WINNIPEG, Manitoba/CALGARY, Alberta, May 7 (Reuters) – Enbridge is asking oil shippers to sign at least eight-year contracts to move crude on its Mainline pipeline network, as it proposes to shift away from a monthly allocation system, people with knowledge of the matter told Reuters.
The minimum term Enbridge Inc is seeking, previously unreported, is raising fears among small Canadian producers that they will lose out to bigger players, at a time when pipeline congestion has damaged the energy sector’s outlook.
Three sources with knowledge of the confidential talks confirmed the minimum term. Enbridge has previously disclosed that the maximum term is 20 years under a plan that still requires approval from Canada’s National Energy Board.
The company declined, in an email, to confirm the minimum term it is seeking, saying it is commercially sensitive information.
Locking shippers into long-term contracts offers Enbridge a chance to capitalise on delays to competitors’ plans to build pipelines, and secure future cash flow at a time when anxiety about market access is dominating headlines. The Alberta government took the rare step in January of ordering oil production cuts to boost prices.
Enbridge has said plans to contract out Mainline space long-term will increase its efficiency, but small producers fear being out-bid by oil sands majors such as Canadian Natural Resources Ltd and Suncor Energy Inc .
“If there is lack of pipe capacity, obviously the pipelines are in control and can dictate terms,” said Chief Executive Rob Morgan of Cona Resources Ltd, which produces up to 15,000 barrels of oil equivalent per day in Saskatchewan.
Enbridge spokesman Jesse Semko said Enbridge hopes to meet the needs of all industry participants, but added that small producers account for an “extremely small” percentage of Mainline volume.
(Reporting by Rod Nickel in Winnipeg, Manitoba and Nia Williams in Calgary, Alberta Additional reporting by Devika Krishna Kumar in New York; Editing by Denny Thomas and Lisa Shumaker)