CALGARY (Dow Jones)
Kinder Morgan Energy Partners L.P. (KMP) said Thursday it will build a $5 billion expansion of its Trans Mountain pipeline, more than doubling the capacity of crude it can ship to Canada's west coast -the latest project aimed at moving Canada's rising oil production to markets other than the U.S.
Almost all Canadian crude exports currently travel to the U.S. While Canadian oil output has been rising fast, pipeline capacity to move it from the country's biggest oil patch in landlocked Alberta to refining markets in the U.S. has been stretched. That - and climbing oil production in the U.S. itself - has depressed prices for Canadian crude.
Trans Mountain already ships a small amount of crude from Alberta to Vancouver. The expansion will increase that volume to 850,000 barrels a day from 300,000 barrels a day, and would allow Asian buyers to load Canadian crude in significant volumes.
"It's one of the largest single investment projects ever made at Kinder Morgan," said Ian Anderson, president of the Houston company's Canadian division. "Oil sands and Canadian production, and helping to find markets for that production...are among the major energy trends in North America," he said.
The expansion is competing with other projects to bring Canadian oil to the west coast. Enbridge Inc. (ENB) has proposed the Northern Gateway pipeline, that would take oil from Alberta to a small, northern port in British Columbia. That line faces strong resistance from native groups.
Canadian oil executives and politicians have ratcheted up support for westward-running pipelines after the U.S. blocked a key oil pipeline expansion that envisioned sending more oil from Alberta to the U.S. Gulf Coast. Last year, the White House delayed approval of the line, TransCanada Corp.'s (TRP) Keystone XL, which became ensnarled in a political battle in Washington.
In February, under a legislated deadline pushed by Republican lawmakers, Obama rejected the line outright, but said he'd be open to reviewing it again if TransCanada reapplied.
Late last month, the government of Conservative Prime Minister Stephen Harper said it would streamline regulatory reviews of big energy and mining projects and infrastructure meant to move resources to markets. Harper and other Canadian officials have made a point of saying they want to open up new markets for Canada's resources in Asia, instead of relying on the U.S. as its biggest buyer.
The $5 billion cost of the Trans Mountain expansion is up from the prior estimate of $4 billion. Anderson said the increase reflects stronger-than-expected support for the project, which was originally a 700,000-barrel-a-day expansion. Customers include Canadian oil producers, as well as international refiners and marketers, but Kinder Morgan said it's bound by confidentiality agreements and can't identify its customers.
A two-year regulatory process for the expansion will begin after it files its application with Canada's National Energy Board in later 2013 or early 2014. Construction would begin in late 2015 or early 2016 and oil would flow on the expansion in early 2017, Anderson said.
Because Kinder Morgan is expanding a pipeline across British Columbia that has been in place for 60 years, it may have an easier time obtaining support from native tribes, which have significant land claims in British Columbia.
Native opposition has been an obstacle for Enbridge, which is planning to break ground on a new, 525,000-barrel-a-day pipeline across British Columbia and is encountering significant resistance from native groups concerned about the potential for oil spills. Enbridge's pipeline is expected to cost $5.5 billion to build and would also be completed in 2017.
Anderson said the company has a good relationship with the roughly 20 native tribes along the pipeline's route and is in touch with them about its expansion plans.
Asked whether there was enough support for both Kinder Morgan's and Enbridge's west-coast projects, Anderson said "Longer term, I think more than one access to the west coast is a potential."
An Enbridge spokesman said it believes there is enough capacity for two west-coast lines, and said Northern Gateway's capacity has been fully booked by shippers.
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