Enbridge counters claim `air barrels' sent through pipeline

CALGARY (Bloomberg) -- Enbridge Inc. is pushing back at criticism that its procedures for nominating barrels of oil shipped through the company’s pipeline system is partly to blame for depressed Canadian crude prices.

The owner of Canada’s biggest crude export pipeline system is facing scrutiny after a surge of production sent crude prices in Western Canada to their lowest level in at least a decade, with heavy Western Canadian Select trading at a discount to West Texas Intermediate futures of $50/bbl last month.

Steve Laut, vice chairman of oil sands producer Canadian Natural Resources Ltd, said this week that the current system for nominating barrels on Enbridge’s Mainline is partly to blame for low prices and allows “a few players” to exploit others by nominating barrels of oil they don’t have or intend to ship, known as “air barrels.” Rachel Notley, Alberta’s premier, also expressed concern at a press conference on Monday, saying the issue will be discussed in consultation with industry.

“The Enbridge Mainline system is essentially full,” Jesse Semko, Enbridge spokesman, said in an email. “There is no material capacity to be gained by changing the apportionment and supply verification procedures.”

Current rules allow a company with sufficient storage tanks to nominate more barrels than it actually has or wishes to ship, Laut said in a BNN Bloomberg TV interview Tuesday. When Enbridge rations space near the end of the month and notifies shippers how much of their nominated barrels can be shipped, the company with storage can go to the market and buy barrels at depressed prices from producers who weren’t allocated sufficient pipeline space. Prices are so depressed, the producers are shutting in production, he said.

“As more and more of these players figure out how to play the game, you’ve actually seen the differential blow out, particularly on light oil,” Laut said.

Enbridge did try to change its verification system earlier this year but backtracked after criticism from shippers.

The current rules require an officer at each downstream facility sign an affidavit verifying that the facility is capable of receiving the volumes of oil nominated to it, Semko said. The company also requires a certificate signed each month by an officer of each shipper indicating they have the supply available to back their nomination. Enbridge is open to discussing changes to its apportionment and verification system for nominations but there is “no consensus” on whether such changes are needed, he said.

“What’s required is additional takeaway capacity out of the Western Canadian Sedimentary Basin,” he said.