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TransCanada Gets OK to Convert Mainline Segment to Oil Service

TransCanada Corp. last week received National Energy Board (NEB) approval to transfer at net book value a portion of TransCanada PipeLines Ltd.'s Canadian mainline gas transmission facilities to TransCanada Keystone Pipeline GP Ltd. The facilities are a key component of the Keystone Pipeline, which will transport crude oil from Alberta to refining centers in the U.S. Midwest.

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 (see Daily GPI, Dec. 15, 2006). The facilities approved for transfer consist of approximately 860 kilometers (530 miles) of 864-mm (34-inch) outside diameter pipeline of TransCanada's mainline gas transmission Line 100-1 between Burstall, SK and Carman, MB.

The NEB determined that the appropriate test to use to examine the application was the "public interest," as opposed to the "no harm to gas shippers" test, which was proposed by some intervenors. The NEB also approved TransCanada's request to reduce its Canadian mainline rate base by the net book value (NBV) of the facilities. It also approved Keystone's request to include the NBV in the Keystone Pipeline's accounts upon the transfer and to continue including it in its accounts if the Keystone Pipeline is placed in oil transmission service.

The NEB determined the application to be in the public interest, recognizing that the facilities will not be transferred until and unless Keystone receives additional approval from the NEB to construct and operate the Canadian portion of the proposed Keystone Pipeline.

The oil pipeline project targets production growth in the Alberta oilsands. However, Canadian producers fought the transfer of the gas line to oil service because of a rebound in gas production in the Western Canadian Sedimentary Basin and the rapid growth of coalbed methane development (see Daily GPI, Nov. 2, 2005). However, TransCanada has predicted growing excess capacity on its system as western gas fields decline and domestic industrial demand grows in Alberta, particularly for oilsands plant fuel.

"By converting a small segment of our extensive natural gas system to crude oil transmission service, we will maximize the use of an existing asset and still maintain sufficient capacity on our Canadian mainline system to serve forecasted customer demand," said TransCanada CEO Hal Kvisle.

As proposed Keystone would be a 2,965-km (1,842-mile) crude oil pipeline from Hardisty, AB, to the U.S. Midwest with a nominal capacity of 435,000 b/d.

The NEB has scheduled a public hearing beginning June 4 regarding the Keystone application filed in December for approval to construct and operate the Canadian facilities, and approval of the tolls and tariff for the pipeline. The Canadian portion of the project involves the gas pipeline conversion and construction of approximately 370 km (230 miles) of new oil pipeline, terminal facilities at Hardisty and pump stations. The U.S. portion of the project includes approximately 1,730 km (1,075 miles) of new pipeline. TransCanada continues to proceed with applications for U.S. regulatory approvals at federal and state levels.

Construction is expected to begin in early 2008, with commercial operations scheduled for the fourth quarter of 2009. On Jan. 30 TransCanada began an open season to obtain binding commitments in support of an expansion of Keystone to 590,000 b/d and the construction of a 468 km (291-mile) extension of the U.S. portion of the pipeline from the Nebraska/Kansas border to the refining and terminal hub near Cushing, OK. The open season closes March 14, and the expansion is targeted to be in service in the fourth quarter of 2010.

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