Enbridge proposes priority contracts for Mainline system in 2021

CALGARY — Enbridge Inc. is proposing a fundamental change in how it assigns space on its Mainline pipeline system that will allow up to 90% of its capacity to be reserved for priority customers.

The 2.85-million-barrel-per-day network of pipelines, the largest export option for western Canadian producers, operates as a common carrier, where customers nominate the volume of crude they would like to ship each month.

Those nominations have exceeded the volume available for much of 2018, leading to “apportioning” or cutbacks in all shipments, which have angered many producers.

Oil sands giant Canadian Natural Resources Ltd. has charged apportioning is a leading cause of the current “dysfunctional” oil market in Western Canada, where a lack of pipeline export space as production rises is blamed for recent steep discounts in oil prices.

“We’re seeing pretty good interest in this concept around priority access,” said Enbridge CEO Al Monaco on a webcast from the company’s investor day in New York on Tuesday, adding negotiations with shippers have started in advance of a July 2021 expiry of the current agreement.

He said shippers and Enbridge will both get toll and volume certainty if the new system is adopted.

“And that’s part of this discussion. That the shippers will have an interest, we will have some interest, and it’s up to us to line those up,” he said.

Enbridge plans to hold an open season to gauge shipper interest early next year and file an application with the National Energy Board to make the change, Guy Jarvis, president of liquids pipelines, said.

He added he doesn’t think the regulator will deny permission because it allowed the Trans Mountain system, now owned by the federal government, to make the same switch from common carriage to a hybrid contract-spot shipper system.

Details were not provided, but Jarvis said Enbridge’s proposal will appeal to both large and small producers with varying contract lengths up to 20 years and volume discounts.

Jarvis told reporters later that Enbridge had unused capacity in its system last spring when shippers failed to deliver light oil as agreed, but that is no longer an issue.

“Our system is currently full,” he said. “We’re not in a position where we believe any changes to how you … accept nominations and allocate capacity can create any more throughput.”

He said Enbridge will co-operate with the NEB, which has been asked by the federal government to investigate whether export pipelines are being used efficiently, but he’s confident that any probe will show its pipelines are full.

Enbridge reported moving a record volume of 2.785 million bpd from Canada to US in November and said it remains focused on finding incremental ways to increase capacity.

Its Line 3 expansion project is expected to add 370,000 bpd to take the Mainline system to 3.225 million bpd capacity when it starts up in late 2019.

The company estimates that oilsands production is currently about 450,000 bpd above local refining and pipeline capacity and forecasts that as much as 600,000 bpd in new output could be added by 2025.

Enbridge announced $1.8 billion in new investments on Tuesday, including the $265-million purchase of pipeline and terminal assets in northern Alberta from oilsands producer Athabasca Oil Corp.

The Calgary-based pipeline, utility and power company said it will also spend US$600 million to buy a 22.75% interest in the Gray Oak Liquids Pipeline, which is under construction and expected to deliver light crude oil to Corpus Christi, Texas, starting in late 2019.

That project is expected to help supply an offshore shipping port in the Gulf of Mexico proposed by Enbridge with partners Kinder Morgan Inc. and Germany-based Oiltanking GmbH that could be operational by 2021, the company revealed.

Enbridge also committed about $800 million in spending on four natural gas transmission expansion projects in the United States that are to come into service in the 2020-23 time frame.

The company said it will raise its dividend by 10% for next year and anticipates another 10% increase in its dividend for 2020.