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Energy and Resources Suncor, Shell join calls to block Enbridge’s Mainline pricing plan

Suncor Energy Inc. and Shell Canada Ltd. are adding their voices to a chorus of oil producers urging Canada’s energy regulator to intervene in Enbridge Inc.'s new plan for selling space on its Mainline crude oil pipeline system, calling it an abuse of market power.

On Aug. 2, Enbridge invited shippers to begin bidding for long-term contracts that would guarantee them space on the pipeline for up to 20 years. That’s a shift from its current spot market approach, where it doles out capacity to clients who request to ship in the coming month.

Enbridge’s Mainline pipeline system transports 2.85 million barrels a day of crude oil from Alberta to refineries in the U.S. Midwest, a total that represents about 70 per cent of crude leaving Western Canada.

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Producers are accusing Enbridge of taking advantage of a general shortage of pipeline capacity out of Alberta and continued uncertainty over the future of new pipeline developments such as the Trans Mountain pipeline expansion and Keystone XL to lock them into unreasonably long contracts.

Complainants Shell, Suncor, MEG Energy Corp. and the Explorers and Producers Association of Canada say signing up could prevent them from taking advantage of space that becomes available on other pipelines, or changing the products they ship to react to market demand.

It gives Enbridge "overwhelming market power,” Shell Canada president Michael Crothers wrote in a letter to the National Energy Board last week.

"Shippers have limited alternatives to moving volumes on the Mainline,” he continued.

Producers are effectively “backed into a corner with limited options” and may feel they have no choice but to bid for a contract, ARC Financial analyst Jackie Forrest said.

She explained “open seasons” such as the one Enbridge is holding are fairly common ways pipeline operators gauge interest for more capacity or a new pipeline. But the difference here is that Enbridge isn’t offering anything new.

“Shippers don’t get everything they want,” said Guy Jarvis, Enbridge’s vice-president, liquids pipelines, adding Shell, Suncor and others chose to challenge Enbridge’s “balanced” offering made after months of discussions with stakeholders.

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Enbridge’s current Competitive Tolling Settlement that governs transportation fees on the Mainline will expire on June 30, 2021. Mr. Jarvis said the company needs to get started now if it’s going to have a plan ready in time for that expiry date.

“We certainly don’t believe we’re doing anything that abuses a market power position,” he said.

He added that tolls were competitive for the services Enbridge provides and that some shippers are willing to sign contracts at those levels, which indicates support for the plan.

Shell’s Mr. Crothers wrote that his company may have no option but to bid on a Mainline contract to avoid being blocked out, but wanted to be clear that does not indicate its support for the open season.

Going from an entirely month-to-month system to being 90-per-cent contracted out, leaving only 10 per cent of space for uncommitted shippers, is a major change that producers believe warrants review by the NEB.

“[It] should be openly and publicly debated with all affected parties, since it has the potential for adverse implications for a wide group of stakeholders,” Tristan Goodman, president of EPAC, wrote in a letter to the NEB Monday.

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Suncor’s lawyers asked the NEB to suspend the open season, adding Enbridge shouldn’t be allowed to offer long-term shipping contracts until they’ve been approved by the NEB.

“Enbridge’s exercise of market power to force shippers to contract on terms that are not certain is not appropriate or permitted by applicable regulatory standards, including the requirement for open pipeline access,” Suncor’s letter to the NEB read.

EPAC, Suncor and others want the regulator to step in before Enbridge’s open season concludes on Oct. 2.

A research note from GMP FirstEnergy outlined why Enbridge might want to move to a contracted pricing model: It would allow the company to lock in long-term revenues and deliveries as the potential completion of Keystone XL and the Trans Mountain expansion threaten to poach Mainline volumes.

But the timing of the open season puts producers at a disadvantage, the note continued. Enbridge’s Mainline only ships to the U.S. Midwest, a market with relatively few large buyers of crude.

The NEB hasn’t yet decided how it will to proceed after receiving letters from the four concerned parties, said Sarah Kiley, a board communications officer.

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The energy regulator is changing its operations and governance structure, and after Wednesday will be known as the Canadian Energy Regulator.

“Hopefully the current internal reorganization does not impede the NEB’s ability to act” on the Mainline open season, the GMP FirstEnergy research note read.

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