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Oil Pipeline to Benefit Canada and U.S. Midwest, Gulf Coast

April 2012
TransCanada Corp.'s 1,661-mile Keystone XL pipeline would carry oil from Alberta, Canada, to the U.S. Gulf Coast and Midwest. The pipeline would provide an outlet for growing Canadian crude oil production, enabling the United States to replace Venezuelan crude oil with oil from a more secure source. Because the pipeline would cross the Canada-U.S. border, the project needs U.S. State Department approval.

Earlier this year, the Obama administration rejected the proposal for the pipeline saying the project needed further study. Concerns have been raised over the pipeline route, which crosses an important aquifer in Nebraska. TransCanada executives are rerouting the pipeline to avoid crossing the aquifer and expect approval for the whole project eventually. However, the delay has pushed back the pipeline completion date to 2015, a year later than previously planned.

The Gulf Coast Project
To help deal with the delay, TransCanada announced it would reapply for a permit to proceed separately with a $2.3 billion segment of the pipeline that will carry 700,000 barrels of crude oil daily from the storage hub at Cushing, Oklahoma, to refineries on the Texas coast. Cushing's storage tanks are bursting with crude oil beyond the capacity of existing pipelines to transport, according to Tom Bentz, an oil trader at BNP Paribas Prime Brokerage in New York City. The new pipeline would relieve this congestion.

"The Gulf Coast project will transport growing supplies of U.S. crude oil to meet refinery demand in Texas," said TransCanada CEO Russ Girling. "Gulf Coast refineries can then access lower-cost domestic production and avoid paying a premium to foreign oil producers. This would reduce the United States' dependence on foreign crude."

The Gulf Coast project would enable TransCanada to get started on pipeline construction despite the delay in approval for the entire Keystone XL pipeline project until after the 2012 U.S. presidential election. Because the Gulf Coast project does not cross any international borders, it would not require State Department approval. The Cushing-Gulf Coast pipeline could be completed by the middle of 2013, creating approximately 4,000 jobs.

A White House spokesperson announced that President Obama supports the Gulf Coast project. It "will help address the bottleneck of oil in Cushing," and "modernize our infrastructure, create jobs, and encourage American energy production." Nonetheless, having the southern portion of the pipeline ready will not shorten the two-year construction timeline for the longer pipeline because severe winters in the northern United States prevent construction during those months.

The Entire Pipeline
Meanwhile, TransCanada is working on a plan to reroute about 100 miles of the proposed Keystone XL pipeline to avoid the Nebraskan aquifer. Alex Pourbaix, president of TransCanada's oil pipelines division, said that TransCanada will file its re-application to the State Department in a matter of weeks.

Pipeline construction will provide economic benefits to other industries beyond petroleum. "Seventy-five percent of the steel pipe used to build Keystone XL in the U.S. would come from North American mills, including half made by Welspun Corp.'s workers in Arkansas," said Pourbaix. "In addition, we have already sourced goods for the pipeline valued at approximately $800 million from U.S. manufacturers." Some tanks, pumps, motors, valves, and fittings have yet to be sourced.

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