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Keystone XL pipeline delay threatens oil shippers before TransCanada

12.11.2013  | 

For producers, Keystone is the earliest export line scheduled to ease bottlenecks which have helped push Canadian heavy crude $27/bbl above the US benchmark and are costing the industry about $16 billion/year.



CALGARY (Bloomberg) -- TransCanada has about $31 billion of projects on its books, even without the $5.4 billion pipeline the company had targeted for completion in 2012. 

For producers, Keystone is the earliest export line scheduled to ease bottlenecks which have helped push Canadian heavy crude $27/bbl above the United States benchmark and are costing the industry about $16 billion/year, according to Chevron.

Canadian oil-sands output is set to more than double to 4.5 MMbpd by 2025 from last year and producers are forecast by RBC Capital Markets to spend as much as $27 billion annually through 2018 to develop the word’s third-largest crude reserves. Canadian Natural, which has 120,000 bpd booked on Keystone XL, plans to increase oil-sands output by about 14 % in 2014 from this year.

For large shippers like Canadian Natural or Suncor, Keystone XL “is far more important,” than for TransCanada, John Stephenson, who helps oversee $2.47 billion at First Asset Investment Management, including stakes in TransCanada, Canadian Natural and Suncor, said by e-mail December 4.

Climate Change

TransCanada expects the results of the United States State Department’s environmental review of Keystone XL by the end of the year, CEO Russ Girling said November 19 in an interview. The report on the pipeline, which would link the oil sands to the world’s largest refining center on the Gulf Coast, will help Obama decide whether the conduit would contribute significantly to climate change, the test he set in a June speech for the project’s approval.

Canadian Natural has 120,000 bpd of capacity booked on Keystone XL, Steve Laut, president of the company, said on a May conference call, according to the transcript. Suncor Energy, which expects to boost its production of crude by 10 % in 2014 from this year, and Cenovus Energy also are among companies that committed to use the line.

Other Pipes

As TransCanada pursued other projects and split Keystone XL in half by building the southern leg that doesn’t require a presidential permit first, the pipeline’s contribution to the company’s growth diminished. The line now represents 14 % of TransCanada’s roughly $34 billion in projects backed by contracts, compared with 32 % four years ago, according to figures compiled from company presentations. The projects include solar power and other oil and gas pipelines.

The northern portion will contribute $776 million a year in earnings before interest, taxes, depreciation and amortization, compared with $1.55 billion for the Energy East pipeline TransCanada is proposing from Alberta to the Atlantic Coast, according to Steven Paget, an analyst at FirstEnergy Capital Corporation.

The southern leg of Keystone XL, from Cushing, Oklahoma, to the Gulf Coast, is forecast by Calgary-based FirstEnergy to contribute $228 million a year. Oil began flowing through the pipe last week and it’s scheduled to start delivering crude in mid-to-late January, according to TransCanada.

‘Very Important’

Even as TransCanada plans to build other oil pipeline capacity, Keystone XL remains “very important” for the company, Girling told reporters last month. “It’s still a very important project for the industry.”

The pipeline’s delay is one reason why Cenovus is making commitments to other projects, Brian Ferguson, Cenovus CEO, said at an investor conference in September, pointing to rail and barge shipments that have allowed producers to “work around bottlenecks,” he said.

For producers boosting North American oil output, “the pipeline is a lot more meaningful,” than for TransCanada as multiple new crude conduits are needed to shrink discounts of grades on the continent to global benchmarks, said Pendill, of Edward Jones.

“The only way we’re going to do that is to provide a greater outlet coming out of the supply centers, that being the Bakken and the oil sands and getting that to the shore lines,” he said. “XL could certainly help get that done.”

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