Case for US Keystone XL approval ‘compelling’ – Canadian analyst

27 February 2013 17:09  [Source: ICIS news]

TORONTO (ICIS)--The case for the US to approve the long-delayed Keystone XL pipeline project to enable supplies of Canadian oil to refineries on the Texas Gulf Coast remains “compelling,” a Canadian analyst said on Wednesday.

The 1,900km project, first proposed in 2008, met with strong opposition from environmentalists worried about emissions from Canada's heavy oil sands crudes. US President Barack Obama last year deferred a final decision on the pipeline's approval.

Patricia Mohr, commodities specialist at Toronto-based Scotiabank, said in a research note that arguments in favour of the project remain compelling.

First, the US and Canada have a long-standing free-trade relationship, especially on energy, Mohr said.

Second, the project would improve overall US supply security as the Canadian crude would displace oil from more volatile regions of the world.

Third, there was a “critical need” for more pipeline capacity and infrastructure for US oil from the North Dakota’s Bakken region and northern Texas to the Gulf Coast, she said.

“One-third of Keystone XL pipeline capacity will actually be available for US producers,” Mohr said.

Keystone XL would, via Cushing, Oklahoma, allow greater volumes of oil from western Canada to reach the large Texas Gulf refining hub where world prices for both heavy and light oil prevail.

As such the project would help narrow currently wide discounts on Western Canadian Select (WCS) heavy oil, as well as the discount on Bakken oil, Mohr said.

The WCS discount off West Texas Intermediate (WTI) was at “a staggering” $36.94/bbl in February, she said. WCS heavy oil should be priced close to similar-quality Mayan crude from Mexico, which was priced at $101/bbl in mid-January, she added.

Following approval, Keystone XL's construction could take 18-24 months, meaning that the project could be in service by late 2014, at the earliest, Mohr said.

However, regardless of Keystone XL, Canada needed to develop additional outlets for its oil, she added.

Mohr pointed to plans for a new pipeline from Alberta to the British Columbia coast, from where the oil would be exported to markets in Asia, and to pipeline projects from Alberta to markets in eastern Canada.


By: Stefan Baumgarten
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