* Change aimed at cutting over-booking of pipeline space
* Some shippers say plan reduces transparency
* Tight pipe space cited for deep Canadian oil discounts
By Jeffrey Jones
CALGARY, Alberta, Nov 23 Enbridge Inc
and its crude oil pipeline customers are battling over a plan by
the company to try to cut the over-booking of capacity on the
massive export network that has played a role in the deep
discounting of Canadian crude prices.
The dispute is the latest symptom of an oil pipeline network
running ever closer to capacity as production from the Canadian
oil sands and North Dakota Bakken surges and expansion plans get
bogged down by regulatory delays and environmental opposition.
Under the proposal, which is taking flak from some of the
world's largest oil companies, Enbridge wants to shift how it
calculates the amount of crude its shippers can nominate on the
pipelines each month to a new system based on the capacities of
refineries, which it would verify itself.
Since Enbridge's devastating oil spill in Michigan in the
summer of 2010, which shut a major line between Indiana and
Sarnia, Ontario, for several months, shippers have based
nominations on the highest monthly volume they have moved to
refining facilities in the U.S. Midwest and Ontario over the
previous two years. That system was expected to be temporary.
According to documents filed with the U.S. Federal Energy
Regulatory Commission, Enbridge's change is aimed at eliminating
"air barrels" -- industry slang for nominations above shippers'
ability to move oil. It is a way of gaming the system so
companies get as much crude as possible to refineries.
"It's just a more efficient use of space on the system. It's
a better, more viable way to confirm nominated volumes. It
allows the customers to nominate volumes that reflect their
facility capacity," spokesman Graham White said.
Big shippers, including Imperial Oil Ltd, Exxon
Mobil Corp, Suncor Energy Inc, Marathon
Petroleum Corp and Phillips 66, have all filed
motions with the regulator in protest, arguing that it would
give the pipeline company too much discretion to allocate
capacity without giving the shippers recourse.
Enbridge and its rivals have proposed billions of dollars
worth of new pipelines to Canada's West Coast, Quebec and to
Texas. Enbridge has also proposed expanding much of its system
in the U.S. Midwest. But for now, the industry must deal with
the existing pipeline network as production rises.
APPORTIONMENT HITS PRICES
High nominations have forced Enbridge to institute
apportionment, a system that results in all of the shippers
having their bookings reduced on the two-million-barrel-per-day
network. In November, the company added rare mid-month
Traders cite apportionment as a major factor behind recent
deep discounts on crudes such as Western Canada Select heavy
blend and light synthetic, derived from the Alberta oil sands,
saying supplies are backing up in Alberta.
This month, WCS heavy crude delivery sold at times for more
than $30 a barrel under benchmark West Texas Intermediate,
compared with around $15 under a month earlier.
Enbridge says its change would allow its roughly 70 shippers
to more accurately match nominations to actual volumes,
especially with some of the major U.S. Midwest refineries having
undergone expansions. It said it filed to make the changes after
several months working with a focus group.
Oil companies protesting the move do not want Enbridge
interpreting refinery capacities, which can vary widely based on
seasonal production and maintenance schedules.
It would give advantages to refineries that have recently
expanded and those served by more than one pipeline, according
to filings. In addition, shippers without their own refineries
would have less power in the market, they said.
The proposal "also fails to explain how Enbridge, as common
carrier pipeline company, is qualified to make sophisticated
judgments regarding the 'capability' of individual refineries to
receive crude oil," Suncor said in its motion.
"Enbridge does not explain how it is qualified to
second-guess its refinery customers regarding their respective
capability to receive crude oil."
Officials with the oil companies declined to comment beyond
BP Plc, which is in the midst of an expansion of its
big Whiting, Indiana, refinery, said in its submission it is
"generally supportive of Enbridge's proposal."
Enbridge and many of the shippers said they support the idea
of a seven-month suspension in the process as a way to resolve