A rift has emerged among large Canadian oil producers over Enbridge Inc.'s plan to convert Canada's largest crude conduit from common carrier status to long-term contracting.
The Canada Energy Regulator asked concerned parties for comment on the pipeline giant's ongoing open season for capacity on its Canadian mainline system, which carries about 75% of the nation's liquid petroleum exports. As of the deadline on Sept. 5, dozens of companies and groups had responded to the regulator's request for comments. The regulator, or CER, which was known as the National Energy Board when the process started, will now determine if a probe into the open season is required.
More than half of the submissions to the CER support the switch to long-term contracts, including Exxon Mobil Corp.'s Imperial Oil Ltd., the Canadian Association of Petroleum Producers and the government of Saskatchewan. The association is the industry group that represents most of Canada's large oil companies. Some of its largest members oppose the change, signaling a rift in the producing community. Canadian Natural Resources Ltd. and Suncor Energy Inc., Canada's two largest oil companies, have said the change could give refiners in the U.S. Midwest too much power in Canada's oil markets.
"Enbridge believes that its open season is entirely appropriate and consistent with a well-established practice of ensuring commercial support before seeking regulatory approval, a view that is shared by a range of customers who have submitted letters to the CER today," Enbridge said in a Sept. 5 statement. "These letters indicate support for contract carriage on the Mainline, acknowledge Enbridge's willingness to negotiate the terms and conditions of service in developing the open season offering, and support the open season proceeding as planned to ensure that its results can fully inform any application that Enbridge may file with the CER."
The Enbridge Mainline System, comprising a number of conduits between Edmonton, Alberta and Superior, Wis., carries about 2.85 million barrels per day. It was constructed by an affiliate of Imperial Oil after a large crude discovery was made in central Alberta. The system is run on a common carrier basis, in which shippers bid for space on a month-ahead basis. Under the proposed changes, 90% of the line would be sold on long-term contracts with the remainder left for spot shipments.
Opponents of the switch to contracting argue that small producers lack the financial ability to undertake the contracts. Supporters say the arrangement will provide greater certainty to shippers because the system is almost always overbooked, leading to prorating of orders. Enbridge claims that because it has not yet made an application to the CER to change its tolling structure, the regulator should not be involved.
Enbridge has until Sept. 11 to submit its response to the comments. Canadian Natural made a formal application to the CER to end Enbridge's open season and the regulator will rule on that application after reviewing the submissions.
