Spectra Energy Partners LP is facing blowback from a group of major oil companies over plans to rejig the way it allocates capacity on its Express pipeline system amid renewed anxiety over export constraints that have weighed on prices for Alberta’s heavy crude.
The moves would force oil company shippers to bid on spot capacity – which is not covered by firm contracts – when orders to move crude exceed available space on the pipeline, a phenomenon known as apportionment.
The changes, set to take effect Sept. 1, have led to flak from big oil players – including affiliates of Suncor Energy Inc. and Marathon Petroleum Co. LP, as well as Husky Energy Inc., CNOOC Ltd.-controlled Nexen Energy ULC and Phillips 66 – concerned about paying hefty premiums for capacity at a time when the industry is desperate for new export routes.
The spat shows pipeline snarls remain a key concern among the largest producers in Alberta’s oil patch, even as the sharp increase in rail capacity and concerted efforts to expand current export outlets has narrowed the discount on Canadian heavy crude.
On Monday, broker Net Energy Inc. said Western Canada Select fetched $16.75 less than West Texas intermediate, the North American benchmark oil price. That compares with a discount of more than $40 at times last year, a price cut blamed for sapping billions in government and corporate revenues.
“I think the thing that’s changed is there’s been enough rail capacity to keep the system balanced this year compared to other years,” said Jackie Forrest, vice-president of energy research at ARC Financial Corp. in Calgary.
“But if a major pipeline were to have an outage of some amount of time we’d still have a problem, because the rail capacity isn’t anything close to what the pipeline capacity is leaving Western Canada.”
“There’s still a shortage of pipe,” she added. “That hasn’t changed.”
The 280,000-barrel-per-day Express pipeline is one half of a critical export route for Canadian oil that stretches about 1,200 kilometres from Hardisty, Alta., to as far as Wood River, Ill.
Spot capacity on the Express line, about 25,000 bpd, is currently divvied up based on shipper requests. The changes, which will only affect the Canadian portion of the line, will see space go to the highest bidder. Express is also seeking to impose restrictions on the volume of oil customers can move in “batches,” arguing the current method of allocating capacity cannot accommodate an expected increase in the number of companies using the pipeline on a spot basis.
Rationing pipeline space has grown more common as booming oil sands production outstrips the ability of producers to ship it to market.
Both Kinder Morgan Canada Inc.’s Trans Mountain line to Canada’s West Coast and Enbridge Inc.’s massive mainline network to the U.S. Midwest have been regularly oversubscribed in recent years, forcing producers to reduce crude sent on the networks.
More restrictions could be coming. Suncor, in filings before the National Energy Board, said the Express system was poised, “as soon as next month,” to enter “an extended period of chronic apportionment.”
Lawyers for the company, which last year flagged what it said was a “disturbing” trend of pipeline firms “exerting market power” as a result of infrastructure shortages, warned that changes to the existing Express tariff “would result in unjust and unreasonable tolls” as well as “unjust discrimination” in service.
Nexen, in filings, said the moves could set a “negative precedent” on an industry already grappling with “chronically constrained pipeline infrastructure.“
A spokesman for Houston-based Spectra said the changes would help “manage anticipated increased demand on the system,” and said the company is reviewing comments from shippers and working through the regulatory process in seeking approval for the change.
- Spectra Energy Partners LP$49.78-0.65(-1.29%)
- Husky Energy Inc$15.19-0.62(-3.92%)
- Suncor Energy Inc$28.37-1.00(-3.40%)
- Suncor Energy Inc$35.58-1.25(-3.39%)
- CNOOC Ltd$123.02-0.41(-0.33%)
- Phillips 66 Partners LP$56.42-0.82(-1.43%)
- Marathon Petroleum Corp$38.58-0.50(-1.28%)
- Enbridge Inc$41.33-0.21(-0.51%)
- Enbridge Inc$51.76-0.36(-0.69%)
- Updated May 2 4:00 PM EDT. Delayed by at least 15 minutes.