Canada pipeline firms sprint to end U.S. oil glut

Thu Nov 17, 2011 10:47am EST
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By Anna Driver and Scott Haggett

HOUSTON/CALGARY (Reuters) - Enbridge Inc (ENB.TO: Quote) and TransCanada Corp (TRP.TO: Quote) have raced forward with new pipeline plans in the fierce battle to unclog a year-long U.S. oil bottleneck, which could quickly end an unprecedented distortion in crude markets.

After purchasing ConocoPhillips' (COP.N: Quote) stake in the 350,000 barrel-per-day Seaway pipeline for $1.15 billion, Enbridge and Enterprise Products Partners (EPD.N: Quote) said they plan to reverse the line's flow to send crude locked up at the Cushing, Oklahoma, oil hub to the Texas coast. They will not pursue a similar project called Wrangler mooted in September.

Separately, rival TransCanada said it may begin construction of a southern leg of its proposed Keystone XL line, pending consultations with the U.S. State Department which last week postponed approval of the full-length Canada-to-Texas line to study a new route.

The companies are racing to unlock a glut of crude in the U.S. Midwest, which has built up over the year due to rising supplies from Canada and North Dakota. They aim to ship it to the Gulf Coast where it will fetch a hefty premium.

It may end a period of dramatic upheaval in the U.S. oil market that handed Midwest refiners an unexpected windfall of cheap feedstock, robbed northern producers of richer profits, revived an era of rail-oil freight, roiled airline efforts to hedge fuel costs and threatened to erode the U.S. futures contract's preeminence as the world's most-traded benchmark.

The news sent U.S. crude oil prices surging to their highest since June as traders bet the new line would help end a record gap between domestic and global prices, restoring some order to a key spread that has baffled traders all year.

U.S. crude shot more than $3 higher while Brent fell 30 cents, narrowing the Brent/WTI spread to just over $9 a barrel, its smallest gap since April. Trading volume was the highest since the start of the Libyan civil war in February.

The spread, rarely more than a few dollars in past years, surged this year due to ballooning inventories around the Cushing, Oklahoma, delivery point for the U.S. oil contract and hit a record $28 a barrel in October.   Continued...