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Canada's Keystone XL oil pipeline pushing ahead

Bloomberg/ Andrew Harrer

A mock oil pipeline is carried during a Keystone XL tar sands oil pipeline demonstration near the White House on Nov. 6, 2011.

CALGARY, Jan 20 2012

TransCanada Corp. is considering building U.S. portions of its Keystone XL pipeline and later seeking approval of an Alberta link to circumvent the Obama administration's rejection of the $7-billion project.

There is no requirement for a presidential permit to lay pipe anywhere in the United States, provided the line doesn't extend across the border into Canada.

On the table is a segment between the oversupplied oil storage hub of Cushing, Okla., and Gulf Coast refining centres in Texas, as well as a longer line from Montana to the Gulf Coast, executives said Thursday.

"I think that clearly, with yesterday's decision, we are now open to amending or changing our plans to building this in segments," TransCanada chief executive Russ Girling told an investor conference in Whistler, B.C. "As we've said before, that's dependent on the interest of our shippers in doing that."

Building an Oklahoma-to-Texas section alone would cost TransCanada $2 billion, said Girling, who told investors the company has already spent $1.9 billion on the Keystone XL project.

Alex Pourbaix, TransCanada's president of energy and oil pipelines, said the company will also take the next few weeks to examine carving out a longer portion of the project to connect oil from the Bakken shale in Montana with the Gulf Coast.

TransCanada would later apply for a presidential permit to link the line with the oil-sands and complete Keystone XL as originally envisioned, Pourbaix said.

"We believe there may be the potential to accelerate the construction of some elements of the pipeline."

Girling said a new application for presidential approval of the entire 2,700-kilometre Alberta-to-Texas line would include a detour in Nebraska around ecologically sensitive land, which the company is working on with state officials. An "expedited" review should amount to a decision in early 2013, he said, leading to a late 2014 startup of the 830,000-barrel-per-day line. U.S. State Department officials have not committed to expediting review of any future application.

Oil producers and refining firms are still contractually obligated to Keystone XL, Girling said, despite U.S. President Barack Obama's Wednesday denial, which the president blamed on Republicans in Washington for requiring in December that a decision be made within 60 days.

Bill Day, a spokesman for Valero Energy Corp., said Valero is counting on heavy Canadian crude for its Gulf Coast refineries, where volumes from Mexico and South America are declining.

Many Coast refineries are tooled to receive heavy crude from Canada, not the light oil TransCanada would initially ship from Montana if it were to build that segment first. TransCanada can deliver 591,000 barrels per day of Canadian oil to Cushing on its existing Keystone pipeline.

A TransCanada line from Cushing to the Gulf Coast would compete with the Seaway pipeline reversal proposed by rival Enbridge Inc. and its partner Enterprise Products Partners LP. Seaway is scheduled to start delivering 150,000 barrels of oil per day from Cushing to the Gulf Coast on June 1, Enbridge CEO Pat Daniel said at the Whistler conference.

The Seaway line would transport up to 450,000 barrels per day by year end, he said, noting the companies are now gauging shipper support to boost capacity by twinning the line.

In his rejection of Keystone XL, Obama committed to work with the oil and gas industry on potentially developing an oil pipeline from Cushing to the Gulf of Mexico.

Obama's comments must be viewed as a "red herring," during the preelection season, said Kenneth Green, resident scholar at the Washington based American Enterprise Institute for Public Policy Research. "We are in the silly season. Every single word that his administration says has to be viewed as a campaign tactic."

The International Energy Agency predicts storage facilities in Cushing will gain another seven million to eight million barrels of capacity in 2012 to cope with a glut in supply that has had North American crudes trading at a discount to globally linked crudes for more than a year.

The price spread between West Texas Intermediate and Brent benchmarks eats into the profits of energy companies and curbs revenues for governments that collect royalties on oil production.

"Today, the differential between a similar crude in the mid-continent and the Gulf Coast is $10 or $11, but at times in 2011 that differential was as wide as (nearly) $30 a barrel," said Jackie Forrest, global oil director at energy consulting firm IHS CERA.

Even if Enbridge twins Seaway and Keystone XL goes ahead, more pipeline capacity will be needed by 2019 between Cushing and the Gulf Coast, as oilsands production and U.S. oil output ramps up, she said.

Story by Rebeca Penty from Calgary Herald

Calgary Herald | Jan 20, 2012 3:14 AM


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