Keystone XL still ahead of rivals

TransCanada President and CEO Russ Girling speaks to Reuters reporter during an interview in Calgary, Alberta, December 15, 2011. Buoyed by renewed pledges of customer support, TransCanada Corp said on Thursday it not only wants to proceed with its stalled Canada-to-Texas Keystone XL oil pipeline but to undertake a $600 million expansion and extension.

CALGARY, Alberta (Reuters) - TransCanada Corp still has a big advantage in the race to supply U.S. oil markets with Canadian supplies, despite a year's delay to its $7 billion Keystone XL project, because of the preparation already done, Chief Executive Russ Girling said on Thursday.

TransCanada's customers have shown they believe the controversial pipeline is still the best option for moving burgeoning Canadian oil sands and North Dakota shale oil production by signing up for more capacity and backing an extension of the line in Texas, Girling told Reuters in an interview.

In more than 40 months since proposing the development, the company has completed much of the U.S. regulatory process including an environmental impact statement, acquired 93 percent of the right-of-way between Alberta and Texas, ordered and stockpiled the pipe and other equipment and signed construction contracts, he said.

"That's a massive amount of work that anybody who wants to build a pipeline to move the supply to market has to do. And every one of those processes is riddled with complexity and, as we know today, even more difficulty than we've ever had in the past," Girling said.

On Thursday, TransCanada said its shippers were looking beyond the delay by backing a 19 percent increase in the pipeline's capacity to 830,000 barrels a day and a spur line to Houston from the Keystone XL endpoint at Nederland, Texas.

Last month, the U.S. State Department, after studying the project for more than three years, pushed off its decision on whether to approve the pipeline well into 2013, past the U.S. presidential election next November.

Part of the reason was to study moving the proposed route in Nebraska away from an aquifer, and the company and state are currently examining new rights-of-way under an agreement made just days after the State Department's postponement.

"As you can see we've been very responsive and flexible with changes and delays and we'll continue to be. We'll respond," he said. "We've been at this for 60 years. This isn't the first difficult thing. It's one of the more difficult ones we've been through, but this is what we do."

Girling, whose company is Canada's largest pipeline and electric generation operator, said he spent a disproportionate amount of time on Keystone XL as its opponents became more vocal and controversy grew through 2011. In fact, TransCanada started up C$10 billion worth of other projects in Canada, the United States and Mexico during the year.

Environmental groups, which claimed the Keystone XL delay as a major victory, are more interested in halting Canadian oil sands development than pipelines, but have seized upon creating pinch-points in the infrastructure as a way to do it, he said.

Meanwhile, Canadian oil producers are counting on the project as a way to cure a glut of supplies in the U.S. Midwest and eliminate deep discounts for their crude.

Canada's oil industry has warned that forecasts of growing tar sands production show that supplies could exhaust excess export pipeline capacity as early as 2015.

However, Girling said his biggest single reason for seeking to move Keystone XL forward as quickly as possible is making up for dwindling heavy oil supplies on the U.S. Gulf Coast from Venezuela and Mexico.

"Those folks are actually the most agitated at the current time about how they are going to get heavy crude: 'Are we going to use rail cars? How are we going to get this heavy oil from Canada?'" Girling said. "'Or, do we go back to Venezuela, pay a higher price and attract shipments that are otherwise destined for China back to the United States?'"

(Editing by Frank McGurty and Jim Marshall)