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Enbridge's Line 3 Wins Final Approval From Minnesota PUC

Zacks Equity Research

Enbridge Inc. ENB has finally received the green signal from the Minnesota Public Utilities Commission (“PUC”) for its proposed C$9-billion Line 3 crude oil pipeline replacement project. The regulatory authority unanimously rejected the pending petitions of reconsideration of the pipeline’s future. One of the petitions was from the state Commerce Department, which had teamed up with tribal and environmental groups to oppose the pipeline’s approvals.

In February, the Minnesota Court of Appeals sent back the case to the regulatory authority for further proceedings. Notably, the approval came a few weeks after Enbridge said that it expected the project to be delayed by one year due to regulatory approval issues. Hence, the recent consent from the PUC is expected to cheer up investors as well as producers, who’ll use the pipeline to ship their products from Canada to the United States.

The aging 1,660-kilometre Line 3, operating since 1968, connects Canadian producers to the U.S. refineries. Currently, the pipeline operates at half of its capacity. Once the replacement project is completed, the pipeline with a 36-inch diameter will operate at its daily approved capacity of 760,000 barrels.

Importance of the Approval

The implication of the Line 3 approval is huge, considering the present situation of the oil and gas industry in Canada. Hydrocarbon producers in the country are currently reeling under pressure as the available infrastructure is overpowered by the total output in the country. The situation had led to increased differentials between Western Canadian Select and West Texas Intermediate. During 2018-end, the huge gap between the two benchmarks triggered a response from the Premier of Alberta, Rachel Notley, who decided to reduce production of heavy crude by 8.7%.

Amid the bottleneck situation in Canada’s oil and gas sector, new infrastructure projects are facing a tough time due to vigorous opposition from several regulatory authorities, as well as environmental and tribal groups. After incurring severe cost overruns, Kinder Morgan, Inc. KMI divested its Trans Mountain expansion project to the Canadian government. Another midstream company, TransCanada Corporation TRP is still stuck with its Keystone XL project due to opposition from land owners and environmental groups. In a situation like this, the approval of Line 3 from the Minnesota PUC will give rise to fresh hope and confidence among midstream investors.

Price Performance

Calgary, Canada-based Enbridge has increased 16.5% in the past year compared with 12.9% collective gain of the industry it belongs to.

Zacks Rank and Stock to Consider

Currently, Enbridge carries a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for a better-ranked stock as given below:

Ultrapar Participações S.A. UGP is a Sao Paulo, Brazil-based energy infrastructure company. Its bottom line in 2019 is expected to increase 25% year over year. It currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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