While waiting on a ruling from the National Energy Board (NEB) on plans to convert part of its gas pipeline system to transport oil, TransCanada Corp. moved ahead with an application this week for construction of the Canadian portion of the Keystone oil pipeline. TransCanada expects the pipeline, which would transport crude oil from Hardisty, AB, to refineries in the U.S. Midwest, to be placed in service in late 2009.
The Keystone project would use the converted gas line as part of a 1,842-mile system that would transport 435,000 b/d of oil to U.S. markets at Wood River and Patoka, IL. The pipeline would be designed for an expansion to 591,000 b/d with the addition of pump stations. It would require US$600 million in renovations to the converted gas line, plus about US$1.5 billion in new construction in the United States. The estimated capital cost of the Canadian portion of the project is C$664 million (US$574 million).
In June, the company filed an application with the NEB seeking approval to transfer one of the six pipelines that make up its mainline to oil transportation, resulting in an expected loss of 500 MMcf/d of gas transportation capacity or about 7% of the current space on the 7 Bcf/d mainline. Public hearings on the transfer application were completed in mid-November and TransCanada anticipates a decision on its transfer application from the NEB in early 2007.
The project is a response to significant oil production growth in Alberta from oilsands operations. It also is designed to address overcapacity on the TransCanada system that has run up to 1.5 Bcf/d since rival Alliance Pipeline opened its direct route from northern Alberta and British Columbia to Chicago seven years ago.
While Canadian producers have fought the transfer because of a gas production rebound in the Western Canadian Sedimentary Basin and the rapid growth of coalbed methane development, TransCanada predicts the excess capacity on its system will only grow worse as aging western gas fields decline while domestic industrial demand grows in Alberta, especially for oilsands plant fuel.
"Crude oil pipeline capacity out of the Western Canada Sedimentary Basin is already tight and as production volumes increase, that capacity will become increasingly constrained," said TransCanada CEO Hal Kvisle. "The Keystone Pipeline is the critical infrastructure shippers need to access key markets. We have secured firm, long-term commitments from shippers to transport 340,000 b/d of of crude oil for an average term of 18 years."
This application, filed by TransCanada Keystone Pipeline GP Ltd., also seeks approval of tolls and the tariff for the pipeline. Public and stakeholder consultation, detailed environmental assessments and field studies, and further engineering work are ongoing in both Canada and the U.S. and will continue into 2007. Construction is expected to begin in early 2008, with commercial operations scheduled to commence in the fourth quarter of 2009.
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