It’s a challenging time to be active in the crude oil market in Western Canada. Barrels are selling at a huge discount to domestic U.S. benchmarks, there is major uncertainty surrounding most new pipeline projects and crude-by-rail opportunities, and Alberta officials are unsure how long to maintain caps on production. As a result, the Canadian market is wildly volatile. It seems like a piece of the fundamentals equation changes on a weekly basis, which makes it next to impossible for producers, shippers, refiners — or anyone else really — to make long-term decisions and plan for the future. And now, the Enbridge Mainline pipeline system is asking folks to do just that: sign up for multi-year take-or-pay contracts on Western Canada’s biggest takeaway system, or risk leaving barrels stranded for who knows how long. Some market players aren’t buying in. In today’s blog, we recap the recent protests of Enbridge’s plan and examine what might be driving the decisions of Canada’s biggest oil companies.
Earlier this year, we wrote a four-part blog series on proposed changes to Enbridge’s Mainline pipeline system (Figure 1), which transports 2.8 MMb/d of Western Canadian crude oil from Edmonton and Hardisty, AB, to Clearbrook, MN, and Superior, WI, and points beyond. Mainline is the largest crude pipeline system in Canada and accounts for about 70% of Western Canada’s total export-related pipeline capacity. The Mainline system provides access to a number of downstream pipelines, like Flanagan South and Spearhead to Cushing, OK, and into the Patoka hub in Illinois. Patoka is an especially interesting connection point right now, given that it’s the northern end of the soon-to-be-reversed Capline pipeline.