Enbridge in talks to expand Mainline pipeline as Canadian oil production grows

Enbridge Inc. has begun discussions with its customers about expanding its Mainline pipeline network to handle growing volumes of Canadian oil production, the Calgary-based company said Friday.

“We have started commercial discussions with the industry. We spent this quarter developing the expansion,” Colin Gruending, president of liquids pipelines at Enbridge, said on a conference call with analysts.

Although Enbridge does not yet have a cost estimate for the project, Gruending added, the expansion could come online as early as 2026 or 2027. He emphasized that it would be a small expansion that would add additional capacity along the existing pipeline network. which has been expanded many times over its 75-year history.

“It’s actually more of an optimization, not a cutback or a new path. It is in the (existing) right-of-way…it is very doable,” Gruending said.

Enbridge’s Mainline System is the largest pipeline system in North America, transporting crude oil from Western Canada to markets in Eastern Canada and the US Midwest.

Not long ago, industry watchers believed the Mainline network would take a hit when the Trans Mountain pipeline expansion opened and began offering Canadian oil companies access to new export markets off the West Coast.

However, that did not happen. Enbridge expects average annual volume on the Mainline network to exceed three million barrels per day in 2024, not unlike the 3.1 million barrels per day it achieved in 2023 before the start of the Trans Mountain expansion project.

And Canadian oil production and exports continue to grow. Canadian crude oil production hit a record 5.1 million barrels per day in 2023 as companies ramped up operations ahead of the start of the Trans Mountain expansion. Analysts have suggested the total could rise by as much as 500,000 barrels per day on average this year.

According to Statistics Canada, crude oil exports from Canada reached a record high of four million barrels per day in 2023 and continue to rise. According to U.S. Energy Information Administration figures released this week, Canadian crude oil exports to the United States hit a record 4.3 million barrels per day in July 2024 after the start of the Trans Mountain project.

The increase in production was so great that Enbridge said it was distributing the Mainline system in July and August, and again for November. Allocation is an industry term for what happens when demand for uncontracted space on a pipeline exceeds available capacity in a given month.

“I don’t know if I can see a breakdown here every month, but seasonally I think there will be a lot of demand for the Mainline,” Gruending said.

Many analysts have suggested that Canada’s current oil boom could revive the pipeline shortage problem sooner rather than later. Prior to the opening of the Trans Mountain expansion earlier this year, Canadian oil companies were hampered by a lack of pipeline export capacity, which meant the price of Canadian heavy crude often traded at a severe discount to the U.S. benchmark price.

Gruending said Enbridge is also looking at a number of potential expansion projects on its smaller, regional pipelines that serve Alberta’s oil sands industry.

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“It is very important economically that the (Western Canadian Sedimentary Basin) is not restricted,” he said.

Earlier this year, Canada’s energy regulator approved Enbridge’s new tolling framework for the Mainline system. Tolls are the fees oil companies pay to transport their product through a pipeline, and Enbridge has been negotiating a new toll system with its oil industry customers for a year and a half.

Tolls for the newly expanded Trans Mountain pipeline have not yet been finalized, as oil companies oppose the higher costs imposed by Trans Mountain Corp. to help cover cost overruns associated with the construction of the project.

On Friday, Enbridge reported third-quarter profit attributable to common shareholders of $1.29 billion, up from $532 million a year earlier.

The company said earnings for the quarter ended September 30 were 59 cents per share, compared with 26 cents per share in the same quarter last year.

Results in the most recent quarter included a non-cash net unrealized fair value gain of $112 million, compared to a net unrealized loss of $782 million a year ago, which also required a provision adjustment of $124 million related to a court case. .

On an adjusted basis, Enbridge said it earned 55 cents per share in the latest quarter, compared with adjusted earnings of 62 cents per share a year earlier.

According to LSEG Data & Analytics, the average analyst estimate was for a profit of 56 cents per share.

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