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article imageOilpatch alarmed over Enbridge Mainline contract requirements

By Karen Graham     Aug 3, 2019 in Business
Canadian pipeline company Enbridge Inc said on Friday it would invite bids for contracted space on its Mainline system, as shippers compete to move oil on the country’s congested pipeline networks.
Enbridge's Mainline system is Canada's largest pipeline system and is made up of a web of pipelines connecting western Canada’s production basins with U.S. Midwest and eastern Canadian refineries.
Carrying 2.85 million barrels per day, the 2,306-kilometer-long (1,433 miles) Canadian Mainline will add another 380,000 bpd once the Line 3 replacement project is complete. In total, the pipeline moves almost 70 percent of all oil pipeline capacity out of western Canada.
The Mainline has been considered a "common carrier" since the first leg of the pipeline was constructed in 1950, meaning that all producers or refiners had to do was ask for space on the pipelines a month ahead of time without the need to sign a long-term contract.
Enbridge is proposing to change the way the system currently operates - requiring that shippers sign long-term fixed volume contracts, according to the Financial Post.
Construction on Enbridge’s Line 3 Replacement Program progresses in Alberta and Saskatchewan in 20...
Construction on Enbridge’s Line 3 Replacement Program progresses in Alberta and Saskatchewan in 2017.
The plan will tie up 90 percent of the space on the Mainline, leaving just 10 percent available for spot, or smaller Canadian producers, raising fears these smaller companies will be losing out to the bigger players, according to Oil and Gas 360.
Back in May, this year, it was reported by Reuters that Enbridge was going to ask oil shippers to sign at least eight-year contracts to move their product on the Mainline.
Three sources with knowledge of the confidential talks confirmed the minimum term. Enbridge has previously disclosed that the maximum term is 20 years under the proposed plan that still requires approval from Canada’s National Energy Board.
In a letter sent to the National Energy Board on July 23 and obtained by the Financial Post, Explorers and Producers Association of Canada president Tristan Goodman said he’s “concerned with proposed changes” to Enbridge Inc.’s Mainline pipeline network.
Goodman said the changes would pose “risks of material harm to Canadian producers including EPAC members, Canadian and provincial governments and the citizens of the western provinces. They are significant and overshadow any perceived benefits.”
Enbridge Line 5 right-of-way near Michigan s Straits of Mackinac
Enbridge Line 5 right-of-way near Michigan's Straits of Mackinac
“Enbridge has spent more than a year engaging with industry to develop a range of service offerings that provide both term and volume flexibility to meet the needs of all market participants, large and small,” spokesperson Jesse Semko said in an email.
However, it's not just the small companies complaining about the proposed contract requirements. The change has also divided larger Canadian oil producers with integrated companies supporting the change and companies without refining assets raising concerns.
“We have to be really careful here on this firm capacity and whether it’s something we should even be doing. I know Enbridge wants to do it and I know the refiners in the Midwest really want it and the marketers really want it,” Canadian Natural Resources Ltd. executive vice-chairman Steve Laut said on a podcast hosted by ARC Energy Research Institute this month.
Bottom line? Enbridge will need approvals from the National Energy Board to make the switch.
More about Enbridge, Mainline system, Contracts, 90 of space, common carrier
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