July 21, 2008

TransCanada and ConocoPhillips plan to extend Keystone pipeline to U.S. Gulf Coast

CALGARY

TransCanada Corp. and ConocoPhillips plan to extend the Keystone pipeline to the U.S. Gulf Coast — the hub of the U.S. refining industry and a coveted market for Alberta crude — and to more than double the project’s capacity.

The first phase of the US$5.2-billion, 3,456-kilometre pipeline will eventually carry 590,000 barrels of crude oil per day from Hardisty, Alta., to Cushing, Okla. Construction is expected to wrap up next year.

With a price tag of $7 billion, Keystone’s second phase will add 500,000 barrels per day in capacity by 2012, TransCanada and ConocoPhillips said in a statement Wednesday.

The new pipeline will take crude from the Alberta oilsands along a 3,100-kilometre route to Port Arthur, Tex., home to several key oil refineries.

U.S. refiners have been looking to secure more stable supplies of crude as a worldwide surge in demand has pushed oil prices up 80 per cent in the last year.

The northern Alberta oilsands, previously an afterthought in the U.S. crude market, have become a key source of new supply, even though the tar-like bitumen is harsher on the environment and trickier to refine than conventional crude.

U.S. refiners have been busy revamping their refineries to handle the thicker Canadian crude as supplies for lighter crude continue to tighten.

In Alberta, oilsands production has grown fourfold since 1990 and surpassed 1.2 million barrels a day last year. Daily output is slated to grow to three million barrels by 2015.

Once completed, the expansion will bring the Keystone Pipeline system to about 1.1 million barrels per day, with the possibility of ramping up to 1.5 million with the help of additional pumping facilities.

“The Keystone expansion will be the first direct pipeline to connect a growing and reliable supply of Canadian crude oil with the largest refining market in North America,” stated Trans-Canada chief executive Hal Kvisle.

Calgary-headquartered TransCanada and Houston-based ConocoPhillips, which took a half-interest in Keystone in January, said the decision to extend the line to the Gulf Coast follows negotiations with several prospective shippers.

These suppliers have undertaken to ship 300,000 barrels per day to the Gulf Coast.

Other companies can snatch up some of the remaining capacity in an open season set to expire Sept. 4.

U.S. Gulf Coast refiners have traditionally refined crude oil from Mexico and Venezuela. But output from Mexico’s big Cantarell oilfield is falling and Venezuela is shifting oil exports from the United States to other markets.

Many oil companies are expanding planned oilsands output in a bid to feed hungry markets in the United States.

As a result, other pipeline builders are looking at ways to carry the heavy oil to U.S. refineries, but there have been some challenges.

Enbridge Inc. said last week its $2.6 billion Texas Access pipeline, also designed to ship Alberta crude to the Gulf, will be delayed by a few years because Canadian oilsands projects are taking longer than expected to come on stream.

Canadian Press

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