January 16, 2015 / 6:28 PM / 4 years ago

UPDATE 1-Higher volumes of Canadian oil flowing to U.S. Gulf Coast

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By Kristen Hays

FREEPORT, Texas, Jan 16 (Reuters) - A combination of two pipelines is starting to do what the controversial Keystone XL oil-pipeline plan hasn’t been able to accomplish: sharply increase flows of Canadian heavy crude to the U.S. Gulf Coast.

Enbridge Inc’s Illinois-to-Oklahoma Flanagan South line, coupled with Enterprise Products Partners’ Oklahoma-to-Texas Seaway Twin line, are delivering their first large-volume shipments to the biggest refinery market in the United States, most of which is built to handle viscous oil like that produced in Canada.

“We are connected all the way from Canada to Houston, Texas City, Beaumont and Port Arthur,” Jim Teague, chief operating officer of Enterprise, which operates the 850,000 bpd Seaway system, said Friday near the end of the line on the coast, where a new marine terminal can double as an export platform.

Unlike Keystone, the Flanagan South-Seaway Twin combination has been largely overlooked by environmental groups and has bypassed the need for U.S. federal approval as neither crosses the Canadian border. The existing Mainline system already feeds Flanagan South from Canada.

This week, the U.S. Senate advanced a bill to approve TransCanada Corp’s Keystone project as Republicans seek to secure enough votes to overcome a possible veto by President Barack Obama, who has been considering the project for six years. A rally for the project, led by Republican Senator John Cornryn, was held in Beaumont, Texas, on Friday.

Flows from 600,000-barrels per day Flanagan South and 450,000-bpd Seaway Twin began in December, after some delays. The Twin parallels the original 400,000 bpd Seaway line, which moves both heavy and light crude to the Gulf Coast from the U.S. crude futures hub in Cushing, Oklahoma.

The incoming Canadian could displace heavy imports from Venezuela, Mexico and even Saudi Arabia, threatening to further pressure crude prices, which have fallen by half since June on global oversupply.

Booming U.S. oil output has pushed out most Saudi light sweet oil in the Gulf Coast market. Canadian heavy, which trades at a discount to U.S. light, could deepen competition for heavies.

“This is the linchpin of our market access strategy,” said Enbridge Chief Executive Al Monaco. “We will compete against waterborne imports.”

Re-exports of Canadian crude from the Texas Gulf Coast are also possible, albeit in limited form, Enbridge and Enterprise officials said.

“I think the vast majority of the crude will stay on the Gulf Coast,” Monaco said.

Canadian Natural Resources Minister Greg Rickford said the Enbridge-Enterprise system is a “vital” way to move Canadian crude to market.

Canada sent about 3 million barrels per day of oil to the United States in October, according to government data. Much of that goes to the Midwest, though more flows will reach the Gulf Coast.

The companies said they are not worried about lower oil prices as they have long-term contracts to fill their lines.

But prices, down by half since June, could mean pullbacks in Canadian production. Canada’s Suncor Energy has already said it would cut 1,000 workers and slash $837 million in spending. (Editing by Terry Wade, Bernadette Baum and Peter Galloway)

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