Operations coordinator Doug Rotzien works at the Enbridge Pipelines oil terminal facility in Hardisty, Alta., June 20, 2007. Alberta's oil pipeline hub, where millions of barrels of crude flow each day to pipelines that feed markets in Canada and the United States is a beehive of activity. But with rising expenses for labour, electricity, transportation and rig costs, oil producers are finding that the profit margins on US$70-per barrel oil aren't that much different than when crude was $40 a barrel.Larry MacDougal
Pipeline tolls could surge for Canada's oil producers after Enbridge Inc. won a key battle against oil sands companies that have faulted it for building an unnecessary pipeline to the U.S.
The U.S. Federal Energy Regulatory Commission tossed out arguments made by Suncor Energy Inc., and supported by a number of other major producers, that Enbridge should have known better than to build the $3.7-billion Alberta Clipper line.
FERC sided with Enbridge, which wants to raise the tolls on its network of crude oil pipelines on April 1 in order to pay back the costs of the line, which runs 1,607 kilometres from Hardisty, Alta., to Superior, Wisc.
Clipper is set to receive its first crude Thursday.
The ruling means Enbridge tolls will increase by 97 cents, a 33 per cent hike, over 2009 levels Enbridge said. About three-quarters of that increase is because of Clipper costs.
That's not enough to significantly affect oil producers' profits, since it's a small percentage of the price of crude. But had Enbridge lost, "it would have been a negative for Enbridge earnings," said UBS Securities analyst Chad Friess.
However, tolls could rise even further as TransCanada Corp. works to build even more oil pipeline capacity, which will further divert volumes from the Enbridge system. The toll impact could last for years, as the oil patch suffers the hangover from the boom, which bred huge optimism in oil sands production forecasts before the economic crisis forced the cancellation or suspension of a number of projects.
"At some point this [Clipper]pipeline is going to be used. But it may take 10 years," Mr. Friess said. "Unfortunately, the producers couldn't ramp up production as quickly as they thought, but eventually they will."
Enbridge welcomed the ruling.
"We are pleased that FERC agrees with our position, and to be able to begin collecting tolls as of April 1," said Enbridge spokesman Glenn Herchak. "This further supports the common carrier system, which we believe benefits the producing community as a whole."
Marathon Petroleum Co., Total E&P Canada Ltd., Canadian Oil Sands Ltd., Husky Gas Marketing Inc., Nova Chemicals (Canada) Ltd. and Flint Hills Resources Canada LP had all sought to intervene on Clipper, which oil producers argued was unnecessary.
Suncor led the argument, asking FERC to suspend any toll increases until Enbridge can prove Clipper's 450,000 barrel-per-day capacity is needed. Suncor argued that Enbridge should have known that the pipeline wasn't needed after the economic crisis resulted in a huge number of oil sands projects being cancelled.
That has meant that expected production levels from the Fort McMurray, Alta., area may not materialize for years to come. Because Enbridge receives a regulated rate of return on its oil pipeline system irrespective of volume, oil producers fear the per-barrel toll for carrying crude could rise if some of those pipes are not filled to their expected capacity.
Nathan VanderKlippe