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February 2006

Vol. 11, No. 6 Week of February 05, 2006

Keystone pipeline passes major milestone

TransCanada has secured binding commitments for line to carry oil sands production; plans open season for two extensions

Gary Park

For Petroleum News

More than just securing enough binding commitments to ship 340,000 barrels per day of oil sands production from Alberta to the U.S. Midwest, TransCanada is already touting plans for an expanded version of its US$2.1 billion Keystone pipeline.

The Calgary-based pipeline giant said it plans a binding open season later this year for two extensions to the Keystone system.

Despite being a later and surprise entry into the oil sands pipeline contest, TransCanada — whose focus until now has been primarily on delivery of natural gas — has given a further lift to bolster the commercial outlook for the oil sands.

“The positive commercial response we received confirms that shippers recognize the value of our project as a cost-competitive way to link growing oil sands supply to U.S. energy markets,” said TransCanada Chief Executive Officer Hal Kvisle.

He said Keystone will help “meet a critical need for additional pipeline infrastructure” to handle a projected rise in oil sands production by 1.5 million bpd over the next 10 years.

Once completed, Keystone will be ready to ship 435,000 bpd from Hardisty, Alberta, to Patoka, Ill., through a 1,800-mile system. Additional pump stations will allow an expansion to 590,000 bpd.

The new open season will test support for extensions to Fort Saskatchewan, Alberta, and Cushing, Okla.

Before construction can start in 2007, TransCanada will need various regulatory approvals in Canada and the U.S. An application is expected to be filed this year with Canada’s National Energy Board.

Enbridge may object

A potential obstacle for Keystone, identified by UBS Investment, could come from rival Enbridge, whose gas distribution division may object to TransCanada’s plans to convert an underused section of its Canadian mainline gas system between Alberta and Manitoba for use as part of Keystone.

If that becomes an issue it will be resolved by the National Energy Board.

Enbridge itself has more than C$8 billion worth of pipeline projects, offering oil sands producers new markets in the U.S. Midwest, the Gulf Coast and the British Columbia coast, with tanker access to California and Asia, while Kinder Morgan Canada (formerly Terasen) also hopes to expand its links from Alberta to the U.S. and Asia.

The first long-term contracts obtained through TransCanada’s binding open season in the final quarter of 2005 have an average duration of 18 years.

Kvisle declined during a conference call to identify any of the shippers other than ConocoPhillips, which has rights to acquire up to a 50 percent participating interest in Keystone.

ConocoPhillips views Keystone as a chance to further integrate its oil production assets in Canada with its Wood River refinery near Chicago.






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