(Adds quotes from Keyera CEO)
By Nia Williams
CALGARY, Alberta, March 31 (Reuters) - Canada’s Keyera Corp and midstream company Kinder Morgan Inc plan to build 4.8 million barrels of new crude oil storage in the marketing hub of Edmonton, Alberta, the two companies said on Tuesday.
Capacity at the new terminal has potential to increase to 6.6 million barrels, depending on future demand.
The terminal will be a 50-50 joint venture with Keyera’s share of costs expected to be C$330 million ($260.36 million), while Kinder Morgan will potentially spend C$342 million on construction of tanks and a further C$69 million on connecting pipelines and infrastructure.
In total, the two companies will build 12 crude storage tanks on land owned by Keyera. Commissioning on the first tanks is expected to start in the second half of 2017.
“Clearly there has been a growth in demand for crude storage as volumes continue to grow in Western Canada and land is becoming pretty tight in Edmonton,” said David Smith, Keyera’s chief executive officer. “We had 80 acres of unused land and determined storage there would be a very attractive location.”
Edmonton, one of Western Canada’s major crude storage and marketing hubs, is a gathering point for oil sands production before it is shipped via pipeline or rail to markets in eastern Canada and the United States.
Output from the oil sands is forecast to grow to 6.4 million barrels per day by 2030, up from 3.5 million bpd in 2014, according to the Canadian Association of Petroleum Producers.
Last week energy intelligence firm Genscape reported inventories in Edmonton hit roughly 64 percent of capacity.
Smith said there is 7.2 million barrels of merchant storage available for leasing to customers in Edmonton, and 8.3 million barrels of regulated storage owned by pipeline companies Kinder Morgan and Enbridge Inc.
The 4.8 million barrels of new storage is underpinned by a number of long-term take-or-pay contracts.
It will be connected to Kinder Morgan’s existing Edmonton storage terminals, the Trans Mountain pipeline to Canada’s Pacific Coast and two Edmonton crude-by-rail terminals.
Kinder Morgan will oversee construction and operate the new terminal once it is in service.
“When this initial project is completed, we will have grown our merchant storage, exclusive of our Trans Mountain regulated storage assets, from basically zero tankage to a 12-million-barrel position in roughly a 10-year period,” said Kinder Morgan Terminals President John Schlosser.
$1 = 1.2675 Canadian dollars Editing by David Gregorio and Lisa Shumaker