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UPDATE 2-Minnesota court rules environmental assessment for Enbridge pipeline inadequate

Nia Williams and Rod Nickel

inadequate@ (Adds comment from environmental group)

CALGARY, Alberta/ WINNIPEG, Manitoba, June 3 (Reuters) - A Minnesota court ruled on Monday that Enbridge Inc's final environmental impact statement for its Line 3 replacement project is inadequate, raising the possibility the Canadian crude oil pipeline could face further delays.

The Line 3 replacement project would ship 760,000 barrels per day of Canadian crude from Alberta to Wisconsin, doubling current capacity and providing much-needed relief from congestion on existing Canadian pipelines.

It is the furthest advanced of three proposed pipeline expansions - along with the Canadian government-owned Trans Mountain and TC Energy Corp's Keystone XL - that would ease a glut of oil in Alberta. But all three projects have faced long delays due to regulatory, permitting and court obstacles.

In a decision posted online, the Minnesota Court of Appeals ruled that the Minnesota Public Utilities Commission, a state regulator that approved the Line 3 expansion last year, acted in a manner that was unsupported by "substantial evidence" when it determined the impact statement was adequate.

The impact statement specifically failed to address how an oil spill from the line would affect Lake Superior and its watershed, the court said.

Enbridge shares fell 3.7% on the Toronto Stock Exchange to C$47.90.

"I think they're going to have to take (a potential spill) much more seriously than just some hypothetical modeling and really be conscious about the headwaters of the Great Lakes," said Frank Bibeau, lawyer for the Honor the Earth environmental group.

A blast and a fire at a Husky Energy refinery in Superior, Wisconsin, in April 2018, two months before the commission approved Line 3, highlighted the potential dangers of moving oil near water bodies and illustrates why a closer look at Line 3 is necessary, he said.

Line 3 delivers oil to Superior.

Enbridge spokesman Jesse Semko confirmed the company had received the court decision and said Enbridge would release a statement later on Monday.

"We believe that the market will negatively view the court decision that casts uncertainty with respect to the timeline for the Line 3 Replacement (L3R) project and specifically the ability to bring L3R into service in H2/20," RBC Capital Markets analyst Robert Kwan said in a note.

In March Enbridge said Line 3 would be delayed until the second half of 2020 because of permitting delays in Minnesota, and the prospect of further holdups is another blow to the beleaguered Canadian energy industry.

The Alberta government imposed mandatory production curtailments on producers effective Jan. 1 this year because of congestion on export pipelines.

RBC's Kwan said at this stage it was not clear whether the environmental impact statement could be amended or if a new one would be required.

The Canadian government has said it will decide by June 18 whether to proceed with expanding its Trans Mountain pipeline, which would increase the flow of oil from Alberta to the British Columbia coast. ( Editing by Chizu Nomiyama and Dan Grebler)