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Rationing in the pipelines that bring Canada's crude to U.S. markets is likely to continue in January. But the worst is nearly over, pledges the man whose company has been responsible for a series of pipeline problems this year that have caused numerous disruptions and stripped hundreds of millions from the profits of the Canadian oil patch.

"We feel we are through the majority of the significant anomalies and any digs and repairs that would cause significant downtime," Enbridge Inc. chief executive officer Pat Daniel said Tuesday, as he reflected on a year of turmoil for the company.

A major spill in Michigan this summer was followed by a pipeline rupture in Illinois and then several maintenance-related outages that have caused significant problems - and profit loss - for the Canadian oil industry. The trouble companies have experienced in getting product to market has brought about poorer crude pricing that has cost the sector more than $1-billion, according to some estimates, and raised troubling questions about the state of Enbridge's aging network of critical pipelines.

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Yet Mr. Daniel, who lost 12 pounds this year as he defended his company against angry homeowners and hostile U.S. politicians, vowed that things are about to get better.

Enbridge has been required by U.S. regulators to repair in six months problems it planned to address over 2.5 years, "and that's what's caused the unusual amount of downtime in our system," Mr. Daniel said in an interview.

"Once we clear the current backlog through the system" - which should be completed by January - "we should be back to normal operations," he said.

So much crude has backed up in Canada in recent weeks that some producers, including Devon Energy Corp., have actually shut down some production. The result has been sinking profits for companies, which have seen mid-month futures for their product drop substantially in recent weeks as a result of the pipeline backup. Canadian heavy oil, from sources like the oil sands, trades at a discount to benchmark U.S. oil prices. That discount has grown by 60 per cent in mid-month trading.

Mr. Daniel acknowledged that rationing on its lines - what industry calls apportionment - is likely to continue in January, but argued that the rupture and ensuing maintenance should not raise worries about the future reliability of the Enbridge system. Though some of the company's older pipes are coated with material that has been shown to break down over time, and will continue to do so as it ages, Enbridge is also continually gaining better ways to spot problems he said.

"The improvement in the technology has been dramatic," he said. "And it will get even better going forward."

Mr. Daniel resisted a suggestion that Enbridge, which is midway through a period of 10 per cent annual growth, has achieved fast-paced expansion at the cost of maintaining its existing operations.

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"This is by far the worst incident that we've had in our 60-some years, and yet we've been an industry-leading growth company for a long period of time - probably 20 years," he said.

And, he said, neither the Michigan spill nor the fact that Enbridge workers attempted to restart the line several times before detecting the problem, have caused a hard look at the company's internal procedures.

"We really haven't changed anything. There's been no change in terms of operating centre operations," he said. Instead, the company has focused on "public awareness" of its pipelines in places near its routes.

Enbridge has also restarted plans to build another pipeline in the U.S.

Enbridge's Monarch project, which would take oil from the oil hub at Cushing, Okla., down to the Gulf Coast, had been put on hold. But Cushing has proved to be a bottleneck for crude, which has hurt the price of oil moving through, and Enbridge has, on the strength of demands from industry, begun once again to look at building the pipe.

"It's back right now on at least the mid-burner, if not the front-burner," Mr. Daniel said. "I'm thinking that probably in the first six months of next year we should have a pretty good idea of whether we'll have enough support to make that go."

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Though another planned pipeline to the Gulf Coast - TransCanada Corp.'s Keystone XL - has faced significant public opposition, Mr. Daniel said that has not dissuaded him from wanting to build in the U.S.

"We are very supportive of the concept of moving Canadian crude to the U.S.," he said. "We think it would be a big mistake for the U.S. to reject Keystone XL."

Enbridge has continued to push forward its own controversial plan to build the $5.5-billion Northern Gateway project, which would send crude from Alberta to Kitimat, B.C. First Nations groups have opposed Gateway, and Liberal MP Joyce Murray tabled a private member's bill on Tuesday calling for a ban on the oil tankers that would be needed to take the crude to buyers in China and Japan.

"We just think it is so critically important for the country," he said. "We feel it's an opportunity that we're missing today, and we just want to get the solution in place."

Enbridge has spent the past month revealing a benefits package to First Nations along the proposed route that includes an offer to finance a 10 per cent ownership stake in the pipeline for affected aboriginal people. Mr. Daniel expects that package to diminish some of the opposition - and said Enbridge is not open to pausing Gateway.

He pointed to the recent widening discounts for Canadian crude caused by outages on his company's lines.

"One of the ways to address that is to have alternative markets. ... It's such a strategically important project. And with the huge developing market in southeast Asia, it will only get better."

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About the Author
Asia Bureau Chief

Nathan VanderKlippe is the Asia correspondent for The Globe and Mail. He was previously a print and television correspondent in Western Canada based in Calgary, Vancouver and Yellowknife, where he covered the energy industry, aboriginal issues and Canada’s north.He is the recipient of a National Magazine Award and a Best in Business award from the Society of American Business Editors and Writers. More

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