By BEN LEFEBVRE and ANGEL GONZALEZ
The US State Department's decision to delay TransCanada Corp.'s
expansion of its Keystone pipeline system sparked quick
concern in the North American energy industry. The pipeline is
critical for companies that have invested billions of dollars
in expanding the production capacity of Canada's oil sands and
refurbishing US refineries to handle heavy crude.
The State Department said Thursday it will postpone until after
the 2012 election a decision on the Keystone expansion as it explores a rerouting
that will avoid environmentally sensitive areas in Nebraska.
Previously, a final decision was expected by the end of 2011,
and TransCanada aimed to have the pipeline ready in 2012.
The move would delay completion of the project by a year and a half,
according to the American Petroleum Institute (API).
Vocal supporters of the pipeline expansion, dubbed XL, include
companies like Valero Energy Corp. (VLO) and ConocoPhillips
(COP). Both companies are eager to have access to vast amounts
of cheap, heavy Canadian crude for their US Gulf Coast
refineries, which currently buy heavy oil from Venezuela and
Houston-based Conoco, one of the original proponents of the
Keystone pipeline system, has major investments in
Alberta's oil sands. Exxon Mobil Corp. (XOM), the world's
largest publicly traded oil company and a big oil-sands
producer, has also been a big pusher for the pipeline's
approval, saying it would ease access to Canada's massive
The Keystone expansion would double the amount of
oil-sands crude that TransCanada ships to the US to 1 million
bpd, but environmentalists and officials have opposed it,
alleging that exploiting Canada's oil sands produce more
greenhouse gases than other types of crude and the corrosive
nature of oil-sands crude could result in more spills. The oil
industry says the pipeline is safe and will create thousands of
"Any delay in opening the Keystone XL pipeline extension is unfortunate
for our nation," said Valero Chief Executive Bill Klesse, who
in a statement called the US government's move
"The administration's decision will actually increase
greenhouse gas emissions because without this project, oil will be transported
further and by more carbon-intensive means. Valero continues to
support the Keystone XL pipeline project, and we feel [the
pipeline] makes too much sense not to approve," Klesse
The American Petroleum Institute said the project has been under review for
three years already, and that further delays could jeopardize
But the delay is also likely to benefit refiners, such as
Western Refining Inc. (WNR) and
HollyFrontier Corp. (HFC), which have been making a killing due
to their access to a glut of cheap crude in the U.S.
The supply had been piling up earlier this year due to a
lack of pipeline capacity to bring it out to the Gulf
Analysts say that Keystone
XL, in addition to bringing an additional 500,000 bpd of
Canadian crude, would also help eliminate the glut by
transporting 150,000 bbl of light, sweet crude from Cushing,
Okla., to Texas refineries.
Excess supply in Cushing is keeping the barrel of U.S.
benchmark West Texas Intermediate crude about $16 cheaper than
a barrel of European benchmark Brent.
The delay "extends the amount of time midcontinent refiners
will be making money hand over fist," said Sarah Emerson, an
energy analyst with consultancy ESAI Inc.
TransCanada's direct competitors are likely to benefit, too.
Enterprise Products Partners (EPD) and Enbridge (ENB) have a
joint venture to build the 500-mile Wrangler pipeline,
connecting Cushing to Houston by mid-2013.
There also has been talk of reversing the flow of the Seaway
pipeline, a conduit owned by Conoco and Enterprise Products
that brings 350,000 bpd from the Gulf into Oklahoma.
"Frankly, it increases the chance of Wrangler happening and
increases the chance of Seaway being reversed," said Brad
Olsen, an analyst at Tudor, Pickering Holt & Co.
Oil markets are unlikely to see any near-term impacts from the
decision, but that it would result in a continuation of the
currently depressed prices for WTI, said Tom Bentz, director at
BNP Paribas Commodity Futures in New York. "I don't really see
that as a big impact right now," he said.
Fadel Gheit, an analyst with Oppenheimer & Co., says that
the State Department's demurral is just delaying "the
inevitable," as access to Alberta, one of the richest oil
basins in the world, is key to both national security and the
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