The Associated Press January 25, 2011, 6:09PM ET

Keystone XL may mean higher Canadian crude prices

TransCanada Corp. said Tuesday that it expects to see an increase in prices for Canadian heavy crude oil in the Midwest if its Keystone XL pipeline is approved to move oil from Canada down through several states to the Gulf of Mexico.

That mirrors a forecast in a report that TransCanada presented to Canada's National Energy Board in 2009 in which the Calgary-based company said existing markets for Canadian crude are oversupplied, which has led to lower prices -- especially in its Midwest region. That report also said those lower prices would likely end if Keystone XL begins transporting about 500,000 barrels of crude a day to the Gulf Coast.

Canadian crude prices have been weak because of a glut to the large Gulf Coast market, the company said. The proposed Keystone pipeline would help boost the market price of Canadian crude by reducing the oversupply in the Midwest region. Canadian oil producers could see a price increase of at least $3 a barrel if Keystone XL begins moving oil to the U.S. Gulf Coast in 2013, according to the report.

TransCanada spokesman Terry Cunha said Tuesday that the $3-a-barrel increase is still expected.

He said it is focused on several states in TransCanada's Midwest region, where about 400,000 barrels a day are currently being shipped on a sister Keystone pipeline. Those states are Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, the Dakotas, Ohio, Oklahoma, Tennessee and Wisconsin.

"But Canadian crude oil is still the cheapest crude oil available to Americans by volumes," Cunha said. Canadian crude generally fetches $25 a barrel less than most oil on U.S. markets, in part because of the difficulty in transporting it.

"Therefore an increase in price of $3 does not impact American refiners' ability to purchase this, but promotes more Canadian production moving to the U.S., allowing them to purchase more cheap Canadian crude," Cunha said.

The proposed 1,980-mile-long Keystone XL pipeline, which is designed to move crude from Alberta's oil sands to the Gulf Coast, still requires a permit from the State Department because it would cross the U.S.-Canada border.

Several environmental groups have pushed the State Department to reject TransCanada's application. They say the pipeline would speed the expansion of oil sands extraction to a rate that could exacerbate global warming.

The company has said it expects to get State Department approval by mid-year.

Cunha said the $3 increase is a "result of having a larger market" and would affect only Canadian heavy crude.

Last week, TransCanada announced that it had secured enough contracts to ship 65,000 barrels of oil daily from Montana and North Dakota on its proposed oil pipeline from Canada to the Gulf of Mexico.

But Cunha said that would not affect the expected price increase.

"Taking Bakken crude won't impact this situation. However, we would expect that Bakken producers might get better prices because they will not have to spend as much in trucking or rail to get their barrels to market," Cunha said in an e-mail.

The earlier report estimated that the higher crude price could boost annual revenue to the Canadian producing industry of $2 billion to $3.9 billion in 2013. "The increased revenue could apply for several years as long as refinery demand and pipeline capacity exceed Canadian heavy crude supply," it said.

The National Wildlife Federation, which issued a lengthy e-mail about the price increase this week, has been critical of the pipeline. Jeremy Symons, vice president of the group, said that once Keystone XL begins moving Canadian crude to the Gulf Coast region, where it can get the "full global prices," the Midwest supply will be "choked."

"All we know for sure is that prices are going to spike in 2013," Symons said. "The bottom line, there's no question that they not only see prices going up . . . but that they'll see a big payoff for Canadian oil producers."

A $3 a barrel increase would mean consumers paying about 7 cents a gallon more for gasoline, Symons said.

Sections of the Keystone pipeline network operating now move more than 400,000 barrels a day to Illinois, and by the end of March it's expected to begin using an additional line to Oklahoma. The addition of Keystone XL line would mean another 500,000 barrels a day moving on the Keystone system.

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Associated Press writer James MacPherson in Bismarck, N.D., contributed to this report.


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