April 6, 2020 / 5:36 PM / 4 months ago

Enbridge running Mainline with unused space as Canada oil cuts deepen

WINNIPEG, Manitoba/TORONTO (Reuters) - Enbridge Inc (ENB.TO) is running North America’s biggest oil pipeline network, the Mainline, with unused capacity as Canadian producers cut output because of the spread of the coronavirus and low prices, a senior executive said on Monday.

The spare capacity points to mounting distress for the western Canadian province of Alberta and its already strapped energy industry as measures to contain the fast-spreading respiratory virus pummel North American oil demand.

“Right now we’re going to see as much production turned down as possible in western Canada,” Vern Yu, Enbridge’s executive vice president of liquids pipelines, said in an interview.

He declined to say how much space the Mainline had, but Alberta Premier Jason Kenney said last week it was running with 150,000 barrels per day of unused room.

Canada, the world’s fourth-largest crude producer, could curtail as much as 1.7 million barrels per day, or a third of the country’s total output, as U.S. refineries idle capacity and rising production tests storage limits, according to Royal Bank of Canada analysts.

The Mainline, Canada’s longest oil pipeline system, has capacity for nearly 3 million barrels per day, moving western Canadian oil to U.S. refiners.

Enbridge plans to sell 90% of the Mainline’s space under long-term contracts to shippers rather than continue to ration space monthly. The move, intended to take effect in mid-2021, requires approval from the Canada Energy Regulator (CER).

Enbridge has said 13 shippers, mainly those with U.S. refineries, representing 70% of current Mainline volume, support its proposal.

Despite the oil market collapse, Yu said Enbridge had received no requests from customers to revisit shipping terms and the process remained on track.

Canadian Natural Resources Ltd (CNQ.TO), MEG Energy Corp (MEG.TO) and other major producers have asked the regulator, however, to postpone any hearings on the switch to firm contracts, citing strain on the industry caused by the coronavirus pandemic, a CER spokeswoman said.

Yu said in February the best-case scenario for its proposed Line 3 replacement project was to obtain all permits needed in Minnesota in time to start construction in summer. Construction of the long-delayed Line 3, which is part of the Mainline, would take six to nine months, he said.

“We’ll have to reassess once we have the permits on what’s a reasonable construction time frame given what may or may not be there as far as physical distancing restrictions,” he said on Monday.

Reporting by Jeff Lewis in Toronto and Rod Nickel in Winnipeg, Manitoba; Editing by Richard Chang and Peter Cooney

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