Enbridge dismisses concerns over contract changes to its Mainline crude pipeline

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Enbridge Inc. is not backing down from a plan to convert its Mainline crude pipeline to long-term contracts, telling the Canada Energy Regulator in a filing Friday that delaying the decision process would fly in the face of the regulator’s statutory duty.

Enbridge’s proposal, filed with the CER in December, would see oil companies enter into long-term agreements for 90 per cent of Mainline’s capacity, leaving 10 per cent available for spot capacity. Currently, 100 per cent of the pipeline is open access.

Energy sector titans are at loggerheads over the plan.

On one side, Enbridge is supported by BP, Cenovus Energy Inc., and a handful of refineries and energy infrastructure companies.

On the other is Canada’s largest oil producer, Canadian Natural Resources Ltd., and a host of smaller producers.

Enbridge argues the current Mainline walk-up system – in which customers bid for space for the coming month – leads to uncertainty for crude suppliers and buyers. It says converting to long-term contracts could result in higher prices for Western Canadian oil and have benefits for shippers, including competitive tolls and open access to pipeline capacity.

But CNRL has accused Enbridge of abusing its considerable market power to make the change – an allegation Enbridge called “absurd” in its response to the CER Friday.

Introducing long-term contracts “has absolutely nothing to do with market power,” Enbridge argued. “It has to do with predictable and timely decision-making.”

Enbridge also took issue with Canadian Natural’s position that the issue should not go in front of CER commissioners while the sector deals with fallout from the COVID-19 pandemic.

“The commission has no discretion to refuse to process an application as expeditiously as the circumstances and procedural fairness and natural justice permit,” it wrote.

Further, it said an event such as COVID-19, which has led to low oil prices and to decreased Western Canadian oil production, creates even more market uncertainty for Enbridge and Mainline, which is the last pipeline in Canada without long-term contracts.

"This calls for a faster regulatory process for the application, not a slower one,” it wrote.

Enbridge went on to argue that it will bear the brunt of swings in Western Canadian oil production if it’s not allowed to enter into long-term contracts, because Keystone XL and the Trans Mountain expansion pipelines – both government-backed projects – will operate under such agreements.

“This not only increases the volume risk on the existing Mainline system, but it also adversely affects the ability and willingness of Enbridge and shippers to make additional capital investments to accommodate the transportation of Western Canadian oil,” it wrote.

The CER hearing panel will now review Enbridge’s comments and make a decision on whether to continue with the hearing process, postpone or split it in two as CNRL has proposed.

Enbridge contends that CNRL “would commercially benefit from postponing the process” because of its contractual commitments in the Trans Mountain and Keystone expansion projects.

The regulator told The Globe and Mail there is no firm timeline on that decision, but it recognizes there is a lot of interest in the case.

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