Energy regulator rejects Enbridge’s Mainline contracting proposal

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Canada’s energy regulator has rejected Enbridge Inc.’s bid to convert its mainline crude pipeline system to longer-term contracts, the final chapter in a two-year battle in which the energy titans go head-to-head over the plan.

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Enbridge’s proposal, filed in December 2019, would have seen oil companies enter into long-term agreements for 90 per cent of mainline capacity, leaving 10 per cent available for spot capacity. Currently, 100 percent of the pipeline is open access.

But in a decision Friday afternoon, the Canada Energy Regulatory Commission (CER) concluded that access to the pipeline would change “suddenly and dramatically” if longer-term contracts are allowed on the mainline.

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And, the commission said, it means western Canadian oil producers “could suffer far more negative consequences.”

The mainline is the longest oil pipeline in Canada, extending from Alberta to the US border in Manitoba, and re-entering Canada into Ontario. It connects Canadian producers to refineries and other pipelines in Canada and the US.

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It sends the most petroleum products of any Canadian pipeline, at nearly three million barrels a day – about 70 percent of Canada’s total capacity to send oil to market from western Canada.

The long-term shipping contract for the mainline would be a reversal of the 100-cent unreserved model used since the pipeline came online nearly 70 years ago.

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Enbridge also wanted to implement a new tolling method, which would have given customers more discounts on their contracts and higher amounts.

The company argued that the existing mainline walk-up system – in which customers bid for space for the coming month – created uncertainty for raw suppliers and buyers. It said converting to longer-term contracts could lead to higher prices for western Canadian oil and benefits for shippers, including competitive tolls and open access to pipeline capacity.

Its application was supported by BP, Cenovus Energy Inc., and a handful of refineries and energy infrastructure companies.

But Canada’s largest oil producer, Canadian Natural Resources Ltd., along with several smaller producers, opposed the move. The CNRL accused Enbridge of abusing its substantial market power to make changes – a charge Enbridge called “absurd”.

Calgary-based CNRL argued that changes to the mainline would result in “drastic and unprecedented changes” that flew in the face of previous regulatory decisions. This would be contrary to Enbridge’s legal obligations as a common carrier and “contrary to the Canadian public interest”, the company said.

After weighing thousands of pages of documents and hearing for nearly 30 days, the CER Commission finally sided with the CNRL.

In its decision, the commission concluded that the change would “cause a fundamental change in Canada’s oil pipeline system” to “moving the transportation of oil by pipeline in Canada alone from primarily unrestricted service to mostly committed capacity.”

The commission said that while some of Enbridge’s submissions provided a strong justification for some contracted service on the pipeline, removing 90 percent of uncommitted capacity for up to 20 years “would have changed dramatically and abruptly, and possibly reduced, Overall access to the Canadian mainline, without a compelling justification.”

The commission wrote, “without any credible method to respond in a timely manner to and mitigate such impacts” would have risked a potentially significant disruption to the market for an unknown period of time.

Enbridge did not comment on Friday, saying the decision needed to be reviewed first. The CNRL is also reviewing the decision, but said it was happy with the decision.

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