UPDATE 3-Kinder Morgan eyes expanded Trans Mountain line

Wed Jul 6, 2011 5:53pm EDT

* Plans binding open season for Trans Mountain expansion

* Capacity may rise by "a few hundred thousand barrels"

* Expansion of port facilities to handle bigger tankers (Adds details and comments)

By Scott Haggett

CALGARY, Alberta, July 6 (Reuters) - Kinder Morgan Energy Partners LP (KMP.N) plans to gauge shipper interest this fall for an expansion of its Edmonton, Alberta, to Vancouver pipeline and in expanded port facilities for overseas oil exports.

Ian Anderson, president of Kinder Morgan's Canadian unit, said the 300,000 barrel per day line, could likely be expanded by "a few hundred thousand barrels" as the company prepared to take a step forward on a concept it has been considering since 2004.

Anderson, speaking after a presentation at a Calgary conference, said a fall open season, where shippers sign a binding contract for capacity on the line, would determine the size of an expansion that could be in service by 2015.

"We are talking to the market to try and scope out what that open season will be, how big it will be and what the commercial aspects of it will be," Anderson said.

An expansion would provide the first significant route for Canadian oil exports to Asia and elsewhere and could be completed years ahead of Enbridge Inc's (ENB.TO) planned 525,000 bpd Northern Gateway line, which would carry Alberta oil to Kitimat on British Columbia's northwest coast.

However the two lines may be able to co-exist since much of Trans Mountain's oil could flow to refineries on the U.S. West Coast seeking to replace declining Alaskan production. As well, the Northern Gateway project port would be able to handle the largest crude tankers, while Trans Mountain's Port of Vancouver facilities can only handle smaller vessels.

"It pushes out the necessity for Gateway for a little bit but it doesn't remove it," said Chad Friess, an analyst at UBS Securities. "We need a deepwater port to ship our oil to Asia ... which is the main argument behind Gateway."

Canadian oil producers have been urging development of an line that would let them tap high-paying Asian markets and West Coast. The majority of Canada's oil exports currently flow to the U.S. Midwest, where a glut of crude at the Cushing, Oklahoma, storage hub has depressed prices.

Moving oil offshore would cut into the glut of Canadian crude at Cushing and narrow the spread between benchmark West Texas Intermediate oil - priced a Cushing - and the Brent benchmark. WTI was once priced at a premium to Brent but was more than $17 a barrel below the European benchmark on Wednesday.

About 25 percent percent of shipments on the Trans Mountain line now go to the company's Westridge Dock facility at the Port of Vancouver, which can only accommodate Afromax tankers with a capacity of 650,000 barrels.

Kinder Morgan is also planning an expansion of the facility that would see it able to eventually handle 450,000 bpd, adding a second berth that could accommodate Suezmax tankers that can hold one million barrels - though still well below the 4 million barrels the largest tankers can handle.

An expansion of the Trans Mountain system using its existing right of way is likely to face less opposition than the Northern Gateway has received, with First Nations along that line's planned route pledging to block access to their lands.

However the port expansion may face more opposition, with environmental groups seeking to block additional tanker traffic.

"Eighty percent of British Columbians oppose tanker traffic in our waters," said Jessica Wilson, acting director at Greenpeace in Vancouver. "Kinder Morgan will face ferocious opposition." (Editing by Peter Galloway)

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