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TransCanada extends KXL process amid fears of excess pipeline capacity

In this aerial photo, holding tanks for Colonial Pipeline Company sit in floodwaters caused Tropical Storm Harvey in Port Arthur, Texas, Friday, Sept. 1, 2017.

LM Otero/AP

TransCanada Corp. is giving itself more time to sign up shippers on its proposed Keystone XL pipeline, citing the impacts of Hurricane Harvey on its U.S. Gulf Coast refining customers.

However, some analysts question whether there is market support for the 830,000-barrel-a-day pipeline from western Canada, as potential shippers try to assess the fate of competing projects to the U.S. Midwest and the British Columbia coast and worry about an eventual excess of pipeline capacity.

TransCanada said Wednesday it was extending by a month its "open season" for producers and refiners to reserve space on the Keystone line, citing the "historic flooding and catastrophic impacts" to Houston and parts of the U.S. Gulf Coast caused by Harvey.

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The process was to have concluded Sept. 28 but will now close on Oct. 26. The company launched the open season in July, and is looking for 225,000 barrels a day of firm commitment from shippers, in addition to the existing contracts it has with crude producers in western Canada and refiners on the Gulf Coast.

The Calgary-based pipeline company said it is confident the capacity would be fully subscribed. "Many open season participants have been significantly impacted by the historic flooding in the U.S. Gulf Coast," company spokesman Matthew John said. "An extension gives them the time they need to focus on their impacted staff and operations."

Prominent industry analyst Rusty Braziel is skeptical.

"Let's face it, if they had received enough interest in their pipeline before the hurricane hit, they would not be extending," Mr. Braziel, president of RBN Energy LLC, said in an interview from Houston.

There are currently three pipeline expansions that have aprovals from either the Canadian or U.S. governments or both, though each faces challenges from local opponents and state and provincial governments. In addition to Keystone XL, Kinder Morgan Inc. proposes to add 590,000 b/d of pipeline capacity to its Trans Mountain line to Vancouver, while Enbridge Inc. is planning to boost its Line 3 route to the U.S. Midwest by 370,000 b/d.

Kinder Morgan said Wednesday it has selected six contractors who will manage construction in British Columbia and Alberta, and that it intends to begin construction on the Trans Mountain project this month, despite opposition from the B.C. government and pending lawsuits from First Nations.

All told, those three projects would add nearly 1.8 million b/d of export capacity within a few years, while the Canadian Association of Petroleum Producers forecasts Western Canadian crude output will grow by 1.5 million b/d by 2030. And that CAPP production projection is likely optimistic if prices remain in a prolonged slump.

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U.S. refiners are wary of making a commitment to Keystone XL, only to see Trans Mountain get built, said Mark Broadbent, Houston-based research analyst at Wood Mackenzie consultancy. He said refiners are afraid they will be stuck with commitments to fill the Keystone XL pipeline even as western Canadian producers are more interested in reaching the Asian market through an expanded Trans Mountain line.

If all three projects proceed, "there's going to be excess shipping capacity from western Canada," he said. Refiners would then have to bid up prices for western Canadian crude to ensure they have supply to put in the pipeline. Once under contract, they would have to pay the transport rate even if they don't ship crude.

Gulf Coast refiners are now trying to assess which pipeline projects has the best chance of getting built. Keystone XL is awaiting regulatory approval in Nebraska, where a coalition of landowners, Indigenous Americans and environmentalists have opposed the route.

Mr. Braziel said he expects Enbridge's Line 3 to clear regulatory hurdles in Minnesota, although it also faces opposition. Enbridge has already begun construction on the expansion project in Canada. One of the two other pipelines would likely be needed after 2020, he said.

"If you believe Trans Mountain is going to get built, then you probably don't need Keystone XL," Mr. Braziel said. "If you think it is not going to get built, then you probably do."

B.C.'s recently installed New Democratic Party government has vowed to try to block the Trans Mountain project. However, federal Natural Resources Minister Jim Carr reiterated Ottawa's support for it.

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"It's a federally approved pipeline within federal jurisdiction … that we believe is in the national interest," he told reporters at the Liberal caucus retreat in Kelowna, B.C.

With a file from Laura Stone in Kelowna, B.C.

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More


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