Oilpatch divided over ‘alarming’ new contracts on largest pipeline system

Geoffrey MorganGeoffrey Morgan

Enbridge plans to lock in 90% of space on the pipelines that carry 70% of Canada’s oil out of the country

Canadian oil companies are worried that a new, “alarming” change to the way the country’s largest pipeline network operates will make it more difficult for them to secure space in an already scarce pipeline system.

The Mainline system, operated by Enbridge Inc., is Canada’s largest and most important oil export system, carrying 2.85 million barrels of oil per day through a network of multiple pipes to U.S. Midwest markets. That’s about 70 per cent of all oil pipeline capacity out of Western Canada.

For the last 70 years, the Mainline has operated as a 100 per cent “common carrier” system, which means producers or refiners can ask for space on the pipelines a month ahead of time without the need to sign a long-term contract. But now, Enbridge is proposing to make a major change to the system by launching an open season to contract 90 per cent of the space on the lines on a long-term basis, leaving just 10 per cent of the system for spot shippers each month.

n a letter sent to the National Energy Board on July 23 and obtained by the Financial Post, Explorers and Producers Association of Canada president Tristan Goodman said he’s “concerned with proposed changes” to Enbridge Inc.’s Mainline pipeline network. He said the changes would pose “risks of material harm to Canadian producers including EPAC members, Canadian and provincial governments and the citizens of the western provinces are significant and overshadow any perceived benefits.”

Calgary-based Enbridge releases its second quarter results Friday and many in the oilpatch believe it will announce the open season for contracts then.

For its part, Enbridge said it has been working to address concerns about the existing process and the new contracted system for both producers and refiners.

“Enbridge has spent more than a year engaging with industry to develop a range of service offerings that provide both term and volume flexibility to meet the needs of all market participants, large and small,” spokesperson Jesse Semko said in an email.

Still, companies are nervous about changes to the strained system at a time when new pipeline projects have stalled.

“Enbridge’s proposed change to contract carriage puts shippers, especially upstream Canadian producers, in the difficult position of being forced into participating in the open season when pipeline capacity is in short supply and future expansions are uncertain,” Goodman wrote in the letter to the NEB.

His letter said the “fundamental change is alarming” and recommended it be delayed. Goodman declined to discuss the letter as he’s continuing to discuss the change with the small- to mid-sized oil and gas companies he represents.

The change has also divided larger Canadian oil producers with integrated companies supporting the change and companies without refining assets raising concerns about the proposal.

full story at https://business.financialpost.com/commodities/energy/alarming-oilpatch-divided-over-new-contracts-on-canadas-largest-pipeline-system

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