Less oil is moving through Enbridge’s pipelines as demand falls for gasoline and other products due to the COVID-19 pandemic.
The Calgary-based company’s mainline, a series of pipelines carrying oil from Alberta to Superior and then other to Midwest states, transported an average of 400,000 fewer barrels of oil per day in April, a 14% drop from the 2.84 million barrels per day Enbridge typically ships on the mainline in the first quarter.
A decline of 400,000 to 600,000 barrels per day is expected in the second quarter as well, Enbridge CEO Al Monaco said in a conference call with investors Thursday.
In a news release, Monaco said there's been a “rapid decline” of jet fuel and gasoline consumption during the pandemic, causing cuts to refinery runs and crude oil production.
Since March, oil prices have fallen, even below zero dollars in April, as a glut of oil builds up during a lack of demand as people shelter-in-place and avoid air travel to help curb the spread of COVID-19, the respiratory illness caused by the new coronavirus.
The collapse in oil demand and price has spurred oil producers on Alberta’s oil sands, where Enbridge’s mainline begins, to curb production and lay off employees.
"As the largest pipeline out of the basin, not much of a surprise we’re affected with this scale of demand disruption," Monaco said in the call.
But he expects volumes will return to “normal” on the mainline as the year goes on.
“Given the strength of the mainline position and the refinery toll once demand picks up, we'd expect volumes to return to previous levels,” Monaco said.
Enbridge announced it was cutting $300 million in operating costs this year with company-wide salary rollbacks, pay cuts for management and the board of directors, voluntary layoffs and reductions in outside services and supply chain costs.
Enbridge also plans to defer about $1 billion in capital spending, $300 million of which is coming from a delay in permitting for Line 3, the controversial pipeline replacement project planned to cross much of northern Minnesota.
The Minnesota Public Utilities voted 3-1 in February to reapprove Line 3’s certificate of need and route permit, but the final order wasn’t passed down until last week.
Colin Gruending, executive vice president and chief financial officer, told investors that was about six weeks later than the company expected, so it’s moving $300 million of its planned Line 3 costs for the year into 2021 by six weeks.
“We're just basically moving that six-week spend from '20 into '21 mechanically,” Gruending said.
Enbridge still needs numerous permits before construction can begin on the 340-mile-long Minnesota section of Line 3. The Canadian and Wisconsin sections are already in service.
Once complete, the pipeline will ferry 760,000 barrels of oil (31.92 million gallons) per day from Alberta, Canada, to the Enbridge terminal in Superior.
Once the project has permits from the Minnesota Pollution Control Agency, Department of Natural Resources and Army Corps of Engineers and an authorization to construct from the PUC, it will take about six to nine months to build the pipeline, Enbridge said.
Environmental and tribal groups have pledged to challenge the PUC’s order, arguing the pipeline is unneeded and poses environmental risks.
Enbridge reported a loss of $1.43 billion (Canadian) in the first quarter of 2020, or a 71-cent loss per common share, compared with earnings of $1.9 billion, or 94 cents per common share in the first quarter of 2019.
The first quarter did include nearly $4 billion in charges, such as $1.7 billion for its investment in Denver-based DCP Midstream and a derivative loss of $2 billion.
Adjusted earnings were $1.7 billion or 83 cents per common share for the first quarter of 2020, compared with $1.6 billion or $0.81 per common share in 2019.