Tags: TransCanada | southern | Keystone | Leg

Canadian Firm to Build Pipeline Despite Obama Block

Monday, 27 February 2012 01:43 PM

TransCanada Corp. said on Monday it aims to build the southern leg of its $7 billion Keystone XL oil pipeline first, skirting a full-blown federal review and heightening competition to move crude out of the glutted Cushing, Oklahoma, storage hub.

TransCanada, whose initial Keystone XL application was rejected in January after more than three years of review, said it wants the southern portion of the pipeline, running to Texas refineries from Cushing, to be in service by mid- to late 2013. The approximate cost is $2.3 billion.

The company also said it wrote to the U.S. State Department with plans to refile an application shortly for the remainder of the line, running to Steele City, Nebraska, from the Canada-U.S. border, reminding officials that much of the work is already done.

The development in the long-running battle over the pipeline comes as U.S. President Barack Obama seeks to fend off Republican jibes about quashing the project, with surging U.S. gasoline prices becoming a hot-button election issue.

TransCanada has broached the idea of building it in stages before, most recently last month after Obama rejected Keystone XL, saying it needed further environmental reviews.

One benefit to TransCanada of building the 700,000 bpd Cushing-to-Texas portion first is the elimination of State Department approval, as the line would not cross the Canada-U.S. border. It will require other regulatory approvals, however.

"Gulf Coast refineries can then access lower cost domestic production and avoid paying a premium to foreign oil producers," TransCanada Chief Executive Russ Girling said in a statement. "This would reduce the United States' dependence on foreign crude and allow Americans to use more of the crude oil produced in their own country."

The overall project stalled at the State Department level in January as environmental objections over the pipeline's route and increased development of the Alberta oil sands boiled over into noisy protests across the United States, raising difficult political problems for Obama as the election year got under way.

The White House said it welcomed the plan for a new line to the Gulf Coast and would help expedite permits so TransCanada could build it in a timely manner.


However, it comes as cold comfort to producers of Canada's oil sands, which have been struggling with widening price discounts for their burgeoning output, partly due to tight export pipeline capacity.

Ottawa has lobbied Washington intensively to move Keystone XL forward as a way to increase returns for one of the country's most lucrative exports. Since it was rejected, the Canadian government has pushed hard for a new export route to the West Coast, where the crude could be shipped to Asia.

That has spurred warnings, especially from Republicans, that China would be the ultimate winner in the debate.

"It's good news that progress is continuing on a project that would create tens of thousands of American jobs, and keep Canada from selling North American energy to China, but it also makes the Obama administration's refusal to approve it even more disturbing," said Michael Steel, a spokesman for House Speaker John Boehner.

In its entirety, the Keystone XL project would extend 1,661 miles (2,673 km) to the Port Arthur, Texas, area from Hardisty, Alberta, moving 830,000 barrels a day.

The Gulf Coast portion would help alleviate a glut of oil supply at Cushing, a major factor cited for deep price discounts on land-locked North American oil compared with international grades, such as the Brent benchmark.

In the past month, the spreads, especially on Canadian and North Dakota crudes, swooned, in some cases to record levels, due to tight pipeline space and surging production.

The southern part of Keystone XL would compete with the Seaway pipeline, run by Enbridge Inc and Enterprise Products Partners.

A reversal of the flow direction in that pipeline is expected to be completed by June, allowing 150,000 bpd to flow to Houston-area refineries. Since the announcement of the reversal plan, the companies have talked about expanding it to as much as 800,000 bpd.

As more companies line up to move oil from Cushing, several pipeline proposals have been announced by such companies as Plains All American and a consortium including SemGroup Corp, Gavilon Midstream Energy LLC and an affiliate Chesapeake Energy Corp, looking to add volumes to the hub.

Environmental groups were not pleased that a portion of a project they have fought hard against for more than a year appears to be moving ahead.

"Even though this doesn't bring new oil in from the tar sands, we stand with our allies across the region who are fighting to keep giant multinational corporations from condemning their lands," Bill McKibben, founder of 350.org, said in a statement.

"This fight is uniting people, from environmentalists to Tea Partiers, in all kinds of ways."

© 2018 Thomson/Reuters. All rights reserved.

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Monday, 27 February 2012 01:43 PM
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