January 10, 2013 / 9:01 PM / in 5 years

UPDATE 2-Kinder Morgan boosts size of Canadian pipeline project

* Capacity raised to 890,000 bpd from 750,000

* Price tag climbs to $5.4 billion from $4.1 billion

* Project will increase Vancouver tanker traffic

By Jeffrey Jones

CALGARY, Alberta, Jan 10 (Reuters) - Kinder Morgan Energy Partners has boosted the size of a proposed expansion of its Canadian oil pipeline by almost a third to $5.4 billion after signing up more customers for the project aimed at carrying growing volumes of oil sands-derived crude to the Pacific Coast, it said on Thursday.

Kinder Morgan said it now hopes to expand its Trans Mountain Pipeline between Edmonton, Alberta, and Vancouver to 890,000 barrels per day, up from the previously proposed 750,000. It currently ships 300,000 bpd.

The move comes as Canadian oil producers clamor to reach new markets for their supply, which is getting slapped with deep price discounts because of limited pipeline capacity to glutted traditional markets such as the U.S. Midwest.

The issue, which the Alberta and Canadian governments have warned is starting to take a toll on the domestic economy, was brought into sharp focus again on Thursday when Enbridge Inc , the main mover of Canadian oil to the United States, was forced to limit shipments due to operational issues. That pressured prices further.

With its expansion project, Kinder Morgan wants to add an adjacent pipeline along the length of its current one, with much of the new capacity aimed at reaching Asian refineries via tanker.

It would also increase the number of loading berths at its Vancouver marine terminal to accommodate as many as 34 tankers per month, up from five currently.

The project would be in service in 2017.

Kinder Morgan said 13 companies had signed long-term shipping contracts that will account for 700,000 bpd of the total capacity. The company plans to file its application to build the project in late 2013.

Last year, it first proposed an expansion to 850,000 bpd, then cut it to 750,000 in May after some of its supporters dropped out, Kinder Morgan Canada President Ian Anderson said.

It has increased it again following a supplemental call for contracts to ship on the pipeline, Anderson said.

He said the short-term market impacts, which have recently pushed Canadian heavy crude prices to more than $40 a barrel under U.S. benchmark oil, were not likely behind the resurgence of interest.

“I think it’s a broader recognition that pipeline capacity out of the (Western Canadian producing) basin is growing in its constraints and that more market access is required. This is a piece of that puzzle,” Anderson told reporters. “As you know, we’re going to take the next three to five years before we have all the permits and our construction completed.”

The project is the second aimed at opening up Pacific Rim markets for Canadian crude. Enbridge’s C$6 billion ($6.1 billion) Northern Gateway project is currently the subject of public hearings. A regulatory decision is expected by the end of this year.

Both face stiff opposition from environmental groups and many native communities who warn of increased greenhouse gas emissions as oil sands development intensifies and of higher risks of oil spills. Kinder Morgan has also faced opposition from the Vancouver city council over the increased tanker traffic the expanded capacity would bring.

Anderson, whose company has spent the last few months holding information sessions in communities that will be affected, said the projects differ mainly due to the fact that Trans Mountain expansion will include adding new facilities to existing ones rather than starting from scratch.

“Obviously, some of the issues that Enbridge faces from environmental concerns are no different than ones that we’ll face,” he said. “I think there is a lot of work still to be done to get out the facts and the studies around some of those issues and we’ll continue to do that.”

The companies that signed up for long-term capacity are BP Plc, Canadian Natural Resources Ltd, Canadian Oil Sands Ltd, Cenovus Energy Inc, Devon Energy Corp, Husky Energy Inc, Imperial Oil Ltd , Nexen Inc, Statoil ASA, Tesoro Corp , Total SA and two subsidiaries of Suncor Energy Inc.

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