HASAN JAMALI
A legal spat has broken out between a trio of Canadian oil heavyweights, as Suncor Energy Inc. and Imperial Oil Ltd. try to force Enbridge Inc. to give them a break on pipeline rates into the U.S.
In starkly worded legal filings with the U.S. Federal Energy Regulatory Commission, the two oil companies call Enbridge "imprudent" for building its 1,600-kilometre Alberta Clipper pipeline at a time when it wasn't needed. The $1.1-billion (U.S.) line will be ready this year to transport oil from Alberta to Wisconsin.
But Suncor and Imperial have together filed nearly 500 pages in legal documents asking the U.S. regulator to prevent Enbridge from collecting Clipper pipeline tolls - essentially forcing the company to carry the entire Clipper construction and operating cost, without being able to charge interest - until Enbridge can prove that it is needed.
That prompted an irritated response from Enbridge chief executive officer Pat Daniel, who told analysts on a Wednesday morning conference call that the oil companies' request is "without merit."
"We don't think there is any basis for the action," said Mr. Daniel, who pointed out that the Canadian Association of Petroleum Producers agreed to a toll agreement in 2007, and that that agreement was approved by U.S. regulators in August, 2008. That same month, Enbridge began construction of the U.S. portion of Clipper.
The dispute has arisen from a major issue confronting the oil sands over the next few years: in the frenzy of the boom that ended in 2008, companies signed contracts for a huge amount of pipeline capacity. Years later, those pipelines are getting ready to accept oil - but the projects that were supposed to feed that crude have been delayed or cancelled.
The problem is severe enough that Chad Friess, an analyst with UBC Securities, estimates fully 41 per cent of the expected pipeline capacity into the United States will stand empty by 2013. While pipeline operators typically like to leave about 15 per cent of their capacity open to respond to changing market demands, it could take a decade to fill the excess, Mr. Friess has estimated.
That, in turn, could dramatically add to the cost of sending crude to the U.S., the destination for most oil sands growth. Enbridge has estimated that between Alberta Clipper and Keystone XL, another major U.S.-bound pipeline that TransCanada Corp. is seeking to build, the cost of sending oil south could increase by $315-million in 2013.
The increase would come because Enbridge is entitled to a certain rate of return on its pipelines. If Keystone XL takes away volume from the Enbridge system, the amount charged on oil still shipped with Enbridge could rise as much as 75 cents per barrel, the company has said.
Although that's hardly enough to sink an oil sands project, since crude prices often vary that much in a day, it's a substantial increase. The current average cost to ship a barrel of oil from Edmonton to Wood River, Ill., is $3.25 - and Wood River is 1,000 kilometres farther away than Clipper's Superior, Wisc., destination.
Suncor and Imperial have argued that the Canadian Association of Petroleum Producers slashed its 2011 oil sands output forecast by 800,000 daily barrels before Enbridge started construction on Clipper. Enbridge, the companies argue, should have known better than to build a pipeline that would not be needed.
"In the face of mounting evidence of changed circumstances, Enbridge continued to incur costs for the project," Imperial argued in its filing. "Now, in the next few months, it is anticipated that Enbridge will be asking shippers to pay for the costs of a project that under existing circumstances fails to provide the contemplated benefits to shippers at the present time or even well into the future.
"The commission, in determining just and reasonable rates for Alberta Clipper, should take into account Enbridge's imprudence."
Mr. Friess, however, doubts Suncor and Imperial will succeed, especially since Clipper is already largely built.
"This is pretty late in the game to start complaining," he said. "You can't just come back and say, 'We don't want to pay the tolls because we didn't ramp up production as fast as we thought.' It seems a bit silly and unnecessary. It's not as though they're not making money."