No Promises - How Will Rejection of Enbridge's Plan for Mainline Contracting Affect Crude Oil Flows?

Late last month, the Canada Energy Regulator (CER) ruled against Enbridge’s proposal to convert as much as 90% of the capacity on its multi-pipeline, 3-MMb/d Mainline crude oil system to long-term contracts. The CER’s action leaves in place the Mainline’s current capacity-allocation process, under which every barrel-per-day of the pipeline system’s capacity is open to all shipping customers on a month-to-month basis. Although the rejection of Enbridge’s proposal is unlikely to change the volume of Western Canadian crude oil flowing on the Mainline over the next few months, the longer-term outlook for Mainline flows is less certain given that other, competing pipeline capacity out of Alberta will be coming into service by late 2022 or early 2023. In today’s RBN blog, we examine the decision to reject long-term contracting and what might be the next steps for Enbridge.

The nearly relentless rise in Western Canadian crude oil production over the past decade or more has been both a blessing and a curse. A blessing in that — despite some wild fluctuations in prices over the years — investment, jobs and export revenue have grown, pushing Canada into the ranks of the Top 5 oil-producing countries in the world. A curse in that exporting ever-increasing volumes of crude oil has created never-ending regulatory and legal challenges for midstream companies and often forced takeaway-constrained producers to sell their crude at steeply discounted prices.

The region’s largest existing crude oil export conduit, an array of pipelines known collectively as the Enbridge Mainline (orange lines in Figure 1), handles about 70% of all the crude oil shipped from Western Canada by pipeline into the U.S. Midwest. The system’s parallel Lines 1, 2, 3, 4 and 67 transport a variety of heavy and light crude oil as well as NGLs from Edmonton and Hardisty, AB, to Clearbrook, MN, and Superior, WI. From there, other Mainline pipes move crude to the Flanagan hub in north-central Illinois (Line 61), the Chicago area (Lines 6, 14 and 64), Michigan (Lines 5 and 78) and Ontario (Lines 5, 7, 10, 11 and 78).

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