Enbridge, shippers at odds over "air barrel" relief

Fri Nov 23, 2012 4:22pm EST
 
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By Jeffrey Jones

CALGARY, Alberta (Reuters) - Enbridge Inc and its crude oil pipeline customers are battling over a plan by the company to try to cut the over-booking of capacity on the massive export network that has played a role in the deep discounting of Canadian crude prices.

The dispute is the latest symptom of an oil pipeline network running ever closer to capacity as production from the Canadian oil sands and North Dakota Bakken surges and expansion plans get bogged down by regulatory delays and environmental opposition.

Under the proposal, which is taking flak from some of the world's largest oil companies, Enbridge wants to shift how it calculates the amount of crude its shippers can nominate on the pipelines each month to a new system based on the capacities of refineries, which it would verify itself.

Since Enbridge's devastating oil spill in Michigan in the summer of 2010, which shut a major line between Indiana and Sarnia, Ontario, for several months, shippers have based nominations on the highest monthly volume they have moved to refining facilities in the U.S. Midwest and Ontario over the previous two years. That system was expected to be temporary.

According to documents filed with the U.S. Federal Energy Regulatory Commission, Enbridge's change is aimed at eliminating "air barrels" -- industry slang for nominations above shippers' ability to move oil. It is a way of gaming the system so companies get as much crude as possible to refineries.

"It's just a more efficient use of space on the system. It's a better, more viable way to confirm nominated volumes. It allows the customers to nominate volumes that reflect their facility capacity," spokesman Graham White said.

Big shippers, including Imperial Oil Ltd, Exxon Mobil Corp, Suncor Energy Inc, Marathon Petroleum Corp and Phillips 66, have all filed motions with the regulator in protest, arguing that it would give the pipeline company too much discretion to allocate capacity without giving the shippers recourse.

Enbridge and its rivals have proposed billions of dollars worth of new pipelines to Canada's West Coast, Quebec and to Texas. Enbridge has also proposed expanding much of its system in the U.S. Midwest. But for now, the industry must deal with the existing pipeline network as production rises.   Continued...