Suncor Energy Inc. and Royal Dutch Shell PLC have joined a chorus of Canadian oil companies asking the country to halt Enbridge Inc.'s ongoing open season for contracted space on its mainline system.
Canada's largest oil company by revenue and the Anglo-Dutch petroleum conglomerate filed separate letters with the National Energy Board, or NEB. They claimed that Enbridge's plan to move to long-term contracting on the mainline system from the existing common carrier arrangement could give some market players too much influence and hurt upstream producers. The letters, dated Aug. 21 and 23, ask the regulator to intervene before the open season ends in October. Enbridge's existing tolling agreement expires in 2021.
The change to long-term contracting "is unprecedented for an oil pipeline of this magnitude and would represent a material shift in the nature of service on the mainline with the potential to disrupt Canadian oil markets significantly," the letter from Shell's Canadian subsidiaries said.
"Specifically, Shell is concerned that the open season and the offering may represent an abuse of market power," the subsidiaries said.
Enbridge wants to end a decades-old practice of accepting oil and liquids shipments by having users submit orders on a month-in-advance basis. The mainline system has handled the bulk of Canada's liquids exports to the U.S. since it was built by an affiliate of Exxon Mobil Corp. almost 70 years ago. While the existing tolling framework creates inefficiencies and pro-rating of customer orders because demand for export shipments usually exceeds capacity, producers and traders like Shell have complained that the long-term contracts proposed for 90% of the mainline would allow downstream players to monopolize pipeline space, creating pressure on upstream prices.
Calgary, Alberta-based Suncor went beyond registering a complaint and filed an application formally seeking a halt to the open season. MEG Energy Corp. and the Explorers and Producers Association of Canada have also asked the NEB to intervene.
"The open season is in violation of the statutory and regulatory obligations of Enbridge as a company that operates a pipeline system that is regulated by the board," Suncor lawyers said in their letter. The company seeks "a declaratory order of the NEB that Enbridge may not offer contract carriage, or require binding contractual commitments for contract carriage on the Canadian Mainline unless and until such contract carriage, and the terms and conditions of such contract carriage, including tolls, are approved by the board and included in an Enbridge Canadian Mainline tariff."
Enbridge has claimed that provisions in the contracting arrangements would protect small shippers. Under current circumstances, Enbridge would not see much of a financial change between either systems, but long-term contracts would give the company a degree of insulation if planned or underconstruction export pipelines are completed. TC Energy Corp.'s Keystone XL pipeline, Canadian government-owned Trans Mountain Corp.'s planned expansion, and Enbridge's own Line 3 replacement project could add an estimated 1.88 million barrels per day of export capacity within five years. Enbridge's mainline contracts, reported to be a minimum eight years in length, would give shippers a disincentive to take barrels off its lines.
The NEB had not responded to the requests for intervention as of Aug. 26.
