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Enbridge Oil-Shipping Revamp Hits Snag as Canada’s Energy Regulator Steps In


By Robert Tuttle and Kevin Orland

(Bloomberg) Enbridge Inc.’s proposed shift to long-term crude shipping contracts on its Mainline pipeline network is drawing the ire of a growing number of producers, and now Canada’s energy regulator is getting involved, which could delay the process.After ConocoPhillips and Canadian Natural Resources Ltd. became the latest companies to object to Enbridge’s search for long-term shipping commitments, the regulator on Tuesday asked all involved to present their views. It’s asking for arguments on whether the so-called open season should be delayed until the new system has been approved by the regulator. Enbridge has argued that it needs the commitments before it seeks approval.The tussle is just the latest outcome of a pipeline bottleneck that’s dogging the Canadian oil industry as producers await major projects like Keystone XL and the Trans Mountain expansion to be built. With a dearth of options, producers fear a shift from the current monthly sign-up system will leave them less room to maneuver.Enbridge says that long-term contracts, which would only apply to Canadian segments of the system, would be the best way to balance the needs of all shippers. The change could also lend an advantage to some of the largest refiners in the U.S. Midwest, such as BP Plc and Exxon Mobil Corp., who source crude on the Mainline, according to Mike Walls, an analyst at Genscape Inc.

“Producers are concerned that if a relative few large refiners in the U.S. control a large portion of the Mainline space, their access to customers will be limited as well as their ability to get to more diverse markets like the Gulf Coast,” Walls said in an email. “They would have less spot capacity and in the end would have to sell to the owners of the committed capacity.”

Exxon declined to comment. BP didn’t immediately respond to a request for comment.

Enbridge wants to reserve as much as 90% of space on the Mainline to companies with multiyear contracts, charging them whether they ship oil on the line or not.

The 2.8 million barrel-a-day Mainline has seen heavy rationing as surging production has run into nationwide pipeline bottlenecks. Enbridge aims to start sending contracted volumes down the line in 2021.

“The offering that we’ve got in that open season is responding to the needs of our customers and is supported by shippers representing the majority of the volume on our system,” Guy Jarvis, Enbridge’s executive vice president for liquids pipelines, said by phone.

In his objection Tuesday, Canadian Natural President Tim McKay argued that the plan disadvantages non-integrated producers in favor of “shippers who can supply their own downstream” facilities.

Separately, ConocoPhillips Canada President Kirk Johnson said the plan creates uncertainty for companies with contracts to ship on connecting pipelines such as the Flanagan South system that runs from Illinois to Oklahoma.

The plan already has drawn objections from Suncor Energy Inc., Canada’s largest integrated energy producer, as well as oil-sands driller MEG Energy Corp. and the Explorers & Producers Association of Canada, which represents small- and medium-sized producers.



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