TransCanada begins oil deliveries on southern Keystone pipeline link

Houston (Platts)--22 Jan 2014 401 pm EST/2101 GMT

TransCanada said Wednesday it has begun moving oil through its southern Keystone pipeline link to the Gulf Coast.

The so-called Gulf Coast Project is a 485-mile (780 km), 36-inch-diameter crude line beginning in the oil-storage bottleneck of Cushing, Oklahoma, and extending south to Nederland, Texas.

The Gulf Coast Pipeline is slated to have an initial capacity of 700,000 b/d, with the potential to move 830,000 b/d of oil to Gulf Coast refineries, according to TransCanada.

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"This pipeline will serve as a vital interconnect between the inland pricing hub and the Gulf Coast refinery demand center," said analysts at Baird in a report Wednesday.

"Crude markets have been watching the associated drawdown of Cushing inventories over recent weeks as the pipe was filled as well as any potential impact on the LLS/WTI spread, which has increased to [about] $12/bbl currently vs. its 50 and 200-day moving averages of $5.39/bbl and $6.02/bbl, respectively," said the analysts.

News of the startup of the Gulf Coast Project gave a lift to the NYMEX crude contract, causing its spread with ICE Brent to narrow. Its effect will most likely be short lived, though, crude sources said.

The March NYMEX crude/ICE Brent spread was $11.21 as of Platts 11 am EST intraday, after closing out Tuesday at $11.58 as of Platts 3:15 pm EST assessment.

"It should already be priced in, but like everything, it will probably make them come in for the short term," an international crude trader said.

Crude market participants said that they expect the line to initially be shipping mostly light sweet domestic crudes, such as WTI and Bakken, before shipping heavier Canadian crude in the future.

"I expect more lighter barrels to move than heavy barrels, at least until, or if, the northern leg gets built," the crude trader said.

The Keystone startup drew condemnation from environmentalists, who have protested that pipelines are encouraging wider use of fracking and other controversial drilling techniques.

"A shameful day -- and a reminder that the Obama administration has boasted too often about how many pipelines they've built, how much land they've opened to drilling and mining," environmental activist Bill McKibben said in a statement.

TransCanada said it will now turn its focus to the permitting of the northern section of the Keystone XL pipeline, "which will increase American energy security and create thousands of jobs."

The Keystone XL line, which would move oil from Hardisty, Alberta, south into Cushing and then down to the Gulf Coast, would also allow more Canadian oil sands crude to move through the US.

Environmentalists have urged President Barack Obama to reject the permit required for the project, saying the pipeline would increase development of Canada's energy intensive oil sands.

The project is currently undergoing a final environmental review at the US State Department, which must determine whether it is in the country's national interest, since it crosses the US border. The State Department, amid fierce lobbying by both sides, has not issued a timeline on when it will make its ruling.

TransCanada has said the plan will allow the US to cut its dependence on oil from Venezuela and the Middle East by up to 40%.

--Beth Evans,
--Herman Wang,
--David Arno,
--Joshua Brown,
--Edited by Derek Sands,

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