CALGARY, Alberta (Reuters) - TransCanada Corp announced plans on Thursday for Canada's largest pipeline, a 2,700-mile, $12 billion line to ship crude from the oil sands of Western Canada to the Atlantic, as its U.S.-bound Keystone XL project stalls in Washington.
Canada's No. 2 pipeline company said "strong market support" convinced it to build the 1.1-million-barrel-per-day Energy East Pipeline, which will bring crude from Alberta to refineries in Eastern Canada and to a new deepwater oil terminal on the Atlantic for export from Canada.
The Energy East line will be nearly a third larger than the 850,000 bpd capacity TransCanada proposed in April.
The line, which still needs regulatory approval, could be in service by late 2017 for deliveries to Quebec and 2018 for New Brunswick, potentially reshaping the Atlantic Basin oil market and opening up new markets for Canadian crude.
Customers have already pledged to use at least 900,000 bpd of the line's capacity, suggesting that producers and refiners will pay for an export route, while regulatory hurdles delay pipelines in Western Canada and to the United States.
"It looks like they got far more interest than they were initially expecting," said analyst Sandy Fielden of consulting firm RBN Energy in Austin, Texas. "It also solves two problems for the company as they have this large natural gas pipeline that has been made largely redundant."
Most of the pipeline will run along an existing TransCanada gas line, with new construction in Alberta and in Quebec and eastern Canada.
But while cross-Canada political support was mostly strong, environmental groups that have resisted projects to pump crude across the Rocky Mountains to Canada's Pacific Coast are already attacking TransCanada's new plan. The government of Quebec, where memories of a crude oil rail crash that killed 47 are still fresh, has yet to say if it will support the project.
"The same people-power movements that have stalled other ill-conceived tar sands pipeline projects will rise up to tell our governments we need to invest in clean energy, not tar sands expansion," Mike Hudema, a climate and energy campaigner for Greenpeace Canada, said in a statement
Proposed pipelines to Canada's West Coast have faced delays due to objections by First Nations groups and environmentalists, while the 800,000 bpd Keystone XL pipeline to Texas has been awaiting U.S. State Department approval for five years.
President Barack Obama is expected to make a final decision on Keystone XL later this year, but one senator said on Thursday delaying approval could harm the environment.
"If the Keystone XL pipeline is not approved, Canadian oil will be shipped across the Atlantic and Pacific oceans on enormous tankers to Asia, where it will be refined at facilities with far less stringent standards than any in the United States," said Senator John Hoeven, a North Dakota Republican. "We will effectively create more emissions and lose an opportunity to create jobs and boost our economy."
TransCanada said both Keystone and the Energy East line would be needed because of rising production from the oil sands and the Bakken shale-oil field of North Dakota.
"The demand for Energy East is completely independent from our other long-haul pipeline project, Keystone XL, which is underpinned by ... 20-year contracts," TransCanada Chief Executive Officer Russ Girling said at a press conference.
The pipeline should more than replace the over 700,000 bpd of crude that refineries imported last year, according to Canada's National Energy Board, and Girling said oil producers were looking to reach markets as far as India.
"There's a lot of crude that will have to find a home," Al Monaco, chief executive of rival Enbridge Inc, said on a conference call.
Canadian Natural Resources Minister Joe Oliver welcomed the announcement as a way to lower prices for domestic refineries and reduce their reliance on foreign suppliers.
TransCanada shares rose C$1.08 to close at C$48.01 on the Toronto Stock Exchange.
TransCanada said it would seek regulatory approvals early next year. The pipeline, which will be among the world's longest, will convert 3,000 kilometers (1,900 miles) of an under-utilized natural-gas mainline system to carry crude oil through Saskatchewan to Cornwall, Ontario, near the Quebec border.
TransCanada plans to build about 1,400 kilometers (870 miles) of new line and new export terminals in Quebec and New Brunswick, including one at Canaport in Saint John, New Brunswick. TransCanada has formed a joint venture with privately owned Irving Oil to build, own and operate a new deep water terminal in Saint John.
TransCanada is also building a storage terminal in southeastern Saskatchewan that could collect crude from North Dakota's Bakken field that is now shipped east by rail.
"Obviously, we've had some interest from U.S. parties," Girling said. "We'll continue to pursue that."
The line would also diminish the need to ship oil by rail to East Coast refiners, a trend under scrutiny since the derailment at Lac Megantic.
Additional reporting by Nia Williams and David Sheppard; Editing by Lisa Von Ahn, Janet Guttsman, Andrew Hay and Andre Grenon