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Enbridge Gateway shipping agreements a mere handshake, not a binding commitment
By Nathan Lemphers, Pembina Institute
Thursday, August 25, 2011
Read this blog post on the originating site
In business, it's generally considered unwise to launch a new product without clear market research showing a strong customer base and high demand. Moving ahead without confidence there's a market for your product would be a recipe for failure.
Yet that's where Canadian pipeline company Enbridge seems to be headed with its proposed Northern Gateway pipeline, which would transport bitumen from the oilsands in Alberta to the Pacific Coast near Kitimat, British Columbia. Without binding agreements locking in producers to supply the oil and refiners to get it to market, Enbridge doesn't have the proof of market demand required to build a major new pipeline.
Enbridge has promised to demonstrate commercial support for its product before building the pipeline but only after the government has approved it — an unprecedented position that rival companies such as KinderMorgan have been quick to challenge.
Precedent agreements are little more than a "good old boy handshake," or a "commitment in principle"In an effort to prove its project is more than a pipe dream, Enbridge announced yesterday that it has secured 'precedent' agreements from Canadian oil producers and Asian markets. But such agreements aren't binding commitments. Former CEO of TransCanada, Hal Kvisle, calls precedent agreements a "good old boy handshake" that are "commitments in principle" — in other words, tentative agreements that can be abandoned if a number of conditions aren't met.
So yesterday's announcement isn't enough to settle the debate over whether there is serious commercial support for the proposed pipeline.
Read more on the Pembina Institute website
Tagged with: pipeline, enbridge, northern gateway, pembina institute
