TransCanada’s Keystone XL project has received a first-stage launch with the formal opening of the southern leg from the Cushing, Okla., hub to Nederland, Texas.
The 485-mile Gulf Coast Project is already operating at 300,000 barrels per day, expected to average 700,000 bpd over its first year and designed for 800,000 bpd, all helping to free up crude trapped by the U.S. Midcontinent pipeline bottleneck. A Houston Lateral from Liberty, Texas, is also on track for a startup in late 2014.
TransCanada Chief Executive Officer Russ Girling said the initial volumes are light U.S. barrels, but that will transition to a majority mix of Canadian heavy and light crudes, along with U.S. crudes that could include 100,000 bpd from the Bakken.
Alex Pourbaix, TransCanada’s president of oil pipelines, said the south leg represents a “major change in where the largest refining hub in the world gets its oil.”
Girling said the project, achieved at a modest cost of $2.3 billion, is a “win-win-win” for Gulf refiners, who will pay less to access a “more secure source of crude” than their traditional offshore imports, while North American crude producers will obtain a better price for their landlocked volumes.
The project also includes 2.25 million barrels of new storage capacity at Cushing.
“We’re seeing an enormous change in North American energy markets and how energy gets delivered,” he said, adding there is “not a chance” in his lifetime — regardless of speculation by some critics — that the crude will exported from North America.
Shift to northern leg
Now attention shifts to the northern leg of Keystone XL from Alberta to Nebraska, which Girling concedes has already grown in cost by $100 million from the budgeted $5.4 billion, blaming the rise to the ongoing costs of maintaining pipe and equipment in the field and “sheer cost escalation.”
He also, in a separate presentation to investors at Whistler, British Columbia, disclosed that if President Barack Obama refuses to issue a presidential permit for Keystone XL TransCanada has other options for moving the crude that shippers have contracted to fill 100 percent of XL.
Girling said his company would work on other ways to get crude — including the contracts it has in place for XL, some crude from Eagle Ford and some spot volumes — to Cushing.
On progress towards a final decision within the Obama administration, he reported that the environmental review by the State Department is “pretty close to being done ... so that’s positive. We would hope to see it completed shortly.”
Months to go
Girling expects the department’s Final Impact Statement will use up its allocated 90 days for public response, followed by three to four months before Obama renders his verdict.
However, he cautioned that the 90-day period comes from an executive order in the White House and there is nothing to stop another executive order being issued.
Both the Canadian government and the industry are gradually shifting from diplomacy to blunt language in making their case for XL, with the government posting its message in two of the busiest metro stations in Washington, D.C., both within three blocks of the White House.
Two large banners tell commuters that the Great White North is “America’s best energy partner.
“America faces a choice: It can import oil from Canada — a secure and environmentally responsible neighbour that is committed to North American energy independence — or it can choose less stable offshore sources with much weaker environmental standards,” says one ad.
Another banner shows that Canada sends 2.4 million bpd of crude to the U.S., more than “Saudi Arabia and Venezuela combined.”
A Canadian government website also notes that Canada is the “first major coal user to ban construction of traditional coal-fired electricity generation units,” while pointing out that the Nature Conservancy of Canada, a private not-for-profit organization, has preserved “835,637 acres of natural habitat — an area larger than the individual landmass of 80 countries in the world.”
Congressional push
Another political push is being crafted by Republican leaders in Congress who are considering attaching an XL decision to a new law to raise the U.S. debt ceiling, which may be needed before the end of February to avert another financial crisis.
Eric Cantor, the House Majority Leader, told reporters at the World Economic Forum in Davos, Switzerland, that the U.S. “needs Keystone (and) we’re looking at whatever we need to do to see that the pipeline gets built.”
The Democrats are also under pressure to retain Senate seats in pro-XL states, including Montana, South Dakota, Arkansas and Louisiana.
With relations between Obama and Canadian Prime Minister Stephen Harper at the lowest point in the recent history of dealings between leaders of the two countries, the mood will be put to the test in February when they and Mexican President Enrique Pena Nieto hold one of their periodic summits.
They will commemorate 20 years of the North American Free Trade Agreement amid a number of irritants, none more public than XL, which many Canadians believe has been put through five years of manufactured delays that some warn could now be extended beyond this year’s mid-term Congressional elections.
Girling said that the Gulf Coast still imports 7.5 million bpd of feedstock, and, despite projected production growth in the Lower 48 states, will still need 4 million-6 million bpd, estimating that introducing XL would allow the U.S. to lower its dependence on crude from Venezuela and the Middle East by up to 40 percent.
