U.S. Keystone leg to be built

Transcanada to build line south of border

Transcanada Corp. will split up Keystone XL to build the southern portion of the oil pipeline first, expediting crude deliveries to the Texas Gulf Coast and preventing a U.S. review from delaying the entire project during a heated political season in Washington, D.C.

The move promises to help shrink the gap between North American and international crude prices sooner, and allows U.S. President Barack Obama, who quickly supported the plan Monday, to strike back at Republicans raising alarms about his energy policy as he seeks re-election this year.

The 700,000-barrel-perday Gulf Coast leg, originally part of the Alberta-to-texas proposal, is now a separate $2.3-billion US project that does not require the crossborder presidential approval Obama denied Keystone XL in January.

Transcanada is eyeing a mid- to late-2013 startup for the link between an oversupplied Oklahoma oil storage hub and the world’s largest refining market, more than a year before it expects the entire Keystone XL line could begin moving barrels of Alberta oilsands bitumen south.

Transcanada wrote the U.S. State Department on Monday, outlining its plans to soon reapply for a permit to build a portion of the $7.6-billion Keystone XL from Montana’s border with Canada to Steele City, Neb. The Calgary pipeline and energy company plans to add a new route around ecologically sensitive lands in Nebraska to the application in October or November, once the right-ofway is hammered out with state regulators.

Transcanada maintained an expectation that more than three years of U.S. review should lead to Keystone XL approval in early 2013, followed by two years of pipeline construction. Monday’s move is the latest revision by Transcanada of the 2,700-kilometre pipeline, which has become a proxy for the fierce international debate about growing development of the oilsands, the world’s third largest oil deposit.

Alex Pourbaix, Transcanada president of energy and oil pipelines, said the company has the “vast majority” of regulatory approvals and “significant” binding long-term contracts with producers and Gulf Coast refiners to build the link from Cushing, Okla. to Nederland, Texas, and could increase capacity to 830,000 barrels per day on commercial support.

Transcanada began gauging interest in an Oklahoma-to-texas line last November, following the State Department’s delay into 2013 of a decision on Keystone XL over its request for further study on alternative routes in Nebraska, where ranchers and political leaders feared a pipeline leak could pollute a vast aquifer.

Obama, who rejected Keystone XL due to the tight timeline mandated by Congress, will speed up federal permitting of the Gulf Coast line that will “help address the bottleneck of oil” in the U.S. Midwest, a White House spokesman said.

“The president welcomes today’s news that Transcanada plans to build a pipeline to bring crude oil from Cushing, Okla., to the Gulf of Mexico,” press secretary Jay Carney said in a statement.

Growing U.S. oil production and increased Canadian crude delivery into Cushing have had infrastructure companies rushing to move gummed-up stockpiles with new pipeline capacity.

Pourbaix said there remain “plenty” of pipeline opportunities, even with Transcanada’s Gulf Coast proposal and the competing Seaway pipeline reversal by Enbridge Inc. and Enterprise Products Partners LP, to transport crude from Cushing to the Houston area.

“There’s going to be something in the range of two million barrels per day of incremental light sweet production coming into Cushing over the next decade,” Pourbaix said.

Enbridge chief executive Pat Daniel, speaking in Calgary, said TransCanada’s project doesn’t change plans for Seaway, which will increase from an initial 150,000 barrels per day of capacity in June to 400,000 barrels per day next year and could double with a potential twinning of the line.

“We have assumed all the way along that Keystone XL, not only this portion, but its entirety, will be built,” Daniel said.

Alberta Premier Alison Redford welcomed Transcanada’s Gulf Coast project for its ability to lift North American oil prices for producers and, in turn, increase royalty and tax revenues.

“I think in terms of being constructive and demonstrating success, that this will assist in the other application for the presidential permit,” Redford said from Chicago, while on a trade mission.

Along with Alberta, the Canadian federal government has intensely lobbied U.S. politicians to move Keystone XL forward, to increase returns on one of the country’s most lucrative exports. Oilsands production is expected to at least double by 2020 from a decade earlier and analysts predict an export pipeline bottleneck could lower the price Alberta producers earn on each barrel as early as 2016.

Transcanada shares rose 39 cents to close at $42.39 on the Toronto Stock Exchange.

U.S. crude’s wide discount to international Brent benchmark of more than a year narrowed slightly, to close down just nine cents at $15.61.

Phil Flynn, energy analyst for Chicago-based commodities trading house PFGBEST, said oil might need to be flowing through the Transcan- ada line before the project pushes up U.S. crude prices substantially.

“I think the market is skeptical of these (Gulf Coast) pipelines and we’ve priced in quite a bit ahead of Seaway,” Flynn said.