From The Calgary Herald

A war of words between oil companies and their main pipeline provider Enbridge Inc. is expected to break out amid sweeping changes to Canada’s biggest oil export pipeline network at a time of tight takeaway capacity.

On Aug. 16, MEG Energy Corp. president and CEO Derek Evans wrote a letter to the National Energy Board, Canada’s pipeline regulator, to express his opposition to Enbridge’s call for contracts on the Mainline pipeline network, which is Canada’s largest oil pipeline system. “It is MEG’s position that Enbridge’s contract carriage proposal should be abandoned, as it is not in the overall public interest,” Evans wrote.

MEG opposes Enbridge’s call for contracts because it comes as pipeline space is scarce and comes at a premium in Canada, where total oil production currently outstrips pipeline export capacity.

At a minimum, Evans said the contracting of the Mainline should be delayed “until such time as the uncertainty regarding future takeaway capacity from Western Canada has been resolved, so that shippers can make informed decisions regarding available market access options before, in effect, being forced into a (contract).”

The letter states that MEG will oppose Enbridge’s move to contract the Mainline and hints that other companies in Calgary will follow suit.

“MEG also understands that some parties have or may seek to delay the Open Season.”

“We do know we that we have an awful lot of support for what we’re doing,” Enbridge executive vice-president, liquids pipelines, Guy Jarvis said in an interview Monday.

Calgary-based Enbridge, North America’s largest pipeline company, launched an open season for its Mainline network on Aug. 2, calling for oil companies refineries and trading houses to sign contracts on Canada’s largest pipe network, which moves 2.85 million barrels of oil per day from Western Canada to markets in the U.S. Midwest and Central Canada.

Enbridge is trying to contract up to 90 per cent of the space on the Mainline and leave 10 per cent of the system available for shippers on the spot market — almost a complete inversion from the way the network has operated for the past 70 years, as a 100-per-cent “common carrier” or spot market system.

MEG’s letter comes after the Explorers and Producers Association of Canada, which represents small- to mid-size oil and gas companies, similarly wrote to the NEB last month asking for changes to the Mainline be delayed until more pipelines are built.

Enbridge’s Jarvis insists the timing of his company’s move to a contracted system is motivated by regulatory timelines.

“The timeline we’re following is being driven by the fact that our current tolling deal expires on June 30, 2021” Jarvis said, adding this type of regulatory review can take up to 15 months. “We need to get after that now so that we can file this year and have it through the regulatory process and ready to go by July 2021,” he said.

Industry focus on the Mainline has intensified in recent years as Canadian oil production has surged and pipeline companies have struggled – as a result of delays to new pipelines – to keep pace.

In the case of the Mainline, Enbridge has had to apportion space on the system. Space on the lines has become more valuable as a result and some companies have been gaming the system by demanding more pipeline space than they need in the spot market in an attempt to avoid apportionment.



Enbridge has been working to address those issues and also to expand the Mainline.

Jarvis said Enbridge has been working for 18 months to come up with an offering that addresses concerns raised by smaller oil companies and also works within the regulator’s requirement of allowing “open access” to the system. Finding a balance between all of the shippers’ needs has been a challenge, he said.

“We think we’ve done an awful lot to address the concerns of the small producer,” he said, adding the open season allows for shipping commitments as low as 2,200 barrels of oil per month.

Still, he said he’s aware of the criticisms of the offering. “We’re not crazy about the fact that people are raising these concerns but we’re not entirely surprised,” Jarvis said. “I think it stems from the fact that not everybody can get exactly what they want from this process by its nature of creating open access.”

However, some oilpatch executives aren’t convinced the system needs to change from the spot market, and note that the current system – where all of the space on the Mainline system is available to the spot market – has been operating as it is for 70 years.

“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 recent Canadian oil and gas focused podcast by ARC Energy Research Institute.

“We have to be careful we don’t shift all the market power to the buyers and not the producers,” Laut said.

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