Enbridge presses oil companies for change to ease pipeline clogs

With the oil pipelines out of Canada effectively full, Enbridge Inc. is pressuring oil companies and refineries to change their ways in hopes of pushing more barrels through its clogged system.

On Friday, the company delivered the first new barrels through its expanded Seaway pipeline, which will now carry 400,000 barrels per day – up from 150,000 – to Houston from the backed-up crude hub at Cushing, Okla. Seaway is jointly owned by Enbridge and Enterprise Products Partners.

As evidence that the new capacity is already having an impact on suffering oil prices in Canada and the U.S., Enbridge pointed to a $3 (U.S.) per barrel narrowing of the gap this week between North America's West Texas Intermediate and the international Brent benchmark.

But that shift is less important to Canadian companies than the continued difficulty they are encountering in moving crude out of the country, an issue so serious that worries are beginning to surface that some oil production may have to be halted.

So Enbridge has begun pushing oil companies to amend their practices. Instead of "lumpy" deliveries of oil to export pipelines – 100,000 barrels one day, 300,000 the next – Enbridge is asking for a constant flow, which gives it a more predictable stream of crude.

It is also telling refineries they should not store excess oil in tanks, which can fill and cause backups on the system. Instead, refineries are being told: "if you're not able to use it, you need to sell to someone else," Vern Yu, Enbridge vice-president of business development and market development, said in an interview.

He added: "it's very important for us to improve the efficiency of our system." These steps, he said, can "improve the effective capacity of the Enbridge Mainline."

How much?

"Too early to guess, but it's somewhere around 100,000 or 200,000 barrels per day."

Getting co-operation has not been difficult, given the serious consequences of not acting quickly.

"Industry recognizes that we're so tight on capacity right now that the risk is if they don't do this, they could get shut-in. And no one wants to see that happen," Mr. Yu said. He added: "the world is different when there's very little spare capacity."

Companies which are "shut-in" have to temporarily halt production, a move that brings significant financial consequences.

The stakes are especially high given the amount of new oil preparing to enter the system. Imperial Oil Ltd. has said its Kearl oil sands mine, with 110,000 b/d of capacity, will begin shipping oil this quarter. Cenovus Energy Inc. and MEG Energy Corp. are also expanding production.

Figuring out ways to get more crude through the existing system may be the only way to make more room until Enbridge can add pipeline capacity – a process that is under way, but will take time to complete. The company expects to add 300,000 barrels per day of capacity by the end of this year, and an additional 600,000 barrels by next year. TransCanada Corp. stands to add another 830,000 b/d if it can gain approval for construction of the northern leg of its Keystone XL project.

"It's all hands on deck," Mr. Yu said. "We're going to add one-million b/d of takeaway capacity between now and 2015."

But, he said, "it's going to come on in stages."