Canadian oil firms face toll hikes if they win their fight against Enbridge Inc.’s plan to convert its Mainline into a contract service from a common carrier filled by monthly bookings, the company told the Canada Energy Regulator (CER).
“Risk of loss of volumes, and the potential for a tolling spiral, clearly support doing all that can reasonably be done to secure long-term commitments for service on the Mainline,” said a CER filing by Enbridge.
The Calgary pipeline conglomerate said evolving competition and common carrier cost-of-service regulation create prospects of toll inflation. The 70-year-old Mainline delivers about 3 million b/d, which is two-thirds of Canadian production.
The common carrier regulatory regime allows pipelines to preserve revenue by raising tolls if their traffic drops. New contract service lines now under construction, the Trans Mountain expansion and Keystone XL, are liable to drain off Mainline flows, Enbridge said.
Total excess pipeline egress from the Western Canada Sedimentary Basin was estimated at 1.2 million b/d if the new projects hit their 2023 completion targets, said Enbridge.
Although public health emergency measures amid the Covid-19 pandemic cut Canadian oil flows by an estimated 25%, a standing agreement with shippers limited a 2020 Mainline toll increase to C18 cents/bbl (13 cents) or 3.9%. The agreement expires in mid-2021.
Enbridge’s new CER filing is the latest salvo in a prolonged regulatory fight in the Canadian oil and gas industry. The contest is scheduled to continue through April 21, 2021, in a series of formal information and argument exchanges. Opponents of the Mainline contract service conversion have an August deadline for filing their cases.
The CER halted a mid-2019 open-season sale of contracts lasting up to 20 years for 90% of Mainline capacity. The intervention followed complaints that the sale was an abuse of market power from Suncor Energy Inc., Canadian Natural Resources Ltd., Shell Canada and the 170-company Explorers and Producers Association of Canada.
More than 120 firms are on the Mainline shipper roster. However, a handful of big refiners and integrated corporations with operations from wells to retailing account for about 88% of the pipeline flows, according to Enbridge.
The case for the contract service conversion includes support letters from 13 shippers that Enbridge said account for more than 70% of Mainline traffic, including Imperial Oil and Cenovus Energy in Canada and Lyondellbasell and Citgo Petroleum in the United States.
Enbridge said the Mainline’s dominant role in Canadian oil traffic “does not preclude moving forward with innovative proposals to address prospective risk and to better meet shipper interests in new services. If anything, it is more important for the large service providers in the market to be proactive and to avoid risks of a loss of throughput and to protect the financial viability of the pipeline.”
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