A toll dispute between Enbridge Inc. and veteran bitumen producer Suncor Energy over an early launch of the pipeline giant's Alberta Clipper line has cast a shadow on a recent surge of optimism in the oilsands.
During an investor symposium Thursday, Enbridge disclosed the oilsands operator had applied with U.S. energy regulators to defer tariffs on the United States portion of the 1,600-kilometre line due to reduced need for the capacity.
Suncor, which recently merged with Petro-Canada to form an energy giant, said the new pipeline likely will run under capacity and pressure main-line tolls.
"We support additional capacity, but the timing of Clipper is no longer a prudent fit with supply," Suncor spokeswoman Sneh Seetal said. "We are concerned about the potential impact of unnecessary pipeline-related costs in view of unused capacity on the competitiveness of Canadian heavy oilsands crude into the U.S. "
Furthering the argument, Enbridge chief financial officer Richard Bird said the Clipper will start operations several months ahead of schedule, on April 1, further pressuring tolls at home.
"Suncor is a significant customer, so we understand their concern with the fact that our tolls on our main-line system are going to increase as a result of circumstances that have changed since the Alberta Clipper project was approved," Bird told investors at a symposium in Whistler, B.C. "We will work with them and with (the Canadian Association of Petroleum Producers) to do everything that we can to make it right."
Despite a recent flurry of announcements on rekindled oilsands projects, production outlooks have fallen considerably since 2006, when analysts were predicting a tripling of output to around 3.5 million barrels per day by 2020.
Since then, billions of dollars in oilsands-related projects have been delayed or scrapped on sharply reduced commodity prices, lower demand and tight credit markets.
Analysts in November cautiously predicted production from Alberta's oilsands might double to three million barrels per day by 2020.
Bird said it was unlikely the U.S. Federal Energy Regulatory Commission would go back on a project approved by shippers. He noted export capacity was scarce when the company applied to build the 450,000-barrel-per-day Alberta Clipper, which will ship oil from its Hardisty terminal in Alberta to refineries in Superior, Wis., at the same time oilsands activity was red hot.
"Additional capacity that was signed for in the contract area and growth out of the oilsands has diminished, so for sure our tolls will be higher than expected to be at that time," he said. "But that goes with the (toll) arrangement."
A negative decision out of the U.S. energy regulator could defer roughly five per cent of Enbridge's 2011 estimated earnings, or about 15 cents per share, according to an investment brief by RBC Capital Markets Thursday.
The financial institution agreed it would be surprised if Suncor was successful in delaying the in-service date, and reiterated its outperform, average risk rating for the pipeline.
"It's unusual for Enbridge to have a toll dispute with its shippers, particularly when it's already an existing line under contract," added analyst Bob Hastings with Canaccord Adams. "Toll disputes are one of the reasons why producers like to have competitive pipelines."
Meanwhile, pipeline competitor Trans Canada Corp. said progress on its Keystone crude pipeline was on schedule and 83 per cent contracted.
"Oilsands production will continue to grow in the future, and the U.S. markets will continue to need imported crude," Russ Girling, TransCanada president of pipelines, said in Whistler. "There is some question whether or not demand for refined product increases in the U.S. over time, but what we know is the U.S. is going to import a lot of crude for a considerable period to come."