contract carriage

Enbridge’s proposal to have crude oil shippers on its now fully uncommitted Mainline sign long-term contracts for as much as 90% of the 2.9-MMb/d pipeline network’s capacity is a big deal — and controversial. Refiners and integrated producer/refiners generally support the plan, which is now up for consideration by the Canada Energy Regulator, while Western Canadian producers with no refining operations of their own — and, for many, no history of shipping on the Mainline — mostly oppose it. What’s driving their contrasting views? It’s complicated, of course, but what it really comes down to is that everyone wants to avoid what they see as a bad outcome. Refiners and “integrateds” fear that if the current month-to-month approach to pipeline space allocation remains in place, cost-of-service-based tariffs on Mainline will soar when new takeaway capacity is built on the Trans Mountain and Keystone systems and fewer barrels flow on Mainline. Producers, in turn, are wary of making multi-year, take-or-pay commitments to Enbridge if they’ll soon have other takeaway options, and are equally concerned that they’d be left in the lurch if they don’t commit to Mainline and the Trans Mountain Expansion and Keystone XL projects don’t get built. Today, we consider both sides of this important debate.

Up in Canada, there is finally a regulatory timeline for reviewing Enbridge’s long-standing proposal to revamp how it allocates space — and charges for service — on the company’s 2.9-MMb/d Mainline. But the plan to convert the largest crude oil pipeline system out of Western Canada from one whose space is 100% uncommitted and allocated every month to one with 90% of its capacity locked in via long-term contracts remains controversial, especially among producers. Plus, the world has changed in the past few months. Oil sands and other production in Alberta and its provincial neighbors is off sharply in response to pandemic-related demand destruction and low oil prices, and the always-full Mainline has been running at well under 90% of its capacity lately. Further, the Trans Mountain Expansion and Keystone XL projects — competitors to the Mainline in a way — have progressed this year, making shippers wonder whether to lock in capacity on the Mainline if TMX and KXL’s completion may be imminent. Today, we begin a short series on the prospective shift to a contract-carriage approach on the primary conduit for heavy and light crudes from Western Canada to U.S. crude hubs and refineries.