TransCanada in 2008 applied to the US State Department approval for its cross-border Keystone XL project, the now highly controversial line that would run from Hardisty, Alberta, to Port Arthur, Texas. (The application is in the hands of the State Department, which said it would act by the end of the year. Because the pipeline crosses international borders, State must sign off on an environmental review and declare the project in the national interest.)
When the request was filed, there had been no Macondo blowout, nor had the Enbridge Line 6B spill occurred, transporting Canadian oil to the US and rupturing in Michigan. So TransCanada could not have known that it would have to wait three years or more to know if it can proceed with its plans to bring Canadian crude to the US Gulf Coast via a direct pipeline route.
Opponents have viewed this as a line in the oil sands, so to speak, in their battle to slow the growth of developing those Canadian reserves, whose oil would be flowing down Keystone XL. That opposition, when joined with post-Macondo and Enbridge scrutiny, has led the US authorities to study closely all pipeline projects.
So the talk now in the market place is that TransCanada should have segregated the XL project into a Hardisty-to-Cushing line and the Marketlink line, which is the Cushing-Port Arthur section. Keystone XL will ship 700,000 b/d of crude from Hardisty to Cushing and 500,000 b/d from Cushing to Port Arthur.
If TransCanada sought the Cushing-Port Arthur line as a standalone, it would need State Department approve only for the Hardisty-to-Cushing route and not Marketlink, which depends on state-level regulatory approvals that are already in place.
TransCanada back in March said it did not believe Marketlink is viable as a stand alone project. Donald Wishart of TransCanada told Platts at CERAWeek in March that open seasons on all Cushing-to-Gulf Coast pipeline projects would founder on the same problem: a lack of firm shipping commitments. Since the desire to move oil from the NYMEX delivery point and massive physical tankage location of Cushing to the Gulf Coast would be largely dependent upon the size of the volatile Brent/WTI spread, he said, few market players would be willing to commit to claiming a firm amount of capacity on a proposed pipeline. Moving oil from Cushing to the Gulf Coast is an "opportunistic" decision that doesn't lend itself to committing to space on a pipeline, Wishart said.
But that's not how it has turned out. The 500,000 b/d Marketlink line has shippers committed for 350,000 b/d, leaving 150,000 b/d for spot shipments, TransCanada told Platts recently. Not only that, but it's the part of the project that would get done first. "Once we get the approval, the project will begin, but the Cushing to Port Arthur segment will finish first as planned [in second-quarter 2013], while the Hardisty to Steele City, Nebraska, segment will take slightly longer," Robert Jones, a vice-president for the Keystone line, said last week.
Nevertheless, there is consensus among industry players that the demand to move WTI away from Cushing to the Gulf Coast is around 500,000 b/d...the size of the projected Marketlink line. The current takeaway capacity from Cushing to the US Gulf: zero.
As WTI is currently trading at about a $22/b discount to Brent, traders say, there would be a great incentive for Gulf Coast refiners to buy WTI and move it to the USGC refining region.
"They [TransCanada] already have 350,000 b/d of commitments, which is a fairly good throughput number to begin your line with," said a Gulf Coast crude trader. "This would change the dynamics of WTI at Cushing, and shows why the XL line from Hardisty to Cushing is very critical for the US Gulf Coast refining industry."
TransCanada has said repeatedly it remains confident that the State Dept. will grant approval for the projects. (For two past entries on this issue, see here and here.)
The current Keystone line runs from Hardisty to Cushing and has a capacity of 590,000 b/d.
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