Enbridge eyes long-term deals on biggest oil pipeline

Bloomberg

Enbridge Inc. plans to overhaul its system of awarding space on the biggest pipeline carrying Canadian oil to US refiners.
Canada’s largest pipeline operator wants to contract 90 percent of the capacity on its 2.85 million-barrel-a-day mainline system by signing long-term deals with potential shippers in an open season early next year, according to people familiar with the matter.
The so-called take-or-pay agreements will begin January 2020, assuming the company gets necessary approvals from the nation’s regulators. This would effectively displace Enbridge’s current system of operating the mainline as a common carrier, where anyone can seek to ship crude on the line. It
represents Enbridge’s latest attempt to more efficiently transport Canadian crude south of the border and solve a years-old problem of shippers gaming its nomination process by requesting space for more barrels than they actually have.
“In a take-or-pay system, a company commits to making a payment for a fixed volume for a fixed term, regardless of whether you use it,” Kevin Birn, a director on the North American crude oil markets team at IHS Markit, said. “It can provide a midstream company like Enbridge greater financial security.”
The changes may help better allocate space at a time when Canada is severely lacking in pipeline capacity to the US. The acute shortage has pressured heavy Canadian crude to the weakest level in more than four years. Enbridge’s mainline system has been consistently oversubscribed this year.
The process of having long-term shippers on a pipeline is commonplace among US and other Canadian pipelines, but the system could sideline small users and favour larger companies such as Chicago-area refiners that take the lion’s share of Canadian oil.
Enbridge has for years tried to improve its nomination system to eliminate so-called “air barrels,” an industry term used for nominations above a shipper’s ability to transport that oil. The practice is used as a way to ensure that companies can get as much space on a pipeline.