Fitch: US Refiners Ignore Keystone XL Delay - for Now
NEW YORK -- September 18, 2013
Ongoing delays in the pending Keystone XL pipeline expansion project (Keystone
XL) are not a major concern for U.S. refiners yet, according to Fitch Ratings.
Growing volumes of rail-delivered crude to the Gulf Coast have provided a
transportation alternative that has increased the availability of Canadian
crudes to refiners in the Gulf.
However, given the significant investments that Gulf Coast refiners have made
in deep conversion capacity over the years (e.g., coking), a wide heavy/light
oil discount remains important for maintaining robust processing economics. As
a result, Gulf Coast refiners are likely to be significant beneficiaries from
the increased supply of Canadian heavy oil on the Gulf Coast arising from
completion of Keystone XL. Light-heavy oil spreads remain subdued relative to
historical levels. For example, the Maya to Brent discount has averaged just
7% of the price of Brent year to date versus discounts in the 15%-20% range
Given that pipelines are generally the lowest cost option to transport crude,
the completion of Keystone XL is likely to provide key benefits for upstream
producers over the long run as well by maximizing the netbacks that E&P
producers receive for their product. To the degree that this improves upstream
realizations and improves the economics of those plays, Gulf Coast refiners
indirectly benefit from more assured supply.
In addition, it is important to note that rail and related infrastructure have
an increasing role to play in growth on master limited partnership (MLP)
spin-offs from refiners. Beyond the direct effects on crude prices that a
rail-displacing pipeline has, refiners are able to indirectly take advantage
of growth in rail cars and rail logistics and handling as growth vehicles for
their spun off MLPs.
Keystone XL has faced significant opposition over its potential environmental
and economic impact and is seeking approval for its sixth year. TransCanada
Corp. has worked toward approval, but the review process has been long and
hard-fought. The plan called for the transportation of synthetic crude oil
from Alberta, Canada, to refineries on the Gulf Coast. Keystone XL would
extend the existing Keystone pipeline that connects Alberta oil to Illinois,
IL and Cushing, OK. The proposed extension would bring the oil from Cushing to
the refineries in the Gulf Coast. Another part of the extension would start in
Canada and connect to the existing Keystone pipeline in the U.S.
On Sept. 17, TransCanada released a study claiming its Energy East pipeline
would support an estimated 1,000 full-time jobs. That pipeline would carry a
comparable amount of crude as the Keystone but is likely to meet some of the
same opposition as Keystone XL but with one big difference: this project would
not cross an international border and does not need federal approval.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include hyperlinks to
companies and current ratings, can be accessed at www.fitchratings.com. All
opinions expressed are those of Fitch Ratings.
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Brian Bertsch, New York
Tel: +1 212-908-0549
Mark C. Sadeghian, CFA
+1 312 368-2090
+1 212 908-9123
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