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TransCanada’s Gulf Coast Pipe to Start Oil Shipments Next Month

Dec. 4 (Bloomberg) -- TransCanada Corp. will start oil deliveries to Texas through the southern portion of its Keystone pipeline next month, helping alleviate a bottleneck in the Midwest that’s kept U.S. crude below international prices.

TransCanada’s Gulf Coast pipeline will carry as much as 700,000 barrels a day to Port Arthur from Cushing, Oklahoma, the delivery point for U.S. benchmark West Texas Intermediate oil. The company disclosed its plan to start service on Jan. 3 in a filing with the Federal Energy Regulatory Commission. The pipeline will ship an average of 520,000 barrels a day during its first year before reaching its full capacity, said Shawn Howard, a spokesman for the Calgary-based company.

“This pipeline startup enables refineries to move a significant amount of crude from the Mid-continent to the Gulf Coast,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “That reinforces that the logistical bottleneck is moving from Cushing to Gulf Coast.”

TransCanada’s Keystone line to the Gulf is part of a reversal of decades-old shipping routes that is shifting crude from the center of the country to the coasts as domestic production rises to the highest in almost 25 years. Supplies at Cushing reached a record 51.9 million barrels in January. They are now at 40.6 million barrels, 25 percent above the five-year average, data compiled by Bloomberg show.

The glut helped push WTI prices to an all-time low of $27.88 a barrel below international crude benchmark Brent in October 2011. U.S. oil’s discount has averaged $10.54 this year.

West Texas Intermediate for January delivery on the New York Mercantile Exchange rose as much as 1.4 percent to $97.39 a barrel and was at $97.20 at 12:23 p.m. Singapore time. It was trading at a $15.65 discount to Brent.

Competing Pipeline

TransCanada’s Gulf Coast line will cost $2.3 billion and its capacity could later be expanded to 830,000 barrels a day, according to the company. It began construction in August 2012.

The competing Seaway pipeline owned by Enterprise Products Partners LP and Enbridge Inc. switched direction in May 2012 and is taking as much as 400,000 barrels a day to Houston from Cushing. The companies plan to expand its capacity to 850,000 barrels a day in the first half of 2014.

“It’s bullish for WTI because we’re going to be pulling more barrels out of Cushing,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “Once they start taking out, say 500,000 barrels a day, along with Seaway expanding, it’s going to pull crude out of Cushing a bit faster than it’s going in.”

Project Split

The pipeline was originally part of TransCanada’s Keystone XL project, which entered its sixth year of U.S. review last month. President Barack Obama initially rejected that plan in January 2012, citing concerns with its path through ecologically sensitive lands in Nebraska.

TransCanada reapplied with a new Nebraska route last year and split the project in two, proceeding with the southern portion to the Gulf Coast that doesn’t require federal permission.

The $5.4 billion northern section can be built at the earliest two years after it gets a U.S. presidential permit, which is expected early next year, Chief Executive Officer Russ Girling said Nov. 19.

“There will be a superhighway starting in the first quarter of next year, with Seaway twinned and the southern leg of XL, a million barrels per day of additional pipeline capacity,” Judith Dwarkin, chief energy economist at ITG Investment Research Inc. said in a phone interview from Calgary.

In TransCanada’s filing, the company proposed uncommitted pipeline tariffs of $10.20 a barrel ($64.16 a cubic meter) for light crude and $11.34 a barrel for heavy crude to Port Arthur, Texas, from the U.S.-Canada border near Haskett, Manitoba.

Uncommitted per-barrel rates to Cushing from the border are $6.82 for light and $7.28 for heavy oil.

To contact the reporters on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net; Edward Welsch in Calgary at ewelsch1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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