CALGARY, Alberta (Reuters) - Kinder Morgan Energy Partners has reduced the size of a planned expansion of its pipeline to the Pacific Coast after fewer shippers than expected signed 20-year contracts that would allow surging Canadian oil supplies to be shipped to Asia, the company said on Wednesday.
Kinder Morgan now plans a $4.1 billion expansion of its Trans Mountain pipeline to the Vancouver area from Alberta, increasing capacity to 750,000 barrels a day from 300,000. That is down from last month's estimate of 850,000.
It had expected enough contracts to support a $5 billion project with crude production from the Alberta oil sands forecast to more than double over the next decade. But a few potential shippers it thought would sign onto the lengthy obligations had failed to obtain their boards' approvals by the deadline, prompting the reduction, Kinder Morgan said.
The Trans Mountain expansion is the second multibillion-dollar proposal aimed at opening up lucrative new markets in Asia for Canadian oil producers, now captive to U.S. customers amid a glut that has led to bargain-basement price discounts.
The first, Enbridge Inc's $5.5 billion Northern Gateway pipeline to Kitimat, British Columbia, from Alberta, is the subject of public hearings that began in January.
Both projects face opposition from environmental groups and some native communities in British Columbia. Vancouver city council has also come out against the Kinder expansion, which would increase tanker traffic in the city's harbor.
Ottawa has signaled strong support for new pipelines to the West Coast, and is making changes to regulatory reviews aimed at speeding up approvals.
Kinder Morgan said one benefit of its proposal is that it would be able to add a second pipeline along the existing one for much of the 1,150 km (715 mile) route.
"We're basing our project on the commitments we've received. The market will determine what projects are being supported, and we're confident that we've got a good approach and we're going to focus on making sure that we can bring this to fruition," Kinder Morgan spokesman Andrew Galarnyk said.
Under current plans, the company would file regulatory applications by the end of 2013 for a target in-service date of 2017.
Despite staunch opposition to the project from Vancouver Mayor Gregor Robertson, Kinder Morgan remains in talks with city officials in hopes of winning favor, Galarnyk said.
"We're obviously working through some of the concerns and we'll be engaging with all of the interested stakeholders. We're developing our consultation and engagement program, and that's set to roll out later this summer," he said.
City officials were not immediately available for comment.
The current Trans Mountain system is routinely overbooked as shippers seek to get oil supplies to British Columbia and Washington state refineries, as well as to tankers.
On Wednesday, Kinder Morgan said shippers would be able to move just 32 percent of their hoped-for volumes in June as companies clamored for space.
Editing by Peter Galloway