Oil Sands Crude Seen Reaching Gulf Without Keystone XL

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Oil-sands crude will supply Gulf Coast refineries regardless of how President Barack Obama rules on the Keystone XL pipeline, Alberta Premier Jim Prentice said.

Developers of Alberta’s oil sands can use trains to reach the world’s largest refining market or the Energy East conduit to Canada’s Atlantic coast that TransCanada Corp. is also proposing, Prentice said in an Oct. 31 interview at Bloomberg’s Calgary office.

Awaiting a U.S. decision on Keystone XL since 2008, Calgary-based TransCanada applied with Canadian regulators last week to build Energy East, a 4,600-kilometer (2,859-mile) link from Alberta to tidewater in New Brunswick. The C$12 billion ($10.6 billion) pipeline would be North America’s largest crude conduit, carrying 1.1 million barrels of oil a day without crossing into the U.S.

“The debate about Keystone is not a debate about whether, under the free trade agreement, Canadian crude can make its way to the Gulf Coast,” Prentice said, adding that the additional cost to ship crude by tanker from Canada’s Atlantic Coast is marginal. “It’s actually not that far from New Brunswick.”

About half of Energy East’s volumes will probably be exported from Canada to markets including the Gulf Coast, TransCanada Chief Executive Officer Russ Girling said last week. Using Energy East and crude tankers to get the oil to the Gulf will cost about $2 to $3 a barrel more than Keystone XL, he said.

Ruling Soon

Keystone XL has faced delays in the U.S. amid opposition from landowners and environmental groups seeking to block oil-sands development. The U.S. State Department, which has jurisdiction over projects that cross U.S. borders, has put off a decision while a Nebraska court weighs whether a state regulator should review the pipeline.

Prentice, who became Alberta premier in September after winning a vote to lead the ruling Progressive Conservatives, plans to travel to the U.S. to meet with legislators in the next two months. A decision on Keystone XL appears to be imminent, he said.

A ruling on the line may come soon, U.S. Secretary of State John Kerry said at a news conference in Ottawa last week with Canadian Foreign Affairs Minister John Baird.

Producers such as Royal Dutch Shell Plc and Cenovus Energy Inc. are counting on pipelines including Keystone XL to ease a transportation bottleneck that has suppressed the price of Canada’s heavy crude and cost the economy as much as C$50 million a day in recent years, according to the Canadian Chamber of Commerce.

Canada Discount

The discount on Canada’s heavy oil relative to the main U.S. benchmark widened to a record $42.50 a barrel in December 2012 before narrowing to $15.40 at the end of last week, as more pipeline space is created and producers increasingly turn to trains for shipping.

West Texas Intermediate, the North American crude benchmark, fell 12 percent last month and has shed about a quarter of its value since touching a $107.30 high this year on June 20. WTI for December delivery fell $1.76 to $78.78 in New York today, the lowest close for a front-month contract since June 2012.

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