January 19, 2012 / 7:08 PM / 6 years ago

TransCanada open to building Keystone in segments

4 Min Read

CALGARY, Alberta (Reuters) - TransCanada Corp may build a $2 billion southern portion of its Keystone XL oil pipeline first following the initial rejection of the full-blown project, which would mesh with one of President Barack Obama's goals but put it in direct competition with another major proposal.

TransCanada had broached the idea of constructing the Gulf Coast expansion part of the Canada-to-Texas oil pipeline before as a way to help alleviate an oil glut at the Cushing, Oklahoma, storage hub and get more crude to Texas refineries, but Chief Executive Russ Girling said it has now gained in priority.

"Clearly, with yesterday's decision, we are now open to amending or changing our plans to build this in segments if that's what the company and our shippers believe is the right thing to do," Girling said at an investor conference.

His comments come a day after Washington rejected TransCanada's application for the $7 billion Keystone XL pipeline, angering Republican lawmakers who had tried to force an approval and disappointing Canada's government and oil industry which seek to expand oil sands exports.

The project is a flashpoint in the debate between energy security and environmental projection, although Obama said it was not rejected on its merits but on a too-tight deadline set by Congress late last year.

The company plans to reapply to build the controversial 1,661-mile pipeline and Girling said he believes it could be in service by the end of 2014, assuming it gets a green light in the first quarter of next year.

That puts it past the time when rivals Enterprise Products Partners and Enbridge Inc aim to ship 400,000 barrels a day to the Gulf from Cushing on a reversed Seaway pipeline.

Girling said that any idea of moving forward with the Gulf Coast portion of Keystone, which would move 830,000 barrels a day and include a recently announced Houston leg, had previously depended on the company's talks with the U.S. State Department, which ultimately rejected the application.

However, Enbridge Chief Executive Pat Daniel said at the same conference that his company was supportive of Keystone XL being approved and that its rejection set a bad precedent for future proposals.

The oversupply of crude at Cushing, including rising shipments from Canada, is blamed for deep discounts on landlocked North American crudes versus Brent-based international supplies.

Obama said on Wednesday he is focused on curing the bottleneck, which comes at a time when Gulf refiners face declining oil shipments from Venezuela and Mexico.

"In the months ahead, we will continue to look for new ways to partner with the oil and gas industry to increase our energy security - including the potential development of an oil pipeline from Cushing, Oklahoma to the Gulf of Mexico - even as we set higher efficiency standards for cars and trucks and invest in alternatives like biofuels and natural gas," Obama said in a statement explaining the Keystone XL denial.

Meanwhile, Girling said oil companies that had backed Keystone XL are still supportive of the project.

"At the current time all of our shippers are indicating, its still very important, it's the furthest thing along, 'So get back in there and get the permitting done'," he said.

"Because the project hasn't been denied on its merits. It's been pretty clearly indicated by all that's not the reason for this decision. It's a process issue."

TransCanada shares were down 35 Canadian cents at C$41.54 on the Toronto Stock Exchange. They had tumbled as much as 4 percent after the Keystone rejection on Wednesday, but pared losses through the session.

($1=$1.02 Canadian)

Editing by Jeffrey Hodgson

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