans to replace the entirety of its 46-year-old Line 3 pipeline, which carries crude from Alberta to Superior, Wisc.
Line 3 is one of six arteries that comprise Enbridge's Canadian mainline — an important piece of infrastructure that carries crude from west to east.
The line currently pumps only 390,000 barrels per day, which Enbridge says is due to its own engineering analysis. The replacement project, which would use improved steel and coating, would allow the line to pump out 760,000 barrels per day.
Enbridge said replacing the line altogether, rather than maintaining it long-term, is a more economical option. The company describes the project as a "buffer" that ensures its customers can move their crude in the event of an outage elsewhere in the system.
The company said it won't need to obtain a new Presidential Permit — a U.S. federal process that has bogged down other proposed pipelines.
Fellow Canadian pipeline giant TransCanada Corp. (TSX:TRP) has faced a long and frustrating process in trying to obtain a Presidential Permit for its Keystone XL pipeline, which would connect 830,000 barrels per day of mostly oilsands crude to Texas refineries. The U.S. regulatory process for that project began some five and a half years ago.
An expansion to Enbridge's Alberta Clipper pipeline, which also runs between Alberta and Wisconsin, has been held up by the process as well. It obtained a Presidential Permit in 2009 for the first 450,000 barrel per day phase, but the U.S. State Department requires an amendment for a two-phase expansion up to 800,000 per day. That's taking longer than Enbridge had expected, but the company is still confident the Alberta Clipper expansion will be in service by mid-2015.
"Although the L3R Program faces less risk than Keystone XL Moody's expects expect it will face increased public, regulatory and political scrutiny," said Moody's.
But the risk on the company overall is mitigated by the fact that Enbridge has a wide array of other projects on the go, the agency said. It noted the company has $36 billion in commercially secured projects in the hopper until 2017, when the L3R project is expected to be complete.
Meanwhile, the National Energy Board is expected to announce a decision Thursday on an Enbridge proposal to reverse the flow of its Line 9 pipeline between southern Ontario and Montreal and expand its capacity.
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