Enbridge faces regulators in Canada, U.S. over plans to expand oil pipeline network

Enbridge faces off with regulators in Minnesota over Line 3 just as it grapples with complaints over changes to overhaul its Mainline

CALGARY – North America’s largest pipeline company is entering a critical stretch of regulatory proceedings in Canada and the U.S. that will affect Enbridge Inc.’s ability to expand its oil pipeline system.

Many Enbridge customers filed letters with the Canada Energy Regulator commenting on the company’s plans to implement new contracts to overhaul its Mainline system, which moves 2.85 million barrels of oil per day out of Canada.

“The biggest thing, really, is up and coming,” Enbridge chief executive Al Monaco said at a CIBC investor conference Thursday, referring to the company’s face-off early next week with regulators in Minnesota over its Line 3 project.

Both projects are a key part of the company’s growth plans.

Monaco at the CIBC event said the new contracts would establish “a commercial model for the Mainline that will help unlock more capacity,” meaning Enbridge would be better able to expand the system if shippers agreed to sign contracts on the network’s six pipelines.

“Once you’ve got the contracting structure in place, then you know the economics for expansion,” Monaco said, adding he believes that expanding the system would benefit the broader Canadian oilpatch.

Canadian oil producers, however, have been staunchly opposed to Enbridge’s plan, saying the Calgary-based company is abusing its market power at a time when all other pipeline options are full, thereby forcing them to sign new Mainline contracts or lose what limited pipeline capacity they have.

Dozens of oil producers and refiners filed letters with the Canada Energy Regulator ahead of Thursday’s deadline voicing their concerns or their support for the re-contracting process, which has divided the Canadian oilpatch and even some U.S. refining companies.

Flint Hills Resources LLC, an oil terminal and refining conglomerate owned by the Koch brothers, filed a letter expressing its support for Enbridge’s plan and urged the regulator to proceed “as quickly as practicable” with a hearing on the process.

But Houston-based refiner Phillips 66 Co. expressed concerns and asked for a “comprehensive review.” The company also expressed its support for a request made by Canadian Natural Resources Ltd., which has vocally opposed Enbridge’s plans, for the regulator to conduct a two-step hearing.

CNRL, Canada’s largest oil and gas producer by volume, this week asked for the regulator to first determine whether any form of contracting should be allowed on the Mainline, then conduct a comprehensive hearing on the merits of Enbridge’s proposal.

On Thursday, Suncor Energy Inc., Canada’s largest oil and gas producer by market capitalization, also expressed its opposition to Enbridge’s plan.

In Suncor’s letter filed Thursday, Blakes, Cassels & Graydon LLP partner Katie Slipp argued that “Enbridge possesses market power” and its plan to convert the Mainline from a system that is 100-per-cent available to the spot market into a system that’s 90-per-cent contracted — leaving 10 per cent available to the spot market — represents “an exercise of that market power.”

Monaco at an investors’ conference in Banff on Thursday said the Canadian oil and gas industry is frequently divided over policy questions, so “it’s not surprising we’re seeing a little bit of noise.”

Enbridge said new contracts will help expand its ability to move oil out of Western Canada, and the pipeline giant is also in the process of completing a major pipeline project called the Line 3 replacement, which will expand Canadian oil shipments to the U.S. Midwest.

Line 3 will carry 390,000 barrels of oil per day across the Prairie provinces to Wisconsin, but the project has been delayed in Minnesota, which on Monday will hold a hearing to deliberate any changes to the project following a lengthy appeal process.

“Monday is the key timing for this,” Monaco said, adding Enbridge is hoping to begin building the Minnesota portion of the line this year.

Since Canadian pipelines are currently full of oil, and companies are increasingly moving their barrels on train cars, completing pipeline projects is key to securing new investment in the domestic oil and gas sector.

On Wednesday, Teck Resources Ltd. chief executive Don Lindsay said his Vancouver-based mining company would only proceed with its $20.6-billion, 260,000-bpd Frontier oilsands mine if it could checklist its three Ps: pipelines, joint-venture partners and oil prices.

“Frontier is anybody’s guess what the federal government is going to do,” Lindsay said, noting that Ottawa has a February deadline to make a decision on approving the mega oilsands mine.

Oil prices have been under pressure in recent days, largely due to the outbreak of the coronavirus in China. The West Texas Intermediate oil benchmark price fell more than two per cent midday Thursday to reach US$52.16 per barrel, its lowest level since August 2019.

Despite uncertainty about Frontier and oil prices, the Canadian oil and gas sector is expected to enjoy new investment in 2020 after years of capital flight, according to a report by the Canadian Association of Petroleum Producers.

CAPP on Thursday projected that capital spending in the industry is expected to be $2 billion higher next year, representing a six per cent increase overall to $25.4 billion.

“We are very happy to see an increase in capital investment expected for 2020. It’s a reflection of the hard work and determination on many fronts to bring the industry into a more competitive position,” CAPP chief executive Tim McMillan said in a release.

Financial Post

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