In 2019, Canadian midstream operator Enbridge proposed to sell all space on its Mainline oil pipeline under long-term contracts instead of rationing it on a monthly basis. This change would allow the company to pre-sell 90% of space on the 3 million bpd pipeline under contracts for as long as 20 years. However, The Canada Energy Regulator (CER) rejected the plan late last month, saying the change could benefit shippers with contracts but hurt others without them.
Following the ruling, analysts said Enbridge might lose volume to its rival, Canadian government-owned Trans Mountain and TC Energy Corp’s Keystone. Trans Mountain has contracted space for its expanded capacity due for completion in late 2022. National Bank of Canada expects some 400,000-500,000 bpd of Mainline crude could switch to Trans Mountain in 2023. That represents about 15% of Mainline capacity.
To secure volumes, Enbridge may have to charge lower toll fees to its shippers. Those factors combined could cost the company CAD770 million ($604.35 million) in annual EBITDA, or 5% of its overall EBITDA, if it was unable to increase earnings in other ways, analysts said. Enbridge shares dropped 2.1% to a three-month low in Toronto on Monday. RBC lowered its price target for Enbridge, saying the ruling would lower the company’s earnings for the next two years than it previously forecasted.
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Published on December 1, 2021 11:55 AM (GMT+8)Last Updated on December 1, 2021 11:55 AM (GMT+8)
