TransCanada May Shorten Keystone XL

TransCanada Corp. (TRP) may shorten the initial path for its rejected Keystone XL project, bringing oil from Montana’s Bakken Shale to refiners in the Gulf of Mexico and removing the need for federal approval.

“There certainly is a potential opportunity to connect the Bakken to the Gulf Coast,” Alex Pourbaix, TransCanada’s president of energy and oil pipelines, said in a telephone interview today. “That is obviously something we’ll be looking into over the next few weeks.”

TransCanada’s $7 billion Keystone XL proposal to bring crude from Canada’s oil sands to the Gulf was rejected yesterday by the Obama administration. The project required U.S. approval because it crossed the border with Canada. The company may seek that approval after it builds the segment from Montana to the Gulf, Pourbaix said.

The Bakken shale-rock formation is estimated to hold as much as 4.3 billion barrels of technically recoverable oil in North Dakota and Montana, according to a 2008 U.S. Geological Survey report. Oil production in North Dakota surged 42 percent to 510,000 barrels a day in November, exceeding the output of Ecuador.

Production in the Bakken field may reach 750,000 barrels a day this year, Edward Morse, managing director of commodities research for Citigroup Inc., said at a conference in Calgary today.

Cushing Pipeline

As originally envisioned, Keystone XL would have carried as much as 830,000 barrels a day from Canada’s oil sands and the Bakken field along a 1,661-mile (2,673-kilometer) path to Texas refineries. The Bakken drilling boom may allow TransCanada to begin building the portion from Baker, Montana, to the Gulf, using much of the original route, Pourbaix said.

The company is also mulling whether to build the pipeline from Cushing, Oklahoma, to the Gulf, he said. If customers prefer the Bakken-to-Texas route, Calgary-based TransCanada would build that first.

Changing the project would allow TransCanada to use existing pipe materials and rights-of-way. The company would apply later for federal permission to connect the pipeline to Canadian oil sands and complete Keystone XL as originally envisioned, Pourbaix said.

“We believe there may be the potential to accelerate the construction of some elements of the pipeline,” he said.

Nebraska Re-Route

TransCanada has already paid C$1.9 billion ($1.88 billion) for the Keystone XL project, which could still be completed by 2014, Chief Executive Officer Russ Girling said in a presentation to investors today. The company owns the rights to 93 percent of the land it needed to build the original Keystone XL route, Girling said. Quanta Services (PWR) Inc. was contracted to build the Keystone XL pipeline for TransCanada.

TransCanada agreed in November to re-route the project to avoid the environmentally sensitive Sandhills region in Nebraska. Discussions with the state on a new route may be completed by September, Pourbaix said.

The U.S. State Department rejected the permit application yesterday after Congress set a Feb. 21 deadline for a decision. President Barack Obama said the “arbitrary” time line wouldn’t have allowed enough time to make a decision on the new Nebraska path.

The pipeline has already won support in Montana, South Dakota, Oklahoma and Texas.

“There’s no bigger advocate for the Keystone pipeline than me,” Montana Governor Brian Schweitzer, a Democrat said yesterday in a telephone interview. “We have plenty of oil in Montana, we need the ability to get it to market.”

To contact the reporter on this story: Bradley Olson in Houston at bradleyolson@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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Drilling into the Bakken Formation

Karen Bleier/AFP/Getty Images

An oil drilling rig, near Stanley, North Dakota. The well is being drilled into the Bakken Formation, one of the largest contiguous deposits of oil and natural gas in the United States.

An oil drilling rig, near Stanley, North Dakota. The well is being drilled into the Bakken Formation, one of the largest contiguous deposits of oil and natural gas in the United States. Photographer: Karen Bleier/AFP/Getty Images

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Congress Oil Pipeline

J. Scott Applewhite/AP

House Speaker John Boehner of Ohio, second from right, accompanied by fellow Republican leaders, gestures during a news conference on Capitol Hill on Jan. 18, 2012, to voice their opposition to President Barack Obama's decision to reject the Keystone XL pipeline.

House Speaker John Boehner of Ohio, second from right, accompanied by fellow Republican leaders, gestures during a news conference on Capitol Hill on Jan. 18, 2012, to voice their opposition to President Barack Obama's decision to reject the Keystone XL pipeline. Photographer: J. Scott Applewhite/AP

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Alex Pourbaix of TransCanada

Alex Wong/Getty Images

President of Energy and Oil Pipelines of TransCanada Corporation Alex Pourbaix, Director of the Construction Department of Laborers' International Union of North America Brent Booker, Assistant Director of Department of Legislative and Political Affairs of International Union of Operation Engineers Jeffrey Soth testify during a hearing before the Subcommittee on Energy and Power of the House Committee on Energy and Commerce December 2, 2011 on Capitol Hill in Washington, DC. The subcommittee held the hearing on "Expediting the Keystone XL Pipeline: Energy Security and Jobs."

President of Energy and Oil Pipelines of TransCanada Corporation Alex Pourbaix, Director of the Construction Department of Laborers' International Union of North America Brent Booker, Assistant Director of Department of Legislative and Political Affairs of International Union of Operation Engineers Jeffrey Soth testify during a hearing before the Subcommittee on Energy and Power of the House Committee on Energy and Commerce December 2, 2011 on Capitol Hill in Washington, DC. The subcommittee held the hearing on "Expediting the Keystone XL Pipeline: Energy Security and Jobs." Photographer: Alex Wong/Getty Images