Stopping Keystone XL May Not Keep Canadian Oil Sands from Reaching Gulf Coast

Researched by Industrial Info Resources (Sugar Land, Texas)--The much-publicized Keystone XL pipeline project (KXL) by TransCanada Corporation (NYSE:TRP) (Calgary, Canada) has faced multiple delays in its journey to receive regulatory permits to transport crude oil from the Canadian oil sands down to the Gulf Coast. The delays have gone on for so long, that competing energy companies have formulated plans of their own to bring that crude down from the north. These plans have enough combined capacity to replace the KXL, but have received considerably less press and therefore have attracted less resistance.

The environmental impact of laying new pipeline is significant, as the process of trenching and laying pipe involves the need for right-of-way (ROW) and a construction zone in which the pipe-laying cranes can operate on either side of the proposed pipeline route. By comparison, bringing work trucks onto an existing aboveground site and adding additional machinery has less of an environmental impact.

Enbridge Incorporated (NYSE:ENB) (Calgary, Canada) has taken this approach to expanding the capacity on its mainline system, which encompasses its Lakehead system in the U.S. and comprises multiple individual pipelines arranged in parallel. Crossing the border from Canada, Line 67, also known as the Alberta Clipper line, is set to add 350,000 barrels per day (BBL/d) of transportation capacity in two phases to be completed in 2015. Line 67 will bring Canadian oil sands crude to Enbridge's Superior Terminal in Superior, Wisconsin. Both phases will involve only increasing pump capacity along the line, so no new pipeline construction is planned. Subsequent expansions to its Line 61 from Superior to Illinois, and then the new Flanagan South project from Illinois to Cushing, would allow the oil to circumvent the path of the KXL entirely.

Another project set to more directly circumvent KXL is Energy Transfer Partners' (NYSE:ETP) (Dallas, Texas) Trunkline conversion project. This project would convert an existing natural gas pipeline to crude oil service, to transport crude oil from the Patoka, Illinois, area, which is very near one of Enbridge's terminals, to the Louisiana/Gulf Coast refining hub. While the scope is still being determined, estimates of between 420,000 and 660,000 BBL/d of capacity are being made. Assuming a median flow rate, this project has the capacity to replace the KXL on its own and directly link the Chicago area to the Gulf Coast refining hub, with the added bonus of avoiding the overfull Cushing along the way.

Combined, the Line 67 expansion and the trunkline conversion represent roughly 770,000 to 1 million BBL/d of crude oil transport from the north to the Gulf Coast. As such, whether or not KXL is approved, oil from Alberta is set to cross American soil and reach its destination. With this further development in transportation infrastructure, the need for KXL itself may falter.

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