By Nia Williams and Matthew Robinson
CALGARY, Alberta Oct 2 The southern portion of
TransCanada Corp's Keystone XL oil pipeline is 95
percent complete and the company is focused starting the line by
the end of 2013, a TransCanada spokesman said on Wednesday.
Rumors that the line's start might be delayed into 2014 have
dogged the North American crude market in recent weeks.
TransCanada's comments that the line would start on schedule
helped narrow international Brent crude's premium to U.S. oil
futures by around 70 cents to around $5.13 in afternoon trade.
Initial capacity on the Gulf Coast pipeline, which will ship
crude from the Cushing, Oklahoma, delivery point of the U.S. oil
futures contract to Nederland, Texas, will be 700,000 barrels
per day, expandable up to 830,000 bpd, TransCanada spokesman
Shawn Howard said.
He declined to discuss customer volume commitments for the
line, but added it is "overwhelmingly subscribed".
The market has been focused on the startup of the pipeline
as it will provide another conduit to the Gulf Coast refining
center for inventories of crude that swelled to record levels
earlier this year at Cushing due to surging production from
Canada, North Dakota and Texas.
Howard said major construction of the pipeline is expected
to be complete by the end of October. Testing on the line is
already underway and expected to be complete in early November,
and the company will begin filling the line shortly afterwards.
"Once construction is done there's commissioning work that
has to take place and continued testing. That will take some
time," Howard said in response to questions about when shipping
"We remain focused on the project becoming operational near
the end of 2013."
In an April filing with the U.S. Federal Energy Regulatory
Commission, TransCanada said early leased capacity on the
pipeline would be "approximately 400,000 bpd".
TransCanada's yearend target is unchanged from previous
Traders have been tracking the line's progress as it could
speed the draw of crude oil stocks at Cushing significantly and
push WTI prices higher.
The startup of the Keystone Gulf Coast line, adding to
capacity from other pipelines such as Seaway that are already
moving crude out of, or bypassing, Cushing, could narrow the
spread even further as inventories at the hub are drawn down
further, according to Morgan Stanley.
"The structural crude shortage in Cushing will only worsen
with the addition of new pipelines in late 2013 and 1Q14," the
bank said in a research note.
"With the Gulf Coast oversupply likely to take longer to
play out and no need for spot barrels to flow out of Cushing
until late 2014 at the earliest, WTI should trade much closer to
Brent for most of 2014, and potentially at a premium in 1H14."
Cushing inventories have plunged by nearly 17 million
barrels over the past 13 weeks as pipelines send more crude to
Gulf Coast refiners, creating fears that another glut could be
built up in the Houston area.
Another TransCanada spokesman, Grady Semmens, told Reuters
the initial delivery location will be Sunoco Logistics Partners
LP's Nederland terminal in Texas. Semmens said
TransCanada has been in discussion with a number of customers
about possible connections to the Gulf Coast pipeline, but
declined to give specifics.
However, in September Valero Energy Corp said in an
SEC filing for subsidiary Valero Energy Partners that a 400,000
pipeline connecting the TransCanada pipeline to Valero's Lucas
storage terminal would be put into service during the first
quarter of 2014.
The Lucas Storage terminal is connected to Valero's Port
Arthur plant, and the refiner has taken a minimum quarterly
throughput commitment of 45,000 bpd, which could be increased to
150,000 bpd if the complete Keystone XL pipeline is built.
Semmens also told Reuters construction on the 48-mile
Houston lateral project pipeline, which will transport crude
from the Keystone Gulf Coast line to refineries in the Houston
area, would start in the fourth quarter of 2013. Completion is
scheduled for late third quarter to early fourth quarter 2014.