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CALGARY, Alberta (Reuters) - The southern portion of TransCanada Corp's Keystone XL oil pipeline is 95 percent complete and the company is focused starting the line by the end of 2013, a TransCanada spokesman said on Wednesday.
Rumors that the line's start might be delayed into 2014 have dogged the North American crude market in recent weeks. TransCanada's comments that the line would start on schedule helped narrow international Brent crude's premium to U.S. oil futures by around 70 cents to around $5.13 in afternoon trade.
Initial capacity on the Gulf Coast pipeline, which will ship crude from the Cushing, Oklahoma, delivery point of the U.S. oil futures contract to Nederland, Texas, will be 700,000 barrels per day, expandable up to 830,000 bpd, TransCanada spokesman Shawn Howard said.
He declined to discuss customer volume commitments for the line, but added it is "overwhelmingly subscribed".
The market has been focused on the startup of the pipeline as it will provide another conduit to the Gulf Coast refining center for inventories of crude that swelled to record levels earlier this year at Cushing due to surging production from Canada, North Dakota and Texas.
Howard said major construction of the pipeline is expected to be complete by the end of October. Testing on the line is already underway and expected to be complete in early November, and the company will begin filling the line shortly afterwards.
"Once construction is done there's commissioning work that has to take place and continued testing. That will take some time," Howard said in response to questions about when shipping would start.
"We remain focused on the project becoming operational near the end of 2013."
In an April filing with the U.S. Federal Energy Regulatory Commission, TransCanada said early leased capacity on the pipeline would be "approximately 400,000 bpd".
TransCanada's yearend target is unchanged from previous progress updates.
Traders have been tracking the line's progress as it could speed the draw of crude oil stocks at Cushing significantly and push WTI prices higher.
The startup of the Keystone Gulf Coast line, adding to capacity from other pipelines such as Seaway that are already moving crude out of, or bypassing, Cushing, could narrow the spread even further as inventories at the hub are drawn down further, according to Morgan Stanley.
"The structural crude shortage in Cushing will only worsen with the addition of new pipelines in late 2013 and 1Q14," the bank said in a research note.
"With the Gulf Coast oversupply likely to take longer to play out and no need for spot barrels to flow out of Cushing until late 2014 at the earliest, WTI should trade much closer to Brent for most of 2014, and potentially at a premium in 1H14."
Cushing inventories have plunged by nearly 17 million barrels over the past 13 weeks as pipelines send more crude to Gulf Coast refiners, creating fears that another glut could be built up in the Houston area.
Another TransCanada spokesman, Grady Semmens, told Reuters the initial delivery location will be Sunoco Logistics Partners LP's Nederland terminal in Texas. Semmens said TransCanada has been in discussion with a number of customers about possible connections to the Gulf Coast pipeline, but declined to give specifics.
However, in September Valero Energy Corp said in an SEC filing for subsidiary Valero Energy Partners that a 400,000 pipeline connecting the TransCanada pipeline to Valero's Lucas storage terminal would be put into service during the first quarter of 2014.
The Lucas Storage terminal is connected to Valero's Port Arthur plant, and the refiner has taken a minimum quarterly throughput commitment of 45,000 bpd, which could be increased to 150,000 bpd if the complete Keystone XL pipeline is built.
Semmens also told Reuters construction on the 48-mile Houston lateral project pipeline, which will transport crude from the Keystone Gulf Coast line to refineries in the Houston area, would start in the fourth quarter of 2013. Completion is scheduled for late third quarter to early fourth quarter 2014.
Additional reporting by Selam Gebrekidan; Editing by Gerald E. McCormick, Andrew Hay and Peter Galloway