TransCanada’s Southern Keystone XL Leg on Schedule

SOURCE: The Globe and Mail — BY NIA WILLIAMS AND MATTHEW ROBINSON

The southern portion of TransCanada Corp.’s Keystone XL oil pipeline is 95 per cent complete, and the company is focused on the line starting by the end of 2013, a company spokesman said on Wednesday.

Rumours the line could be delayed into 2014 have dogged the North American crude market in recent weeks. Calgary-based TransCanada’s comments that the line would start on schedule helped narrow international Brent crude’s premium to U.S. oil futures by nearly 70 cents (U.S.) to around $5.20 in Wednesday afternoon trade.

Initial capacity on the Gulf Coast pipeline, which will ship crude from the Cushing, Okla., delivery point of the U.S. oil futures contract, to Nederland, Tex., will be 700,000 barrels a day, expandable up to 830,000 b/d, TransCanada spokesman Shawn Howard said.

He declined to discuss volume commitments on the line from customers, but added it was “overwhelmingly subscribed.”

The market has been focused on the start-up of the pipeline to provide another conduit to the Gulf Coast refining centre for inventories of crude that swelled to record levels earlier this year at Cushing on surging production from Canada, North Dakota and Texas.

“Once construction is done there’s commissioning work that has to take place and continued testing. That will take some time. The end of the year is what we are focused on,” Mr. Howard said, in response to questions about when shipping would start.

In an April filing with the U.S. Federal Energy Regulatory Commission, TransCanada said early leased capacity on the pipeline would be “approximately 400,000 bpd.” The company’s year-end target is unchanged from previous progress updates.

Traders have been tracking the line’s progress as it could significantly speed the draw of crude oil stocks at Cushing and push WTI prices higher.

The start of the Keystone Gulf Coast line, adding to capacity from other pipelines such as Seaway that are already moving crude out of or bypassing Cushing, could narrow the spread even further as inventories at the hub draw down further, according to Morgan Stanley.

“The structural crude shortage in Cushing will only worsen with the addition of new pipelines in late 2013 and 1Q14,” the banks said in a research note.

“With the Gulf Coast oversupply likely to take longer to play out and no need for spot barrels to flow out of Cushing until late 2014 at the earliest, WTI should trade much closer to Brent for most of 2014, and potentially at a premium in 1H14.”

Cushing inventories have plunged by nearly 17 million barrels over the past 13 weeks as pipelines send more crude to Gulf Coast refiners, creating fears that another glut could be built up in the Houston area.

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