Canada's energy regulator ordered Enbridge Inc. to halt an open season offering contracted space on its Canadian Mainline system. The regulator cited concerns about fairness and the perception of abuse of the pipeline giant's market dominance.
In a ruling issued late Sept. 27, the Canadian Energy Regulator also told the Calgary, Alberta-based company that it must obtain its approval before restarting the process. The regulator, known as the CER, issued the decision after complaints about the proposal to contract as much as 90% of the space on the network that carries the bulk of Canada's crude oil to U.S. markets.
The CER's ruling upheld objections to the open season, scheduled to end Oct. 2, by Canadian Natural Resources Ltd., Suncor Energy Inc., Royal Dutch Shell PLC and the Explorers and Producers Association of Canada. The regulatory commission that issued the order was formed under the National Energy Board, or NEB, which became the Canada Energy Regulator in late August.
"The commission orders that Enbridge may not offer firm service to prospective shippers on the Mainline until such firm service, including all associated tolls and terms and conditions of service, has been approved by the commission," the CER said in its ruling. "For clarity, the effect of this order is that Enbridge may not continue its current open season process. In the commission's view, such an approach is consistent with the NEB's long-standing principles of transparency, fairness, and preventing abuse of market power."
Enbridge had planned to convert the mainline system, which carries about 75% of Canada's crude exports, to long-term contracts from the common carrier status it has operated under since it started operations in the early 1950s. The system stretches from Edmonton, Alberta, to a hub at Superior, Wis., for distribution to refineries in the U.S. Midwest and to other pipelines. Canadian companies raised concerns that refiners and traders would be able to monopolize space on the line, allowing them to influence upstream prices.
The company said in a Sept. 29 statement that it would apply to the CER "seeking approval of a firm service offering as soon as practical." Guy Jarvis, head of Enbridge's liquids pipelines business, said the open season was the result of 18 months of negotiations and had the support of customers representing a "significant percentage" of existing capacity on the system. Enbridge's current tolling agreement expires in 2021, which is when it planned to make the switch. Enbridge had argued that Canada's energy regulator had not intervened in previous open seasons for new pipelines or expansion.
The CER's Sept. 27 decision "is a departure from the decades of precedent and commercial practice in our industry," Jarvis said in the statement. "Although the CER decision results in a change to the process of securing commercial support through an open season in advance of the regulatory application, it does not change our plans to respond to the desires of our customers for priority access to Mainline capacity, toll certainty and access to the best markets that contract carriage offers."
The CER ruled that the mainline's importance as the dominant means of oil transportation in Canada and the plan to change from common carrier status merited further investigation.
"In the commission's view, intervention is necessary at this time in the specific and unique circumstances of Enbridge's current open season, which are distinct from previous cases," the ruling said. The decision is part of the file OF-Tolls-Group1-E101-TFGen 01.
