While the White House mulls over environmental opposition against TransCanada Corp.’s proposed Keystone Pipeline into the United States, work is accelerating in Canada on an oilsands export alternative with the potential to alter North American outlooks for oil and natural gas alike.

The proposal that would send expanding supplies of Canadian bitumen into the Pacific Rim market could more than double the volume of natural gas used in the extraction process to nearly 3 Bcf/d by 2020.

Armed with C$286 million in advance payments from shippers and signs that more are ready to step forward, Kinder Morgan Canada is holding an open season capacity auction for a proposed expansion of its Trans Mountain Pipe Line. The route traverses the Rocky Mountains from an oilsands inlet at Alberta’s capital of Edmonton to Kinder Morgan’s Westridge ocean tanker terminal in Vancouver Harbor on the southern Pacific coast of British Columbia.

For a forecast C$3.8 billion in pipe and pump additions, the expansion plan offers to double Trans Mountain’s shipping capacity to 600,000 b/d. The proposed additions are about half the size and cost of the hotly contested Keystone XL project of a bitumen bullet line from Edmonton to refineries on the Texas coast of the Gulf of Mexico.

The Trans Mountain open season follows a breakthrough sale of capacity dedicated on its current line to loading up tankers at Westridge. Five shippers gave Kinder Morgan Canada the C$286 million as advances earmarked for the proposed expansion in the form of toll premiums for 10-year delivery contracts on the existing system for 54,000 b/d. Another five shippers made bids for capacity to fill tankers but were left to wait in line while Trans Mountain applied for approval of the pioneer foray into overseas oilsands marketing from the National Energy Board (NEB).

Hearings were held in late summer and a decision is imminent. The NEB has this fall granted a flurry of new oil and refined-products export licenses, including one this month to PetroChina International (America) Inc. (PCIA), a global trader based in Houston.

PCIA is a marketing arm of China National Petroleum Corp. and one of the five shippers that bought Trans Mountain’s initial round of ocean tanker cargo contracts. The firm has told the NEB that the deal is “a first step in developing long-term relationships with Canadian oil suppliers. It is also of great interest to PCIA to gain firm access to transportation systems that can be used to increase crude oil supply to the Pacific Basin.”

Kinder Morgan predicts that the Trans Mountain capacity doubling could be built and put into service by Jan. 1, 2017. The route has been available, but mostly used for oil deliveries to southern British Columbia and the northwestern United States since 1953.

A first stage of the Trans Mountain expansion program, titled TMX, has already been completed as a base for the rest. On the leg that crosses the Rockies west of Edmonton, a 2007-2008 construction program installed new pipe and other facilities capable of eventually raising the system’s capacity to an ultimate target of 1.1 million b/d, including a planned branch line to a tanker terminal proposed for Kitimat on British Columbia’s northern coast.

Successes by the phased expansion scheme for Trans Mountain are expected to support growth plans by Alberta oilsands producers. Two major bitumen developers, Cenovus Inc. and Nexen Inc., are among the five shippers that booked capacity dedicated to tanker cargos in Kinder Morgan’s initial sale of overseas service.

The next round of oilsands production growth is forecast to accelerate consumption of Alberta and BC natural gas, tightening up Canadian supplies available in the U.S. The next generation of bitumen plants — including mammoth projects being developed in stages by Cenovus and Nexen — use in-situ, underground thermal extraction technologies that rely on steam made by burning natural gas.

The method typically uses 1 Mcf of gas for each bbl of oil production and often more, up to 1.4 Mcf. Projections by Alberta’s Energy Resources Conservation Board show gas use by oilsands operations rising by 133% to 2.96 Bcf/d by by 2020.

Numerous additional in-situ oilsands projects are currently planned for the period following 2020. Development will accelerate if oil prices stay high and additional export pipeline capacity becomes available, predicts a recent survey by the industry- and government-supported Canadian Energy Research Institute in Calgary.

There is “significant potential growth exhibited in projects that are approved, awaiting approval and announced,” the agency says. “The feasibility of these oilsands projects is predicated on assured pipeline access to markets.”

Kinder Morgan’s open season auction of capacity on the proposed Trans Mountain expansion is a second try at a sale that failed to attract bidders in 2006. But that was before obtaining a presidential construction permit through a U.S. State Department approval process for Keystone XL stretched into a years-long struggle, with environmental churches of climate change zeroed in on the project and the oilsands as global symbols of the era of fossil fuels and carbon emissions that they are pledged to end.

While most Canadian industry leaders and analysts still predict the White House will eventually approve TransCanada’s project, there is also increasing suspense and a spreading consensus that the case demonstrates a new reality. The generations-old oil trading relationship that has made Canada the top supplier of U.S. imports has become fraught with political risk.

Prior to Keystone XL the comparable first stage in TransCanada’s two-stage oilsands pipeline program, which reaches the Oklahoma trading hub at Cushing, was approved without a fuss by the former Bush administration.

A similar project by Enbridge Inc., Alberta Clipper, also received a presidential permit from the Obama administration in August 2009 despite protests by the climate change chorus. The U.S. Court of Appeals for the Ninth Circuit in San Francisco later rejected an appeal to overturn the permit from an environmental and aboriginal coalition led by the Sierra Club.

Trans Mountain has forecast that its current line’s capacity can be increased by about 400,000 b/d to a total of 700,000, without the planned new spur to Kitimat. Canadian environmental and aboriginal critics have had little success in mounting resistance or even generating publicity about the growth program because it uses a well established pipeline right-of-way and tanker terminal.

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