Canada Regulator Stops Enbridge Mainline Contract Plan

CALGARY, Alberta (Reuters) — The Canada Energy Regulator on Friday stopped Enbridge Inc from auctioning the right to send crude oil through its Mainline pipeline system due to the “perception of abuse of Enbridge’s market power.” 

Major oil companies in Canada, including Suncor Energy, have been protesting Enbridge’s plans to switch to longer-term contracts from monthly agreements.

They and smaller producers complain that Enbridge’s position as the dominant pipeline company in Canada, where oil producers have been forced to cut output due to a lack of shipping capacity, gave them too much power.

In a highly unusual decision, the regulator agreed, saying Enbridge will not be allowed to offer contracted space on the Mainline to shippers until the regulator approves of the terms. Typically the regulator approves or denies a pipeline tolling application after the bidding has finished.

The CER noted Enbridge’s control of much of the pipelines out of western Canada, the lack of alternatives for oil shippers and the “considerable opposition” to the open season.

“The Commission has concerns regarding the fairness of Enbridge’s open season process and the perception of abuse of Enbridge’s market power,” the CER said.

The nearly 3 million barrel-per-day Mainline is North America’s largest pipeline system and carries the bulk of Canadian crude oil exports to the United States.

A number of producers, including Canadian Natural Resources Ltd and Suncor, wrote to the CER in August, urging the regulator to intervene and protesting the conditions offered by Enbridge.

Jackie Forrest, director of research at the ARC Energy Institute, welcomed the “unprecedented” decision given the scale of producer opposition to Enbridge’s plan.

“These were very unique circumstances where you had producers who represented 2.7 million bpd of production very concerned that the proposal did not meet regulatory requirements for open access,” she said.

Calgary-based Enbridge negotiated with shippers for commitments on Mainline for 18 months before launching a two-month bidding period in August.

“Enbridge remains committed to moving ahead with contract carriage on the Mainline and has strong support for our offering. We will evaluate this decision and the next steps that we will take towards implementing contract carriage,” Enbridge spokesman Jesse Semko said in a statement.

Canadian producers Cenovus Energy and Imperial Oil, as well as some large U.S. refiners, spoke out in favor of the Mainline overhaul, arguing it would give more certainty on shipping capacity.

Canada holds the world’s third-largest crude reserves but years of regulatory delays and environmental opposition have stymied development of new export pipelines, contributing to falling capital investment and slowing growth in the oil sands.

This year the government of Alberta, Canada’s main oil-producing province, introduced production curtailments to ease congestion on pipelines.

Industry sources said the decision was a blow to Enbridge, but not entirely surprising given the scale of opposition to the Mainline overhaul.

“Back to the drawing board for them,” one trading source said.

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