Enbridge reverses latest attempt to relieve pipeline bottlenecks

Enbridge Inc. has scrapped changes aimed at curbing overbooking of capacity on its mainline pipeline after shippers balked at the proposed new rules.

The interim measures were designed to ease chronic congestion on the Calgary-based pipeline giant’s mainline transportation system that has played a role in the deep discounting of Canadian crude prices. The mainline carries the bulk of Canadian oil exports to the United States.

Enbridge made the hasty retreat after a backlash from shippers against the new rules, which would have involved a major overhaul to the way producers and other players reserve space on the Alberta-to-Wisconsin network.

Prices for oil-sands-derived crude rose sharply, reflecting relief at Enbridge’s reversal, a trading industry source said. The discount on heavy Western Canadian Select oil nearly halved against U.S. benchmark West Texas Intermediate crude and on Tuesday fetched US$14.50 under WTI, according to broker Net Energy Inc.

Still, the sudden turnabout by Enbridge is a window into long-running attempts by the company to relieve bottlenecks on the 2.85-million-barrel-a-day mainline that have weighed heavily on prices for the extra-heavy crude.

Tight export capacity has plagued shippers for years, with deliveries of crude regularly curtailed during periods when monthly orders to ship oil – known as nominations – top capacity.

While the company says its pipelines are chock full, it has privately expressed concerns about “air barrels” – industry jargon for bookings that exceed shippers’ ability to move oil. It’s a way to game the system so companies maximize deliveries, but it also forces Enbridge to institute heavy apportionment on the system, under which all shippers see bookings reduced.

Last month, Enbridge told customers that it would introduce a “verified supply allowance” that would require physical proof of volumes if bookings exceeded set allotments.

The proposal was shelved Monday with little explanation.

The change had angered smaller oil producers and major trading houses that also ship crude on the mainline, alongside some of Canada’s largest oil companies, two trading industry sources said.

It followed earlier tweaks the company rolled out aimed at improving the accuracy of bookings – moves it said did not have the intended effect.

“Enbridge is concerned that shippers may be continuing to inflate their nominations to vie for space on the mainline in the face of significant apportionment,” the company said in a notice to shippers last month justifying the proposal, which would have impacted volumes starting next month.

“This continued overnomination of supply leads to potential underutilization of the Enbridge mainline system, all at a time when pipeline capacity out of Western Canada is in extremely high demand.”

Trent Tetzlaff, manager of supply and western scheduling with Enbridge, said the company would talk to shippers in coming weeks “to discuss options to address the problem of continued overnominations,” according to a notice sent Monday to customers.

Enbridge and its pipeline rivals have proposed billions of dollars’ worth of new pipelines to boost export capacity to Canada’s West Coast, the U.S. Midwest and Texas.

But several projects are mired in litigation and have been targets of environmental and political opposition, leaving the industry fighting over limited space on existing lines.

The industry is keenly awaiting a decision expected this month from Minnesota’s Public Utilities Commission on the fate of Enbridge’s massive Line 3 oil pipeline expansion.

Enbridge has argued the $9-billion project to restore capacity on an existing line between Alberta and Wisconsin to 760,000 barrels a day, from a little over half that level today, would help ease bottlenecks on its system.