Enbridge lost its capacity due to the Canadian government-owned Trans Mountain, which sold space under long-term contracts for its expanded capacity, which is due to completion in late 2022, and could lose volume because of it's loss of capacity for as long as 20 years. We apologize, but this video didn't load.
You can see other videos from our team by tapping here. Enbridge may have to fight for oil barrels, lower rates, after Enbridge may end up charging lower tolling rates to shippers, after the Canada Energy Regulator CER found that Enbridge's proposed toll was unreasonable. Calgary-based Enbridge's proposal, supported largely by U.S. refiners that control most of the Mainline's volume, would have allowed it to pre-sell 90 per cent of space on the 3 million-barrel per day Mainline, instead of rationing it monthly. CER rejected the plan on Friday, saying it would have hurt customers without the ability to strike long-term contracts.
After the previous one expired, Enbridge said it will reopen discussions with shippers on a new tolls agreement. After the CER found Enbridge's proposed toll would generate greater returns than it could justify, shippers hold the negotiating leverage, said Matt Taylor, analyst at Tudor Pickering Holt Co. They lost out on an opportunity to substantially contract, and on the toll side it has been made known that they have been earning good returns that probably need to be right-sized, he said. Many Canadian oil producers, who already have contracts for Trans Mountain and TC Energy Corp'Keystone line, cheered the decision to leave the Mainline to ration space on the spot market.
Despite the loss, the Mainline remains crucial - it connects Western Canada's crude with its top market, the U.S. Midwest. Trans Mountain's expanded capacity will connect Canadian crude to the U.S. West Coast and possibly Asia. Enbridge proposed two years ago when demand for Canadian pipelines exceeded capacity, depressing oil prices and prompting shippers to demand more certainty about moving crude. Taylor estimates that the Mainline will lose more than 130,000 barrels per day to Trans Mountain in 2023, and 10 per cent of its tolling revenue under lower rates. He said that unless the company can increase earnings in other ways, Enbridge could lose $770 million in annual EBITDA, or 5 per cent of its total EBITDA.
National Bank of Canada sees 400,000 -- 500,000 barrels of Mainline crude at risk of switching to Trans Mountain in 2023, according to the National Bank of Canada. That volume would represent about 15 per cent of Mainline capacity. After the ruling, RBC lowered its price target for Enbridge, saying it now expects to see less earnings per share over the next two years. Enbridge shares fell by 2.1 per cent to a three-month low in Toronto on Monday. The company is scheduled to hold its annual investor day on December 7. Enbridge said on Sunday it expects to find an alternative commercial model to the proposal that was rejected by the CER, that does not materially affect its financial results. It expects Mainline volume to remain strong. Enbridge is attractive to yield-hungry investors and plays a central role in an oil and gas industry in which demand is expected to be strong for years to come as the transition to energy takes time, said Darren Sissons, portfolio manager at Campbell Lee Ross. According to Refinitiv data, Enbridge has a dividend yield of about 6.7 per cent, compared to an industry average of 5.9 per cent. Sissons said that we recognize the risk of what happened here. You can't shut it off if you think about the broader context of what is oil in the global economy.