Keystone Pipeline
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TransCanada Corporation (TSX: TRP) and ConocoPhillips (NYSE: COP) announced their plans on July 16 to boost the capacity of the Keystone pipeline by 500,000 barrels of oil per day. TransCanada and ConocoPhillips had entered into an agreement in 2005 to deploy the Keystone pipeline for delivering crude to ConocoPhillips’ Wood River, Illinois and Borger, Texas refineries. The expansion plan involves the extension of the Keystone crude oil pipeline system from Western Canada to the US Gulf Coast, with the 1,980 mile, 36-inch crude oil pipeline set to carry oil sands crude from Hardisty, Alberta to the US refining hub at Port Arthur, Texas by 2012.
The expansion, which is projected to cost US$7 billion, would raise the capacity of the joint-venture Keystone pipeline project from 590,000 barrels per day to 1.1 million barrels per day. The expansion would take the total capital investment in the project to nearly US$12.2 billion. The capacity expansion plans are a consequence of successful talks with potential shippers of approximately 300,000 barrels per day to the US Gulf Coast. Given these latest commitments, Keystone has now secured long-term commitments for about 830,000 barrels per day for an average term of 18 years. TransCanada’s President and chief executive Hal Kvisle said, “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.” “We have come up with a proposal that offers producers the cheapest way to get to the Gulf Coast,” the CEO added.
Keystone intends to seek additional shipping commitments from interested parties.
Once Keystone completes the open season process, it aims to proceed expeditiously with the necessary regulatory applications in Canada and the US for approvals to construct and operate the proposed facilities. Construction of the facilities is anticipated to commence in 2010, following the receipt of the necessary regulatory approvals. As a result, a large chunk of the additional capital investment of US$7.0 billion is expected to be made between 2010 and 2012.
The expansion is expected to allow faster transportation from oil sands producers to the Gulf Coast region than afforded by competing projects. The Canadian Association of Petroleum Producers has indicated that oil sands production in western Canada has increased fourfold since 1990, exceeding the 1.2 million barrels per day mark in 2007.
The Keystone pipeline project is in-line with TransCanada’s plans to move away from its traditional natural gas shipping business. TransCanada’s partner in the project, Houston, Texas-based ConocoPhillips, has a 50% stake in the pipeline.
Alternatio Cirqui, EconomyWatch.com Energy Correspondent
