(Bloomberg) -- A pipeline price war is brewing in Canada, with Enbridge Inc. slashing the rates it charges producers to ship crude on its Mainline system before a rival line starts up next year.

The cost to send heavy crude from the Canadian oil hub of Hardisty, Alberta, to terminals in Flanagan, Illinois, will fall about 12% to $28.80 per cubic meter on July 1, based on current exchange rates, Calgary-based Enbridge said in a regulatory filing. Flanagan is a key stopping point for Canadian oil on its route to refiners on the US Gulf Coast.

Canadian oil producers who have suffered from a shortage of export pipelines for years will have more than they need when an expansion of the Canadian government-owned Trans Mountain conduit starts operation early next year. Enbridge has acknowledged that the project — which will roughly triple the capacity of the line and connect Alberta’s oil-sands to markets in Asia — will siphon some business away from its Mainline system.

“The new tolls will help to make our liquids system even more competitive and will allow us better to compete for every barrel coming out of the Western Canadian Sedimentary Basin,” Enbridge spokesman Jesse Semko said in an email. “Our Mainline pipeline system is in a great competitive position and will be well-utilized for decades.”

Most of the 590,000 barrels of additional daily capacity on Trans Mountain will be reserved under long-term contracts, and its route from Alberta to the Pacific Coast near Vancouver offers producers the prospect of diversifying their sales away from US refiners. By contrast, the 3-million-barrel-a-day Mainline doesn’t offer long-term contracts and connects to the Gulf Coast refiners that already take the majority of Canada’s crude.

“They were making a trade-off to ensure that the Mainline economics will still be very strong,” Morningstar analyst Stephen Ellis said of Enbridge’s new shipping rates. 

Enbridge announced a new tolling settlement with shippers last month and agreed to lower rates as part of the deal. But the new tolls, while lower, also have some advantages for Enbridge. They include a Canadian and US dollar component, in contrast to the older rates that were solely in US dollars. That change passes on currency risk to the companies shipping on the Mainline. 

What’s more, the Trans Mountain expansion project is behind schedule and has been plagued by rapidly escalating costs. The government-owned company building the expansion said in March that the price tag had gone up 44% to almost C$31 billion ($23 billion) and that some of that increase will be passed on to shippers via higher tolls, which haven’t yet been released. 

While the environment is more competitive, “Enbridge had a lot of aces in the hole to play,” Morningstar’s Ellis said in an interview. 

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