Canada’s second largest oil producer has called for a halt to conversion of the Enbridge Inc. Mainline to long-term delivery contracts from monthly bookings, saying the plan takes unfair advantage of limited pipeline capacity.
“Enbridge has created and exacerbated the ‘market panic’ that is informing the approach of shippers to the open season,” Suncor Energy Inc. said in a complaint filed with the National Energy Board (NEB) of the contract sale that was launched earlier this month.
Suncor joins other companies represented by the Explorers and Producers Association of Canada (EPAC) that have asked for the contract sale to either be canceled or suspended.
“Such a fundamental change is alarming” and would have “dire consequences” on pipeline access and oil prices, according to EPAC, which filed at the NEB on behalf of 170 members that produce about 500,000 b/d.
Suncor alone produces roughly 684,000 b/d, second only to Canadian Natural Resources Ltd.’s 777,000 b/d.
But the chronic shortage of delivery capacity out of the Western Canada Sedimentary Basin puts the pipeline in a stronger bargaining position, according to Boston-based Brattle Group, which was commissioned by Suncor to conduct a review of the matter.
Enbridge’s Mainline and Express Pipeline dominate Canadian long-distance oil pipeline service with capacity for 3.1 million b/d. The pair own 72% of the 4.4 million b/d of capacity available, including railways, according to the Brattle report.
Both Enbridge routes are holding open seasons for delivery contracts lasting up to 20 years. The Mainline plan would cut capacity available for monthly bookings to 10%. Suncor and EPAC indicated that sales have triggered an industry-wide scramble for service.
The Alberta government highlighted the Canadian pipeline capacity shortage with an announcement Aug. 20 that provincial production quotas, to prop up prices, have been extended for a year until the end of 2020. The government calculates Alberta production capacity exceeds pipeline space by 150,000 b/d.
Suncor describes Enbridge’s service conversion as an attempt to guarantee payment of more than C$150 billion ($112 billion) in Mainline tolls that the western Canadian oil industry is forecast to generate over the next two decades.
The conversion would shift risks of oil traffic interruptions or declines from the pipeline over to shippers, Suncor said. Contract service, unlike monthly bookings, has a rent-like feature that charges tolls for committed capacity during periods of reduced use.
“The legal and fair process would be for Enbridge to first apply to the Board for approval of the proposed conversion to contract carriage,” Suncor said. “Parties could contest the Enbridge proposal without having first made irrevocable, binding contractual commitments and associated upstream and downstream commercial arrangements.”
Enbridge did not immediately respond after Suncor filed its complaint Friday. Unless the open-season contract sale is voluntarily suspended, the NEB is expected to request an Enbridge explanation and consider holding an inquiry into the contested delivery service conversion.