By BEN LEFEBVRE
US companies that refine oil increasingly doubt that the
controversial Keystone XL pipeline expansion will ever be built, and
now they don't particularly
Railroads are carrying soaring amounts of crude from Canada
down to refineries along the US Gulf Coast, reducing the need
for the TransCanada project, which is still awaiting approval
from the US government after two years of delays.
Meanwhile, rival Enbridge is expanding existing pipes to
carry Canadian crude south -- and it doesn't need federal
permission because it's using existing pipeline rights of way.
In addition, so much oil is sloshing around the US from its own
wells that refiners don't need lots more heavy crude from the
north to keep busy.
"Keystone XL has been back-burnered for so long that any
relevant parties have been able to make plans as though the project never even existed in the
first place," says Sam Margolin, an analyst at Cowen &
TransCanada designed the proposed conduit to ship 830,000
bpd of heavy crude from western Canada, as well as
lighter-grade oil from North Dakota shale fields, to the US refining complex along the Gulf of
The cross-border Keystone project, billed as a way to reduce
heavy oil imports from Venezuela and Mexico, requires a permit
from the US State Department.
Concerns about the pipeline's possible environmental impact and legal
skirmishes over the company's use of eminent domain to acquire
land along the pipeline's proposed route have also bogged down
TransCanada says that the case for building Keystone XL
remains strong and that it hopes the US State Department will
decide whether to grant the construction permits by the end of
this year .
But refiners are moving ahead with other plans. Valero
Energy had signed to receive oil from Keystone XL when the project was first announced and
spent billions of dollars upgrading some of its US Gulf Coast
refineries to turn heavy Canadian crude into gasoline and
But it says it no longer considers the pipeline critical to
its business. The company is now expanding rail terminals at
its refineries in Benicia, Calif.; St. James, La.; and Quebec
to receive more crude oil shipments, including heavy Canadian
crude. Part of the reason is the long wait for Keystone.
"If we just sat around and waited for Washington, we'd never
get anything done," Valero spokesman Bill Day said.
Nearly 200,000 rail cars in Canada carried crude oil or fuel
during the first seven months of 2013, up 20% from the year
before, according to the latest data from the American
Association of Railroads.
Refiners along the US Gulf Coast are also taking advantage
of the boom in light, sweet crude coming out of Texas and North
Dakota. That oil is easier to process than heavy oil from
Canada, Venezuela and Mexico, and as the supply has increased,
the demand for heavy crudes at many refineries has
Enbridge, TransCanada's cross-town rival, plans to spend
$2.4 billion to expand several pipelines in its Lakehead system
by 2014. Such an expansion would bring 1.2 million
bpd of crude oil from Canada and North Dakota to the Midwest,
where it could then be shipped to the Gulf Coast via the Seaway
pipeline that Enbridge owns with Enterprise Products.
Oil producers in Canada are still pushing for Keystone.
Imperial Oil, an affiliate of ExxonMobil, and other companies
have argued that they need the pipeline to give them more
access to the US Gulf Coast, which is one of the few places in
the world able to handle large volumes of heavy crude oil. The
Canadian Association of Petroleum Producers says that without
the pipeline, production from oil sands will exceed shipping
capacity by 2016.
But even as they hope for the project's approval, some producers
in Canada are making other plans. Cenovus Energy Inc. has
signed contracts to send 200,000 bpd to Canada's east coast via
TransCanada's Energy East pipeline and 175,000 bpd to the
country's west coast on a Kinder Morgan pipeline, spokeswoman
Rhona DelFrari said.
"The long wait for the Keystone XL decision has created
uncertainty for the oil industry," Ms. DelFrari added. "We're
not putting all our eggs in one basket."
Dow Jones Newswires