[R-G] Partnership doubles capacity of Canada crude line

Wed Jul 16 22:49:10 MDT 2008

http://www.forbes.com/feeds/ap/2008/07/16/ap5222460.html

Associated Press
Partnership doubles capacity of Canada crude line
By DIRK LAMMERS 07.16.08, 3:38 PM ET

SIOUX FALLS, S.D. -

Two major energy companies will spend $7 billion to nearly double the  
amount of crude flowing through a pipeline from Canada's tar sands to  
the U.S. Gulf Coast, highlighting intense demand for crude that was  
once too expensive to pull from the ground and process.

Alberta, Canada-based TransCanada Corp. (nyse: TRP - news - people )  
and Houston-based ConocoPhillips (nyse: COP - news - people ) Co. said  
Wednesday they will add 500,000 barrels of daily capacity to the  
Keystone Pipeline, a 1,980-mile project connecting Hardisty, Alberta  
with a delivery point near existing terminals in Port Arthur, Texas.

Demand for oil has driven the price for a barrel of oil up 80 percent  
above where it was a year ago and up about 40 percent from the start  
of the year.

That includes demand for crude from oil sands, previously an  
afterthought in the crude market.

Unlike the benchmark light, sweet crude, oil extracted from the  
Alberta oil sands of northern Canada is a dirty, bottom-of-the-barrel  
substance that is more difficult to refine into gasoline and diesel.

U.S. refiners have been converting plants to handle the thicker  
Canadian crude as supplies for lighter crude continue to tighten, much  
to the consternation of environmental groups.

The Canadian province of Alberta is home to vast reserves of oil  
sands. Industry officials estimate the region could yield as much as  
175 billion barrels of oil, which would make Canada second only to  
Saudi Arabia in crude oil reserves.

In western Canada, oil sands production has grown fourfold since 1990  
and exceeded 1.2 million barrels a day last year, according to the  
Canadian Association of Petroleum Producers. That could grow to 3  
million barrels a day by 2015 - not an insignificant amount, given  
that the current global output of oil is roughly 85 million barrels a  
day.

Gulf Coast refiners have traditionally processed crude oil from Mexico  
and Venezuela. But output from the Mexican Cantarell oil field is in  
decline and many Venezuelan contracts will change over the next couple  
years as the South American country shifts its oil from the U.S. to  
other markets across the world, said Russ Girling, president of  
TransCanada's pipelines division.

Stephen Schork, an analyst and trader, said the potential for oil  
development in Canada is what allowed ConocoPhillips to walk away from  
Venezuela. The pipeline and its expansion offers the company a more  
stable crude supply.

"I think that it certainly is a welcome sign, because any sort of  
event that kind of mutes the geopolitical influences on oil or  
commodities in general is a good thing," Schork said.

TransCanada said construction has already begun in Manitoba and North  
Dakota.

The company hopes to begin delivering tar sands crude through its 36- 
inch pipeline to refineries in Wood River and Patoka in Illinois by  
late 2009 and Cushing, Okla. by late 2010.

The project, which has now climbed to a total cost of $12.2 billion,  
will eventually move 1.1 million barrels of oil per day.

TransCanada and ConocoPhillips signed an agreement in 2005 to use the  
Keystone pipeline to deliver crude to ConocoPhillips' Wood River, Ill.  
and Borger, Texas refineries, which are being expanded. The deal gives  
ConocoPhillips a 50 percent ownership stake in the pipeline.

ConocoPhillips spokesman Bill Graham said the pipeline expansion fits  
into the company's strategy of bringing together its North American  
assets.

"It further integrates our upstream assets in Canada with our assets  
in the U.S.," Graham said.

TransCanda is starting preliminary work on a second oil pipeline that  
would begin in Hardisty, make a diagonal southeast cut through  
Saskatchewan, Montana, South Dakota and Nebraska and hook up with  
Keystone at Steele City, Neb.