Bloomberg News

Enbridge’s Pipeline Threatens TransCanada’s Keystone XL Plan

November 16, 2011

Nov. 10 (Bloomberg) -- Enbridge Inc.’s plan for a pipeline to carry oil-sands crude from Canada to the Texas Coast may reduce TransCanada Corp.’s chances of building its $7 billion Keystone XL line.

The U.S. State Department is weighing whether to ask TransCanada to seek a new route for its 1,661-mile (2,673- kilometer) pipeline that would avoid environmentally sensitive areas in Nebraska.

“If the State Department tells TransCanada they have to reroute, they’re going to abandon the project,” John Auers, senior vice president of Turner, Mason & Co., a Dallas-based consultant, said in an interview. “This is going to turn into a game of chicken. I don’t see TransCanada backing down.”

A delay may lead Canadian producers and U.S. refiners that signed up with Keystone XL to seek an alternative, Robert Jones, vice president of Keystone for TransCanada, testified Nov. 7 at a legislative hearing in Nebraska.

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.

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.

Canadian Crude

Enbridge’s plan would bring Canadian crude to Texas by mid- 2013, the same time period Calgary-based TransCanada expects Keystone would 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.

Nebraska lawmakers began a special legislative session Nov. 1 to consider passing a law that would require TransCanada to change the route. Changing the path would trigger a new environmental study, which would push back approval by at least six months, said Sandra Zellmer, a professor of natural resources law at the University of Nebraska-Lincoln.

“They would basically have to start over for several hundred miles of pipeline,” said Mark Lewis, a partner with Bracewell & Giuliani LLP in Washington. “That’s a huge delay.”

Enough Commitments

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.

The Keystone XL pipeline would deliver 700,000 barrels a day of crude from Alberta’s oil sands to the Gulf of Mexico by crossing Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas.

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.

TransCanada’s Jones said the route through Nebraska’s Sandhills is the most environmentally sound, a conclusion that was buttressed by the State Department’s final environmental impact study released in August. Other routes would transfer groundwater risks to North and South Dakota, the report found.

--With assistance from John Lippert in Chicago. Editor: Charles Siler, Susan Warren

To contact the reporters on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net; 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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