Enbridge signs tolling deal with shippers for Mainline pipeline system

Enbridge Inc. says it has reached a deal with shippers for tolling on its Mainline pipeline system, which moves over three million barrels a day of crude oil and liquids from Western Canada.

The announcement Thursday is a major milestone for the Calgary-based pipeline company, which has been negotiating with oil shippers on a new tolling agreement ever since its proposal to fill Canada's largest oil pipeline network through long-term contracts was rejected by the Canada Energy Regulator in November 2021.

Enbridge CEO Greg Ebel said the settlement has been approved by the company's board of directors and received "overwhelming support" from a 37-member industry stakeholder group that included producers, refiners, integrated companies, industry agencies and governments.

"This settlement is a win-win-win — customers will continue to receive competitive and responsive service; Enbridge will earn attractive risk-adjusted returns; and the Mainline will continue to feed North America and global markets with a long-term source of safe, secure, and affordable energy," Ebel said in a release.

The agreement also positions Enbridge to remain competitive going forward as additional export capacity comes online — in particular the Trans Mountain pipeline expansion, which is expected to be complete later this year.

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Colin Gruending, Enbridge's executive vice-president and president of liquids pipelines, told reporters the Mainline pipeline — which is currently operating at full capacity — could drop to 95 per cent capacity after the addition of the Trans Mountain expansion.

But he said he is confident that the Mainline will continue to be highly utilized.

"The TMX toll is probably going to be higher, which makes our system more competitive," Gruending said. "Our toll will be a bit lower."

Enbridge's Mainline is Canada's largest oil pipeline system, providing about 70 per cent of the total oil pipeline transportation capacity out of Western Canada.

The pipeline's demand has exceeded capacity over the past few years, so Enbridge had applied to enter into long-term contracts for 90 per cent of the Mainline system's capacity.

Enbridge had argued firm contracts would give customers more predictable access to the pipeline, but some Canadian oil producers argued the proposed change would worsen the existing capacity constraints and could lead to lower oil prices.

In rejecting the proposal in 2021, the Canada Energy Regulator concluded Enbridge's proposal would dramatically change access to the pipeline. It said certain companies would benefit from long-term stability, but others would lose access to the pipeline.

Enbridge said Thursday the new settlement covers both the Canadian and U.S. portions of the Mainline system and will provide customers with a stable, competitive toll relative to competing alternatives.

The agreement also includes a financial performance collar providing incentives for Enbridge to optimize throughput and cost, but also providing downside protection in the event of extreme supply or demand disruptions.

Enbridge said it expects to jointly finalize the settlement with industry and submit an application for approval to the Canada Energy Regulator in the third quarter.

It expects the new tolling settlement could be approved and implemented later this year. The settlement term is seven-and-a-half years, lasting through 2028.

Settlement removes uncertainty, says analyst

RBC analyst Robert Kwan said the settlement agreement removes the uncertainty that had been associated with the drawn-out negotiations.

That view was echoed by Tim McKay, president and CEO of Canadian Natural Resources Ltd., Canada's largest oil and gas producer.

"What's positive is the parties have got together and agreed on a fair toll agreement," McKay said on that company's quarterly earnings call Thursday.