Enbridge Inc. (ENB)’s plan for a pipeline to carry oil-sands crude from Canada to the Texas Coast may gain a competitive advantage from the U.S. State Department’s demand for further study of TransCanada Corp. (TRP)’s rival Keystone XL line.
The State Department delayed a decision today on approval of TransCanada’s 1,661-mile (2,673-kilometer) pipeline so that alternate routes can be examined. The effort “could be completed as early as the first quarter of 2013,” the department said in an e-mailed statement.
Changing the route might scuttle TransCanada’s $7 billion project, John Auers, senior vice president of Turner, Mason & Co., a Dallas-based pipeline and engineering consultancy, said in an e-mail.
“I wouldn’t expect TransCanada to immediately abandon the project, but I don’t think it will make sense to go ahead with a re-route,” Auers said. “I would expect that TransCanada will continue to work with and lobby the government behind the scenes to change this decision.”
A delay may lead Canadian producers and U.S. refiners that signed up with Keystone XL to seek an alternative, Charles Drevna, president of the National Petrochemical and Refiners Association, said in a telephone interview.
“Refineries can’t wait however-many months to make decisions about where they’re going to get crude,” he said.
TransCanada remains confident Keystone XL will eventually be approved, CEO Russ Girling said in a statement today. The State Department’s delay “could have potential negative ramifications” for refiners counting on new supplies from Canada, he said.
“If Keystone XL is continually delayed, these refiners may have to look for other ways of getting the oil they need,” Girling said in the statement. “Oil-sands producers face the same dilemma - how to get their crude oil to the Gulf Coast.”
Enbridge said yesterday it has received sufficient customer commitments to move forward with two pipeline segments that would connect Alberta’s oil sands to refineries on the Gulf Coast.
Enbridge’s pipelines aren’t contingent on Keystone being turned down, Daniel said during the earnings call. Jennifer Varey, an Enbridge spokeswoman, said it was “too early to comment” on how the State Department’s decision will affect Enbridge’s line.
The Keystone XL pipeline requires State Department approval because it crosses the U.S.-Canadian border. Enbridge’s project wouldn’t be subject to State Department review because the section crossing the border already has been built. The new segments connecting to the existing pipe should face less opposition and regulatory review because they would follow routes where Enbridge controls rights-of-way, Chief Executive Officer Pat Daniel said yesterday.
Producers and refiners are looking for the fastest course to market, said Carl Kirst, a Houston-based analyst with BMO Capital Markets. “If someone else can provide that sooner, that’s where the shippers will end up,” he said.
Enbridge’s plan would bring Canadian crude to Texas by mid-2013, the same time period Calgary-based TransCanada originally planned for Keystone to be finished.
Some Nebraska landowners, environmentalists and politicians oppose Keystone because it would cross an aquifer that provides drinking water. A leak would foul water supplies and damage the Sandhills, marshy terrain made up of grass-covered dunes, they have said.
More Opposition Likely
Nebraska lawmakers began a special legislative session Nov. 1 to consider passing a law that would require TransCanada to change the route.
While the Enbridge project won’t cross Nebraska, it will likely face other environmental opposition. Some environmental groups will oppose any pipeline transporting Canadian oil-sands crude, said Susan Casey-Lefkowitz, director of the international program at the Natural Resources Defense Council. Producing crude from sand laden with bitumen, a tar-like form of oil, generates more of the gases that are believed to create global warming, she said.
Enbridge has enough customer commitments to build two segments, one from the Chicago area to Cushing, Oklahoma, and the other from Cushing to refineries along the Texas Gulf Coast, Daniel said. An existing Enbridge pipeline would form the first leg of the project, moving crude from Canada to Illinois.
Rerouting would require 250 additional miles of pipe and increase the cost of the project by $1.6 billion, according to a State Department report. TransCanada has spent $1.9 billion on Keystone XL, BMO’s Kirst said. The potential loss of revenue from canceling the project would push TransCanada’s value down C$4 a share, or about 9 percent, he said.
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