Companies commit to Northern Gateway: Enbridge

The chief backer of a controversial pipeline project says enough companies have agreed to send oil on the line that it can largely fill the pipe - although it has so far signed agreements that provide little financial certainty.

In documents filed with the National Energy Board, Enbridge Inc. (ENB-T) says that both pipes in its $5.5 billion Northern Gateway project - one to bring oil sands crude to the West Coast, another to import an oil thinner called condensate - have been "fully subscribed for long term, firm service under duly executed Precedent Agreements."

Commercial support for Gateway has long been one of the questions hovering over the project, which promises to link large volumes of Canadian crude with Asian markets for the first time, but which has stirred major opposition among British Columbia first nations, who fear a devastating oil spill.

The Enbridge documents seek to demonstrate that the energy industry - including both Alberta oil producers and Asian refineries - is fully behind Gateway. Enbridge has already raised $100 million from 10 companies, including Sinopec, to help fund its $250 million in pre-development costs.

But Enbridge has yet to obtain contracts that would bind companies to actually place oil in the pipe - or pay for development of the massive project, which would be the biggest in Enbridge's history. Instead, the company has so far obtained "precedent agreements" that are a less rigid indication of support.

Those agreements do not appear to bind those who sign to ship any oil - the agreements specifically say that, subject to several conditions, "nothing shall oblige the Shipper to execute and deliver" a firm commitment - or to pay any costs. Indeed, companies who want to ship on Gateway appear to shoulder some costs only if they sign letters of support - an additional step that may take years to complete.

Hal Kvisle, the former chief executive officer of Enbridge competitor TransCanada Corp., said precedent agreements tend to be "commitments in principle."

"I can tell you by comparison with TransCanada's Keystone project, there would have been a very early stage series of agreements five years ago that would have been similar," he said. "It's really like a good old boy handshake, is one way you could characterize it. Thirty years ago, that's how we would have done it."

Enbridge stipulates that it must receive sufficient letters of support after it receives approval for the project - if that approval comes. In its regulatory filings, the company says it expects approval "on or before July 31, 2013."

A further step, gaining expressions of "unconditional commercial support" may take more than 300 days to complete following that approval.

Still, Enbridge argues in the documents that it "is convinced of the Project's feasibility, that the facilities will be used at a reasonable level over their economic life and that the tolls are likely to be paid."