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

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
 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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