MEG Energy urges halt to Enbridge pipeline plan

LETTER TO NEB

CALGARY • Oilsands producer has written to the federal energy regulator to oppose pipeline company Enbridge Inc.’ s plan to introduce long-term fixed volume contracts on its Mainline system.

MEG’s open letter to the National Energy Board, filed Friday, makes it the largest producer so far to call for Enbridge to scrap its Mainline plan.

The 2.85-million barrel per day Mainline is a crucial conduit for Canadian producers exporting crude to the U.S. Enbridge’s plan to switch from a monthly nomination system to “contract carriage” comes as Canadian export pipelines are so constrained the Alberta government has imposed oil production curtailments, and has drawn fierce criticism from small producers.

“It is MEG’s position that Enbridge’s contract carriage proposal should be abandoned, as it is not in the overall public interest,” the letter signed by MEG’s CEO Derek Evans said.

Enbridge did not immediately respond to a request for comment. The pipeline company launched a two-month open season to solicit bids for contracted space on 90 per cent of the Mainline on Aug. 2. Under the current monthly nomination system, demand to ship on the Mainline regularly exceeds capacity, forcing Enbridge to ration, or apportion, space.

MEG, which produces 90,000 bpd at its Christina Lake project in northern Alberta, is worried the changes will prevent it from meeting previous commitments to ship crude to the Gulf Coast.

Smaller producers are concerned large U.S. refiners like BP PLC will snap up most of the contracted capacity, leaving them scrambling to secure space on the smaller slice of the pipeline open for spot volumes.

ARC Energy Research Institute analyst Jackie Forrest said the 10 per cent of the Mainline left open for spot shipping would likely be heavily rationed, resulting in more barrels getting stranded in Alberta each month and being sold off cheaply.

“If you shrink spot to 300,000 bpd you are going to see that space be many many times over-allocated,” Forrest said. “As the level of apportionment increases, the level of (price) discount increases.”

Reuters