Overbooked Enbridge seeks new shipper behavior

CALGARY, Alberta Fri Jan 11, 2013 7:15pm EST

The Enbridge Tower is pictured on Jasper Avenue in Edmonton August 4, 2012. REUTERS/Dan Riedlhuber

The Enbridge Tower is pictured on Jasper Avenue in Edmonton August 4, 2012.

Credit: Reuters/Dan Riedlhuber

CALGARY, Alberta (Reuters) - Enbridge Inc (ENB.TO) wants to change how users of its Canada-United States oil pipeline network approach day-to-day operations - from delivering oil at one end to receiving it at the other - so the industry can cope with several more months of tight capacity.

Overbooked pipelines on Enbridge's two-million-barrel-a-day system have played a major role in the deepening discounts for heavy crude that are pressuring the oil industry. Billions of dollars in expansions are planned but they will be gradual, with a first tranche expected by the end of March.

In the meantime, Enbridge is urging the companies that inject crude into the massive network and the refiners that use the oil to change their behavior, said Vern Yu, vice-president of business development.

Chief among its demands is that companies deliver and take the crude volumes when they commit to do so, as there is no longer any excess capacity to juggle late deliveries, he said.

"We are in day-to-day contact with them on each and every batch that's flowing on the system to make sure that we're optimizing the capacity on the system," Yu told Reuters in an interview. "If we don't do that, then we will further weaken margins for producers or potentially even shut in crude."

In previous eras when there was excess pipeline capacity, a company that had booked to inject, say, 50,000 barrels of crude into the Enbridge system via a feeder pipeline, but missed the delivery by a day or so, could easily be accommodated, he said.

Now, with pipelines running at capacity, if the crude fails to show up, Enbridge must quickly inject another firm's oil to maximize the system.

At the other end of the pipeline, Enbridge is now unable to store refiners' crude in its own tanks if a plant has an unexpected outage.

"What that means is, if the refiner can't take the crude that they're scheduled to take, then they need to sell that crude to another refinery that can take it," Yu said.

The tight capacity was brought into sharper focus this week when operational problems forced Enbridge to impose mid-month rationing on three of the pipelines on its system in Canada and the United States.

That further pressured crude prices. Western Canada Select heavy blend last sold for $41.25 a barrel under benchmark West Texas Intermediate, a $2.50 wider discount than on Thursday.

The Enbridge mainline system consists of a series of pipelines that extend from Western Canada, down to the U.S. Midwest and Midcontinent, and into southern Ontario.

It has announced C$6.2 billion ($6.3 billion) of expansion projects through 2016 to help deal with surging volumes of Canadian oil sands and U.S. unconventional crude projection.

The first new capacity slated to come on line 50,000 barrels a day on Line 5, between Superior, Wisconsin, and Sarnia, Ontario, by the end of March.

Then in the third quarter of this year, an expansion of the Spearhead North pipeline between Flanagan, Illinois, and Chicago, is due to start up.

That will add the ability to move up to 300,000 bpd more heavy crude into the Chicago area and points east, including to the retooled BP (BP.L) Whiting, Indiana, and Marathon (MPC.N) Detroit refineries, Yu said. ($1=$0.98 Canadian)

(Editing by Bob Burgdorfer)

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