Enbridge asking for eight-year contracts to move crude on Mainline network
In an exclusive interview with Reuters, insiders have stated that Enbridge is asking oil shippers to sign at least eight-year contracts to move crude on its Mainline pipeline network, as it proposes to shift away from a monthly allocation system.
The minimum term Enbridge Inc is seeking, previously unreported, is raising fears among small Canadian producers that they will lose out to bigger players, at a time when pipeline congestion has damaged the energy sector’s outlook.
Three sources with knowledge of the confidential talks confirmed the minimum term with Reuters. Enbridge has previously disclosed that the maximum term is 20 years under a plan that still requires approval from Canada’s National Energy Board.
The company declined, in an email, to confirm the minimum term it is seeking, saying it is commercially sensitive information.
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Locking shippers into long-term contracts offers Enbridge a chance to capitalize on delays to competitors’ plans to build pipelines, and secure future cash flow at a time when anxiety about market access is dominating headlines. The Alberta government took the rare step in January of ordering oil production cuts to boost prices.
Canada is the world’s fourth-largest crude producer but a shortage of pipeline capacity has contributed to an exodus of $20 billion in foreign capital from Alberta’s oil sands since 2017.
Under the proposed Mainline changes, producers fear being out-bid by oil sands majors such as Canadian Natural Resources Ltd and Suncor Energy Inc.
“If there is lack of pipe capacity, obviously the pipelines are in control and can dictate terms,” Chief Executive Rob Morgan of Cona Resources Ltd, which produces up to 15,000 barrels of oil equivalent per day in Saskatchewan, told Reuters.
The length of commitments is the biggest concern for small producers, Morgan said.
Enbridge spokesman Jesse Semko told Reuters Enbridge hopes to meet the needs of all industry participants, but added that small producers account for an “extremely small” percentage of Mainline volume.
Semko said Enbridge has been engaging with the industry about the Mainline for more than a year, offering flexibility on both terms and volume.
He said Enbridge anticipates holding a 60-day bidding period (an open season) starting in July.