Oil major BP PLC is blasting Enbridge Inc.’s abrupt reversal to the way the pipeline giant manages bookings on its mainline pipeline in a sign of growing tension over industry export constraints.
Enbridge gave notice May 24 that it would require oil-company shippers to show proof of volumes for extra capacity on the key pipeline system, in hopes of curbing overbookings that have played a role in the deep discounting of Canadian crude prices.
But it scrapped the proposed change 11 days later on June 4 after customers, including large refineries in the U.S. Midwest and trading houses, balked at the new methodology for calculating how much oil they can nominate for delivery each month on the pipelines.
BP, in a grievance filed with Canada’s National Energy Board, slammed Enbridge for overhauling the rules during a trading window – typically the first three weeks in the month – in which crude oil is bought and sold and deliveries to refineries are scheduled.
“Changing pipeline procedure in the trading period is simply unreasonable as such a move produces a ripple effect in the industry and could cause unintended consequences which could materially harm shippers,” Jennifer Geggie, BP’s vice-president of global oil for the Americas, said in the letter dated June 6.
The complaint by one of the world’s largest energy groups is the latest indication of a Canadian oil pipeline network that is running at or near full capacity as oil sands production swells and major expansions get tripped up by environmental opposition and regulatory delays.
Calgary-based Enbridge has said it is concerned that customers on its Alberta-to-Wisconsin pipeline network are inflating their monthly bookings to maximize deliveries, effectively gaming the system by requesting space that far exceeds their ability to move oil.
The higher nominations have exacerbated chronic restrictions known as apportionment, under which all shippers see their bookings reduced.
BP’s 412,500-barrel-a-day refinery in Whiting, Ind., is one of the biggest buyers of heavy Canadian crude volumes, making the British oil giant a major customer on the 2.85-million-barrel-a-day Enbridge pipeline system.
In the complaint, BP said it takes no position on the appropriateness of the changes Enbridge proposed with respect to verifying the accuracy of bookings. But Ms. Geggie accused the company of unnecessarily injecting uncertainty into how services are provided, with little consultation.
Prices for oil sands crude jumped sharply after Enbridge scrapped the new rules, with the discount on heavy Western Canadian select nearly halving from as much as US$26 a barrel. WCS barrels weakened Thursday to about US$16.75 less than the U.S. benchmark price, according to broker Net Energy Inc.
Enbridge’s hasty turnabout, BP’s complaint said, “is shocking and egregious given that it is widely known in the industry, including Enbridge, that the trading period is a period of heightened commercial activity where crude oil is bought and sold and scheduling decisions are made.”
BP did not respond to an e-mail seeking further comment.
The company has asked regulators to direct Enbridge to provide one month’s notice of any future changes to the way it verifies nominations, and to refrain from further tweaks during trading periods. BP is also seeking clarity on how Enbridge will manage bookings for August.
Enbridge spokeswoman Suzanne Wilton said in an e-mailed statement the company is reviewing BP’s complaint and will respond through the NEB process.
The pipeline company has said it will consult shippers on next steps after revoking the supply verification rules, with a focus on addressing “the problem of overnominations.”
Generally, large oil producers want pipelines to run as efficiently as possible in order to get the most crude into the system and capture the best possible price, Suncor Energy Inc. chief executive Steve Williams said this week.
”Gaming an existing pipeline doesn’t make sense,” he said.