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Enbridge adds 'layers of defence' to Mainline ahead of TMX opening

Calgary-based company sees deteriorating economics for moving Canadian oil south by rail

Enbridge workers weld pipe just west of Morden, Man., Thursday, Aug. 16, 2018. Enbridge Inc. says it expects its earnings per share to grow at a compounded annual rate of four to six per cent through 2025.THE CANADIAN PRESS/John Woods
Enbridge workers weld pipe just west of Morden, Man., Thursday, Aug. 16, 2018. Enbridge Inc. says it expects its earnings per share to grow at a compounded annual rate of four to six per cent through 2025.THE CANADIAN PRESS/John Woods

A top Enbridge (ENB.TO)(ENB) executive says the flow of oil through the company's massive North American pipeline network will barely take a hit from the start of the federal government-owned rival Trans Mountain pipeline expansion (TMX) project, due in part to its new deal with shippers.

Colin Gruending, Enbridge's executive vice-president and president of liquids pipelines, told analysts on Friday that his conviction on these points has strengthened since the company's Investor Day in March.

"Since then, let's reflect on what all happened here. TMX announced another delay," he said on Calgary-based Enbridge's first-quarter earnings call. "We understand the TMX is likely to have higher tolls with cost increases. We've seen the Keystone incident, and subsequent pressure restrictions invoked by firms. It's questionable if or when those will come off."

Gruending adds that Mexico is looking to refine more of its oil domestically, a bullish factor for bids on Canadian crude by U.S. Gulf Coast refineries. At the same time, he sees deteriorating economics for moving Canadian oil south by rail.

Enbridge's toll agreement with oil shippers for its Mainline crude pipeline system announced Thursday aims to adds a new risk buffer for the company. It "provides downside protection in the event of supply or demand disruptions or unforeseen cost exposure, a feature that did not exist in the previous Competitive Tolling Settlement," the company said. Once finalized and approved by Canada Energy Regulator (CER), the new deal will be in place through 2028.

"We've got a couple layers of defence here," Gruending added on Friday. "Will we need them? Maybe not. But it is Enbridge's preference to have them."

The Canadian pipeline giant has been trying to reach a deal with oil shippers on a new tolling agreement since November 2021, when the CER rejected its proposal to lock oil producers into long-term contracts.

Enbridge's Mainline network is Canada's largest oil pipeline system, providing about 70 per cent of the total oil pipeline transportation capacity out of Western Canada.

After years of running full, Gruending predicts Mainline will maintain a 95 per cent utilization rate once the much-delayed TMX project comes online. Trans Mountain Corporation's latest estimate is for the project to enter service in early 2024.

"Going forward, our incentive to maximize barrels on the system, combined with our new more competitive toll and our unparalleled market access, increases the attractiveness of our pipeline compared to others and ensures the Mainline will be well utilized by our customers for decades to come," Enbridge CEO Greg Ebel said on Friday's call.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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