Enbridge, Enterprise Denied Market Rates on Seaway Pipeline

The U.S. Federal Energy Regulatory Commission denied Enterprise Product Partners LP (EPD) and Enbridge Inc. (ENB)’s request to set rates on the Seaway pipeline connecting an oil-storage hub in Oklahoma to U.S. Gulf Coast refineries.

The companies had asked federal regulators to grant a flexible rate known as a market-based tariff for the pipeline and would’ve allowed them to set and change rates without FERC’s approval. It would’ve been a first for a crude line.

Demand for the 500-mile (800-kilometer) line has been so robust the companies said March 27 they’ll more than double the line’s capacity to 850,000 barrels a day. There’s no major pipeline connecting the two points, which has caused oil shipments to accumulate at Cushing, depressing prices for some grades of crude from the Bakken Shale in North Dakota and Montana and Canada’s oil sands.

“The burden of proof is on the pipeline to establish that it lacks significant market power in the relevant origin and destination,” the commission wrote in an opinion.

The denial may cause more oil to be stored at Cushing, as shippers seek a lower price on the Seaway line, Hamza Khan, an analyst with the Schork Group in Villanova, Pennsylvania, said in an interview.

Bigger Bottlenecks

“That will lead to an increase in the bottleneck at Cushing because more people are going to be importing oil from Canada in the hopes of getting it to Seaway,” he said.

Enterprise and Enbridge haven’t decided whether to appeal FERC’s decision on Seaway, Rick Rainey, a spokesman for Houston- based Enterprise, said in an interview today. The line is still scheduled to open May 17.

Enbridge, based in Calgary, agreed to buy its half of the Seaway pipeline from ConocoPhillips (COP) in November and announced the plan to reverse the line to run south the same day. The first phase of the reversed pipeline is expected to open in late May, carrying 150,000 barrels a day. The second, 400,000-barrel phase is scheduled to open in 2013 with an expansion to 850,000 barrels by mid-2014.

FERC has never granted a market-based tariff for a crude pipeline, Tamara Young-Allen, a spokeswoman for the commission, said in an interview in March. Normal FERC rates are either negotiated between the pipeline company and shippers or set by the commission, and can’t be changed without FERC approval.

The agency rejected a 2007 request by Irving, Texas-based Exxon Mobil Corp. (XOM) for a market rate on its Pegasus crude pipeline carrying oil from Illinois to the Gulf Coast. Exxon won an appeals court ruling April 17 ordering FERC to reconsider that decision.

Enterprise fell 1.1 percent to $51.92 at the close in New York. Enbridge was unchanged at $39.93 in Toronto.

To contact the reporters on this story: Aaron Clark in New York at aclark27@bloomberg.net; Mike Lee in Dallas at mlee326@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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