Canada’s energy regulator has denied Enbridge Inc.’s bid to convert its Mainline crude pipeline system to long-term contracts, the final chapter in a two-year battle that saw energy titans go head to head over the plan.
Enbridge’s proposal, filed in December, 2019, would have seen 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.
But in a decision on Friday afternoon, the Commission of the Canada Energy Regulator (CER) concluded that if long-term contracting were allowed on Mainline, access to the pipeline would change “suddenly and dramatically.”
And that, the commission said, meant Western Canadian oil producers “could suffer too many negative consequences.”
Mainline is the longest oil pipeline in Canada, stretching from Alberta to the U.S. border in Manitoba, and re-entering Canada in Ontario. It connects Canadian producers to refineries and other pipelines in Canada and the U.S.
It also ships the most petroleum products of any Canadian pipeline, at about three million barrels a day – around 70 per cent of Canada’s total ability to ship oil from Western Canada to market.
Long-term shipping contracts for Mainline would be a reversal of the 100-per-cent unreserved model used since the pipeline came online nearly 70 years ago.
Enbridge also wanted to implement a new tolling methodology, which would have seen customers receive a greater discount the longer their contract and larger the volume.
The company argued that the current Mainline walk-up system – in which customers bid for space for the coming month – led to uncertainty for crude suppliers and buyers. It said 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.
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., opposed the move, along with a host of smaller producers. CNRL accused Enbridge of abusing its considerable market power to make the change – an allegation Enbridge called “absurd.”
Calgary-based CNRL argued that the change to Mainline would result in a “drastic and unprecedented shift” that flew in the face of previous regulatory decisions. It would be contrary to Enbridge’s legal obligations as a common carrier and “contrary to the Canadian public interest,” the company said.
After weighing up thousands of pages of documents and holding nearly 30 days of hearings, the CER commission ultimately sided with CNRL.
In its ruling, the commission concluded that change “would cause a foundational shift in Canada’s oil pipeline system” by “singlehandedly moving the transportation of oil by pipeline in Canada from predominantly uncommitted service, to mostly committed capacity.”
The commission said while some of Enbridge’s submissions provided a strong justification for some contracted service on the pipeline, removing 90 per cent of uncommitted capacity for up to 20 years “would have dramatically and suddenly changed, and likely diminished, overall access to the Canadian Mainline, without a compelling justification.”
The change would have risked “potentially significant disruptions to the market of unknown duration without any reliable way to respond to and mitigate such impacts in a timely manner,” the commission wrote.
Enbridge had no comment Friday, saying it needed to review the decision first. CNRL is also reviewing the ruling, but said it was pleased with the decision.
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