https://www.cbc.ca/news/business/enbridge-pipeline-air-barrels-1.4933988
[A major Canadian oil sands company says existing pipelines are not
running at capacity, and the oil industry - and presumably the Alberta
government and other aligned premiers are complicit - are gaming
Canadian taxpayers in pushing for more subsidies in light of the "energy
crisis", which is in reality a market reaction to low quality crude when
higher quality crudes are available during a market glut. A government
which preaches the 'free-market' model should not be engaging with
support for a market which is boasting huge profits, and should be
working now to reduce subsidies as committed in 2009 at the G7 summit.
Instead of brokering a 'production cut', perhaps the government of
Alberta should be invoking a high 'royalty' rate on 'air barrels' when
pipeline space is allegedly constrained. Given rumours that the
existing TM pipeline is not running at capacity today, perhaps we can
tone down the rhetoric on the crisis need for more pipeline capacity in
the form of TMX, and get serious about expanding refinery capacity in
Alberta - you know, creating jobs.
And perhaps Canada's financial 'journalists' could do some research work
- maybe ask the federal government for the now-state-owned TM pipeline
for data on how much is actually flowing through that pipe, and other
pipelines.]
Amid oil price crisis, major energy producer says Canada's largest
pipeline system is 'dysfunctional'
'Certain players' are booking pipeline space they don't need, resulting
in lower prices for Canadian crude
Kyle Bakx, Tony Seskus · CBC News · Posted: Dec 06, 2018 4:00 AM ET
Canadian Natural Resources is doubling down on its concerns about wasted
space on Canada's biggest oil pipeline, blaming a "dysfunctional"
process as one reason for slashing its spending plans next year.
It follows complaints the company's executive vice chairman Steve Laut
made last month, saying current rules allow "certain players" to exploit
the system by booking pipeline space they don't need when capacity is
tight.
There are concerns these so-called air barrels mean less oil is reaching
the market, resulting in lower prices for Canadian crude.
On Wednesday, Canadian Natural slashed its capital spending for 2019 by
about $1 billion.
"Currently the lack of market access and a dysfunctional pipeline
nomination process are creating industry challenges," the Calgary-based
company said in a release.
So-called "air barrels" are caused when oilpatch players or traders book
more pipeline space than they physically need, resulting in leftover
pipeline space. Alberta is desperate for any spare space right now.
Because there is so much competition for pipeline space these days,
pipelines can become overbooked, causing the pipeline company to then
cut allocations across the board. Oil companies react by booking more
space than they need, so that if there is an allocation cut they will
still be able to ship all their oil.
Serious complaints
The Enbridge Mainline, running from Edmonton to Sarnia, Ont. and into
the U.S. midwest, is the focus of concern that pipeline space is
potentially being misused. Most pipelines allocate space based on
long-term contracts, while the Enbridge Mainline divvies up space on a
monthly basis.
Analyst Samir Kayande, a director at RS Energy Group, said Laut's recent
complaints around a dysfunctional pipeline nomination process are serious.
And he has his own questions about how the system is working.
Looking at National Energy Board data, he said Mainline pipeline flows
in the third quarter of 2018 appear lower than in the second quarter "by
just a little bit" — around 100,000 barrels per day.
"But of course we're in a very tight market and so small differences in
flows actually make a big difference in price," Kayande said.
"The logical question we should be asking ourselves is: why are Enbridge
pipeline flows down when there's all this oil production everywhere and
storage is bulging at the seams?"
Government priority
Alberta Premier Rachel Notley has said her government is examining the
issue, something the provincial government confirmed Wednesday.
"We think it's unacceptable if the process for booking pipeline space is
resulting in producers having their oil turned back unnecessarily," said
spokesperson Mike McKinnon.
"We're in close discussions with companies who are working to develop
support for an industry-led solution to this issue and we'll consider if
any further actions by government are needed."
In an emailed response to questions by CBC News, Enbridge said it is
working with customers and the provincial government to maximize
takeaway capacity out of the province, but said its Mainline system "is
essentially full."
"There is no material capacity to be gained by changing the
apportionment and supply verification procedures," spokeswoman Tracie
Kenyon said.
She said Enbridge's nomination process is the result of customer
consultation and regulatory proceedings, adding "it is a robust process,
with a number of checks and balances."
For an industry facing an oil price crisis, every ounce of space is
critical.
Increasing oil production, coupled with limited space on oil export
pipelines, has created a backlog of oil in Western Canada. This oil glut
has weighed heavily on the price of Alberta crude, most of which is sold
into the U.S.
Past concern
Besides Canadian Natural, other companies have also raised concerns
about air barrels, also known as over-nominations.
Devon Energy, for one, wrote to the National Energy Board in June
stating its issues with over-nominations or the process of companies
booking more space than they actually need.
"Over-nominations inflate the demand for pipeline capacity and pipeline
apportionment on the Enbridge Mainline and negatively impact the ability
of producers to access pipeline capacity to sell their monthly oil
production," Devon wrote.
"Producers and other industry participants suffer significant economic
harm every month as a result of ongoing over-nomination on the Enbridge
Mainline."
The issue of air barrels is not new, but is now under scrutiny due to
financial pressure facing the oilpatch.
"There can be people given space and they don't necessarily use it,"
said Dennis McConaghy, a former executive with pipeline firm TransCanada.
He said there is always going to be some elements of "gamesmanship" in
the process of booking space on the Enbridge line.
"There is always some possibility that you will have an individual
shipper getting an allocation of space and how they choose to use that
allocation through the month can sometimes result in air barrels," he said.
Enbridge tried to revise how it allocates space on its pipeline system
earlier this year, but quickly scrapped the plan.
The company said in recent months it spoke to shippers about potential
changes, but it "determined there is no consensus" on how to modify
current procedures.