The rigorous regulatory scrutiny being applied to pipeline proposals in Canada and the U.S. is “unavoidable and intrinsic to” processes that remain generally supportive to the industry, Fitch Ratings said on Wednesday.
This level of scrutiny was underscored earlier this week by a Minnesota judicial opinion rejecting a new route proposed by Enbridge for the replacement of its 50-year-old Line 3 crude oil pipeline.
“Fitch maintains that U.S. and Canadian regulation (both federal and state/provincial) has balanced the interests of consumers and midstream companies, some of which possess natural monopolies,” the ratings agency said in a statement.
“Positively for Enbridge, the decision acknowledges that the existing line needs repair and faces ‘significant integrity risks,’ and that a replacement is ‘a reasonable and prudent action.’”
However, the administrative law judge also recommended a partially different route than the one for which Enbridge applied – an opinion that is not binding on the Minnesota Public Utilities Commission, which is expected to vote on Enbridge's proposed route in June 2018.
“If the Commission were to approve the project at that time, Enbridge believes it could complete, the replacement by the second half of 2019. If the Commission re-routes the project, Fitch believes that there would probably be a delay to this timeline,” it said.
All three current large pipeline proposals serving western Canada are facing explicit regulatory or political objections, Fitch noted.
While Kinder Morgan plans to scrap its plans for the Trans Mountain expansion if legal uncertainties are not reduced by May 31, TransCanada is working with landowners along the Keystone XL route to obtain easements and is doing other preliminary permitting work.
“All three of these projects have the support of companies that produce and market oil produced in western Canada. These companies in aggregate are shipping a material amount of volume by rail, which is significantly more expensive than pipeline transportation,” Fitch said.
“As such, the outcomes of regulatory scrutiny and legal challenges due over the coming months will have meaningful effects for oil shippers and pipeline companies over the long term.”