February 15, 2011 / 2:33 PM / 7 years ago

UPDATE 5-Key Oklahoma-to-Gulf oil pipeline hits first delay

 * U.S. State Dept approvals delayed to second-half 2011
 * Tab for Keystone project pushed up by $1 bln to $13 bln
 * Line seen as key to cutting Midwest supply glut
 * State Dept says to finish environmental study in Q1
 * Shares drop a penny  (Updates with comment from State Dept)
 By Scott Haggett
 CALGARY, Alberta, Feb 15 (Reuters) - Construction of a pipeline to pump Canadian crude to the Gulf Coast has been pushed back due to U.S. State Department permit delays, its operator said, threatening to prolong an unprecedented gap between U.S. and global oil prices.
 TransCanada  (TRP.TO), which had expected the government approval early this year, said the 510,000 barrel-per-day Keystone XL line from the Cushing, Oklahoma, hub to the coast was now unlikely to be in service before the second-quarter of 2013, about three months past its previous forecast and with the possibility of yet further delay, company officials said.
 The set-back could extend the deep wedge that has suddenly emerged this year between the growing glut of inland U.S. crude -- trapped due to a lack of pipeline capacity -- and coastal competitors that now sell for up to $25 a barrel more.
 "Obviously further delays in the permitting process could result in further delays in putting the project in service," Russ Girling, TransCanada's chief executive said on a conference call.
 A State Dept official said it still expected to complete a review of the draft Environmental Impact Statement (EIS) and other preliminary materials in the first quarter of 2011, after which it will decide whether another EIS is necessary or whether it can move on to a decision on the pipeline.
 The normally routine permit, first requested in 2008, has stalled in the face of opposition from environmental groups and by some U.S. state and federal legislators over greenhouse emissions from expanded oil sands production and by the threat of oil spills in sensitive areas along the route.
 The U.S. oil industry has been eagerly awaiting the Keystone XL Pipeline, hoping it will improve the flow of crude out of the Midwest, which has rapidly become oversupplied with rising Canadian and Bakken oil shale production.
 The trend has upended the global oil market, with U.S. WTI crude oil futures, normally at a premium to Europe's benchmark Brent, now $14 cheaper. Analysts say the rare reversal may last until new pipelines are built.
 "The sooner we get on with approving that pipeline and getting it under construction, the sooner we can alleviate that bottleneck and move that additional crude oil supply to the Gulf Coast," Girling said.
 TransCanada, the country's No. 1 pipeline and power company, also boosted the cost estimate for the Keystone pipeline system by $1 billion on Tuesday, pushing the tab to $13 billion.
 The company said the necessary permit from the State Department would now likely be approved in latter half of this year instead of its prior first-half estimate. It gave no reason for the delay.
 The Obama administration must reconcile the views of the Environmental Protection Agency, which has raised concerns about greenhouse gases released during the production process, and its own aim to improve energy security by reducing its reliance on imported Gulf crude.
 SCENARIOS on the approval process see:  [ID:nN31239106]
 COLUMN on the Midwest crude glut see:   [ID:nLDE71E1SI]
 FACTBOX on new and coming US pipelines: [ID:nN14164858]
 INSIDER: link.reuters.com/vur97r
 GRAPHIC TransCanada's lines: r.reuters.com/dyr97r
 U.S. crude prices have been depressed by record stockpiles at Cushing, the delivery point for the New York Mercantile Exchange's benchmark West Texas Intermediate contract, and the lack of transport options to move it further south.
 While seaborne European benchmark Brent LCOc1 trades above $101 a barrel, comparable U.S. WTI CLc1 settled on Tuesday at $84.32  a barrel. For decades U.S. crude has normally traded at a premium.
 "The sooner a pipeline is built to move some crude out of Cushing will be helpful in reducing the oversupply in the region," said Tom Bentz, a broker at BNP Paribas in New York. "It may also help restore the viability of the WTI contract making it more competitive with other domestic and international crudes."
 Despite the opposition, analysts expect the planned Gulf line will be approved as the United States looks to replace oil from the Middle East with additional volumes from Canada, its largest supplier.
 "In the interest of reducing U.S. energy dependence on the Mideast and elsewhere, we see minimal risk that approval for the expansion will not be achieved," Chad Friess, an analyst at UBS Canada, wrote in a note to clients.
 It blamed the higher tab on the delayed approval, a rising Canadian dollar and higher costs for the line's first two phases to Illinois and Cushing, Oklahoma.
 Also on Tuesday TransCanada said its fourth-quarter profit fell 29 percent to C$269 million ($271.7 million), or 39 Canadian cents per share, from C$381 million, or 56 Canadian cents, in the year-before quarter as it took a C$127 million write-down on its investment in a backer of the long-delayed Mackenzie Valley natural gas pipeline in Canada's North.
 Excluding the write-down and other one-time items, TransCanada posted comparable earnings of C$384 million, or 55 Canadian cents a share, up 17 percent from the fourth quarter of 2009, and ahead of the average forecast of analysts for 53 Canadian cents a share, according to Thomson Reuters I/B/E/S.
 The increase resulted from the completion of an Ontario power project, increased output from its partly owned Bruce nuclear plant in Ontario, as well as a higher contribution from its intra-Alberta natural gas pipeline network and other items.
 TransCanada shares fell 1 Canadian cent to C$37.80 on the Toronto Stock Exchange.
 ($1=$0.99 Canadian)  (Additional reporting by Bruce Nichols and Arnika Thakur, and Andrew Quinn in Washington; editing by Peter Galloway, Lisa Shumaker and Sofina Mirza-Reid)   

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