INTERVIEW-TransCanada expects Jan. 22 start for Gulf Coast pipeline

Tue Dec 17, 2013 3:13pm EST

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(Adds details on Keystone XL project in final paragraphs; updates shares)

By Scott Haggett and Nia Williams

CALGARY, Alberta Dec 17 (Reuters) - TransCanada Corp expects its new 700,000-barrel-per-day Gulf Coast oil pipeline to begin service on Jan. 22, Chief Executive Russ Girling said in an interview on Tuesday.

The company is currently filling the Cushing, Oklahoma, to Port Arthur, Texas, pipeline with the 3 million barrels of crude oil needed before it can be placed into normal operation.

Initial testing showed no issues with the line and shippers were told of the planned in-service date on Monday.

"We need to make sure that we continue to test things as we load the pipeline with oil," Girling said. "Based on our current estimates, January 22 is what we've told our shippers for start-up."

The Gulf Coast line is the southern leg of TransCanada's controversial Keystone XL project, which, more than five years after the initial filing, is still awaiting a final decision from the Obama Administration.

The start-up of the Gulf Coast project will give Canada's oil sands producers their first large-scale access to the refining hub on Texas' Gulf Coast. It could also help alleviate steep discounts on Canadian crude, which dropped to more than $40 per barrel below the West Texas Intermediate benchmark last month.

Girling said much of the oil on the line will come from shippers on the company's existing 590,000 bpd Keystone pipeline, which takes crude from Hardisty in central Alberta to Cushing.

"We are now actually connected all the way to the Gulf Coast," Girling said. "The shippers (on the Keystone line) have the ability to not deliver at Cushing, they can deliver right through to the Gulf Coast. So we actually have ... a contiguous system that has the ability, once Gulf Coast is up and running, to deliver 600,000 barrels per day to the coast."

Girling said oil headed to Cushing and to Wood River, Illinois, Keystone's two existing delivery points, can be diverted to Texas refineries if prices warrant.

"Right now the gulf coast is priced higher than mid-continent barrels," he said. "So right now all of our shippers on the base system will want to take their barrels in that direction."

The Gulf Coast line will also take oil from shippers at Cushing who signed up for space on the line prior to construction. Girling said those customers will retain the right to ship on the project after the northern leg of the Keystone XL project is complete.

The Gulf Coast line will also take some Cushing crude from shippers who have not signed binding contracts for capacity on the line, however that group will lose its access to the line when the northern leg of the project is complete, Girling said.

The Keystone XL pipeline requires a presidential permit before construction begins because it crosses the Canada-U.S. border, unlike the Gulf Coast project. The U.S. State Department is completing an environmental impact statement on the project, which will be followed by a comment period prior to the President's final decision.

Should Obama approve the project in 2014, the line could be built within two years, though costs are expected to be well above TransCanada's last $5.4 billion estimate.

"It's materially more expensive," Girling said. "But until we actually get the permit, we have not put out a new estimate publicly. But it's certainly something we discuss with our shippers on a continuous basis because they foot part of the bill. At the end of the day, this will cost more because of all the delays."

TransCanada shares were up 15 Canadian cents to C$46.87 in midafternoon trading on the Toronto Stock Exchange. (Editing by Gerald E. McCormick, Phil Berlowitz and Bob Burgdorfer)

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