The race to break through the Midcontinent bottleneck and flow expanding supplies of crude oil, bolstered by shale production to the Gulf of Mexico (GOM) and world markets moved up by about 300,000 b/d with separate announcements Wednesday of plans to reverse the flow of the Seaway crude oil pipeline, and a possible go-ahead for the Cushing to the GOM southern section of the stalled Keystone XL oil pipeline.
Enterprise Products Partners LP, 50% owner of Seaway, will partner with Enbridge Inc., which just bought the other half from ConocoPhillips for $1.15 billion, in reversing the pipeline flow to start sending 150,000 b/d from Cushing to the Houston area in the second quarter of 2012. Enterprise backed off plans for construction of a larger pipeline, switching to partnering on a faster option at minimal cost.
At the same time senior executives at TransCanada Corp. told an investors' meeting in Toronto Wednesday that they may try to build a portion of the pipeline between Oklahoma and the GOM before the final decision is made on the entire C$7 billion, 1,700-mile Keystone XL oil pipeline. This leaves the ultimate goal of tapping Canadian oilsands, stalled by environmental concerns, on the sidelines. Instead the southern part of the line would transport the burgeoning supplies of shale oil coming out of the Midcontinent.
The Calgary-based energy infrastructure company indicated it is looking at its options if the U.S. State Department, assigned to review the political hot potato, ultimately rejects the controversial project, which has stirred debate from the White House to the statehouse in Lincoln, NE. TransCanada has examined options for taking Alberta oilsands supplies to the West or East coasts for shipping south, and it is prepared to sell at a profit the C$1.9 billion of pipe and equipment it already has in place along the proposed route of the Keystone XL additions, if the proposal is rejected.
The southern-most link in the Keystone project -- the Cushing, OK-to-GOM portion -- has received sufficient market interest in an open season, so TransCanada now thinks it can move ahead with the project, according to Alex Pourbaix, president of TransCanada's oil and energy businesses, who said two open seasons have been held on this part of the project, which has two end-points, Houston and Port Arthur, TX.
TransCanada sees Keystone as its foundation for expanding its oil footprint in North America, and eventually it will pursue short- and long-term storage plays and receipt points along the pipeline, Pourbaix said.
"Storage is a good opportunity for us, providing fee-based growth opportunities for the company," he said. "We also very much intend to add supplies from U.S. shale play regions to the most desirable market regions of the United States.
"We see the Bakken [Shale] area as an excellent growth area for us, and we are going to continue to compete for volumes there -- both in North Dakota and Saskatchewan, and as we speak, TransCanada has started discussions in North Dakota to create incremental access points for producers. We feel the Bakken will eventually provide opportunities for as much as C$400 million incremental investments leading to in-service dates by 2014."
Pourbaix said the second open season for the southern Keystone ended Oct. 17, "and in total we offered up 150,000 b/d of capacity between Cushing and the Port Arthur/Houston markets, and we have now contracted the lion's share of the 150,000 bbl." The Cushing market link is expected to directly tie the Oklahoma-based oil hub and its more than 50 million bbl of storage capacity with the largest refinery complex in North America at the GOM, and "it is going to go a long way in helping alleviate the pipeline capacity constraints that everyone has been reading about," he said.
Shippers have basically told TransCanada they would like to see the Cushing-to-Gulf link "come in as soon as possible, so we will take a real hard look at the commercial underpinnings for that," he said, adding that the project has a final environmental impact statement and the "vast majority" of the right-of-way has been acquired.
Asked if the Seaway switch changes the dynamics in North America, Pourbaix said there is enough oil in Cushing for "both us and Enbridge and Enterprise to compete, but with respect to getting a path for Canadian crude from Canada to the Gulf Coast there is still a pretty significant dead spot between where they get their crude and the Gulf Coast."
"We'll be in a position to start construction of that portion of the new [overall XL] line literally very early next year, and we are looking at the regulatory side of that. I think at worst, we would require the permission of the State Department to proceed on that rather than as part of the entire process. We think that is doable, but we would want to talk to the State Department."
If the link were pursued early it would simply be to address a growing bottleneck in the nation's energy infrastructure and would not "pre-decide" the larger XL project, Pourbaix said.
Down the road the Enterprise/Enbridge Seaway project also could be expanded to 400,000 b/d in the first half of 2013. The partnership also plans to build an 85-mile extension to Seaway from the Houston area to Port Arthur heavy oil refineries.