Enbridge confident of avoiding Keystone XL woes

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Enbridge Inc. is expressing confidence that it won't be harmed by the problems that have dogged its rival TransCanada Corp.'s Keystone XL line.

Enbridge has secured substantial support for two of its own new U.S. pipeline projects – one called Flanagan South, the other Wrangler. But because the Enbridge projects would run through existing pipeline corridors, chief executive Pat Daniel said he believes the company can avoid some of the loud environmental criticism that has caused delays – and the threat of serious new problems – for Keystone.

It would be "surprising" if there was opposition to the Enbridge plans, he said.

"What we're talking about is expanding an existing right of way and existing systems," he said.

But amid reports that the U.S. could force a costly route change for Keystone – which could also mean a delay of several years – Mr. Daniel acknowledged that troubles for a competitor could also mean troubles for the broader pipeline sector.

"Opposition to something that is as well-supported as XL is not a good precedent for the industry," he said on a third-quarter conference call Wednesday.

Enbridge reported a sharp dive in earnings to $4-million, largely as a result of accounting measures related to a program it maintains to ease U.S. currency risk.

On a comparable earnings basis, it brought in $241-million in the quarter, compared to $196-million in the same period last year. On a full-year basis, the company has targeted earnings per share of $1.38 to $1.48. On Wednesday, it said it will likely meet the top end of the range, or possibly exceed it.

The company has seen gains both from a new 10-year toll structure on its backbone oil Mainline system, and in recent months from its oil trading division, which it calls "energy services." That division has been able to gain from a substantial split in crude pricing, which has seen a glut of oil in the centre of the continent priced far cheaper – as much as $30 (U.S.) per barrel in past months; a little under $20 today) – than oil on the coasts. Traders are able to profit from some of that difference by moving crude between markets. Enbridge has done this both by using its position on various pipelines and, in an interesting twist for a pipeline company, shipping some oil by rail.

That profit is, however, expected to be a short-term gain, as both Enbridge and TransCanada are working to build pipelines that would ease the pricing disparity.

The outcome of TransCanada's bid with Keystone XL, however, will have a wide-reaching impact, and not only with regard to the industry's ability to build new permits into the U.S.

Enbridge itself has tied some of its own financial fate to that project. If Keystone XL is not granted a presidential permit by the end of 2012, the shippers in Enbridge's 10-year tolling agreement have the right to renegotiate. The existing agreement provides substantial upside to Enbridge if it succeeds in bringing new volumes of crude onto its system – an outcome that seems more likely if Keystone XL is delayed.

"The parameters around which it would be renegotiated are not defined," Mr. Daniel said Wednesday. "I think we would just have to work closely with our customers, as we always have to work out mutually agreeable toll arrangements with them."