Keystone delay heralds long-term pain for Canadian oil producers

Tue Nov 3, 2015 6:07pm EST
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By Nia Williams

CALGARY, Alberta Nov 3 (Reuters) - A further delay or outright rejection of the TransCanada Corp Keystone XL project risks a looming capacity crunch on Western Canada's pipeline network, causing more pain for producers already struggling with weak global crude prices.

In the latest twist in the seven-year Keystone XL saga, TransCanada on Monday asked the U.S. State Department to pause its review of the permit, a move seen pre-empting a possible rejection by U.S. President Barack Obama.

On Tuesday the White House said Obama wants to make a call on the project by the end of his presidency.

An outright rejection would be a death knell for the pipeline intended to ship 830,000 barrels per day of oil sands crude to Nebraska and the U.S. Gulf Coast. Even if the requested seven- to 12-month pause is granted, and permits are received, the pipeline looks unlikely to start before 2019 at the earliest.

By then Western Canadian supply, including the portion of U.S. Bakken crude transported on Canada's pipeline network, will likely have risen to 4.5 million to 5 million barrels per day, according to the Canadian Association of Petroleum Producers.

Current takeaway capacity on the system is just over 4 million bpd and planned expansions by Enbridge Inc to its Mainline system will bump that up to around 4.4 million bpd, leaving rail to fill the gap.

Meanwhile, other export pipeline proposals including TransCanada's Energy East and Enbridge's Northern Gateway look no closer to getting approved.

The looming crunch would look a lot worse if not for the global crude price collapse, which has slowed oil sands and Bakken crude growth. Even so, it clouds the outlook for oil sands producers, which have some of the highest production costs globally as well as land-locked crude.   Continued...