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US court paves way for KXL’s Gulf Coast leg

Construction of a pipeline from Cushing, Oklahoma to the Texas Gulf coast – originally part of TransCanada’s Keystone XL pipeline proposal – is poised to get under way after a US judge ruled against environmental groups seeking an injunction to prevent work on the link starting

On 5 August, a federal court in the Western District of Oklahoma denied a request by the Sierra Club and local landowners to block the 780-km  Oklahoma-Texas portion of the pipeline, now known as the Gulf Coast project.

Because the Cushing-Gulf Coast section of the original Keystone plan does not cross an international border, the US Army Corps of Engineers issued a national permit for the pipeline without additional public hearings or review. The court was asked to rule on the permit’s validity. Opponents claimed that breaking XL into smaller pieces effectively circumvented the broader federal approvals process. But Judge David Russell ruled that the plaintiffs “failed to show that this project will have more than a minimal impact on the environment", and that the benefits of the line “far exceed its costs”.

The Gulf Coast link will alleviate a bottleneck of crude at Cushing which has driven down North American oil prices and created a substantial discount between West Texas Intermediate (WTI) and global benchmark Brent.

President Barack Obama rejected the broader Keystone XL proposal, but has supported the southern leg, as it would bring the US’s growing domestic surplus from the Eagle Ford to market. While the Gulf Coast pipeline is not expected to become operational until 2013, politicians are hoping increased volumes of cheaper oil from Cushing will help drive down gasoline prices ahead of the November presidential elections.

In a statement, TransCanada said the $2.3 billion project would create 4,000 construction jobs, and give Gulf refineries access to lower-cost domestic production, displacing more expensive imports.

TransCanada is also hoping to build another leg of the original Keystone XL plan from the Bakken shale oilfields in North Dakota south to Cushing – known as the Bakken Marketlink – as it looks to build as much of the pipeline as possible without having to seek State Department approval.

The company says it remains committed to the broader Keystone XL project and hopes to have the entire system, which will carry 830,000 barrels a day (b/d), operational by 2015. Canadian approvals have been in hand for more than two years and the company expects a final US decision on the final segment which crosses the Canadian border into the US by the second quarter of 2013.

Final approval is by no means guaranteed. Concerns over pipeline safety have dogged TransCanada’s compatriot Enbridge after leaks from one of its lines in Wisconsin. On 6 August the Pipeline and Hazardous Materials Safety Administration (PHMSA) gave Enbridge conditional approval to restart the 300,000 b/d Line 14, shut in after a spill, but demanded stringent safety checks be carried out across Enbridge’s northeastern US network.It follows criticism from US National Transportation Safety Board (NTSB) which compared Enbridge to the “Keystone cops” for its handling of a 2010 spill in Michigan.

For its part, TransCanada has agreed to 57 conditions over and above existing requirements for conventional oil pipelines. More than 36,000 sensors will transmit data via satellite every five seconds to ensure structural integrity. Operating pressures will be reduced to further increase safety margins. Steel will be thickened for sections of pipe which traverse water, and the pipeline will be buried deeper underground to protect against breaks. TransCanada has also agreed to step up inspections and alter its operating practices to address failings identified in the NTSB report.

“No one has a stronger interest than TransCanada does to ensure the Gulf Coast project is built and operated safely”, spokesman James Millar told Petroleum Economist in an email.

Producers, too, have a stake in the Gulf Coast link, and many have signed contracts for 17 years or more to ship oil via the line.

Without Keystone XL, Canadian oil-sands expansion will slow from 2016, and remain effectively suspended at 3 million b/d. But US oil producers also benefit, with 20% of the line’s capacity earmarked for output from the prolific Bakken play, which is seeing production grow at a rate of around 20,000 b/d per month.

As output reaches 650,000 b/d, North Dakota’s road and rail infrastructure is straining to meet Bakken producers’ export requirements. On 25 July, Houston-based marine firm Kirby Corporation said it is working with operators to transport Bakken crude down the Mississippi River to Louisiana by barge. Bakken production is expected to quadruple to 2 million b/d by 2025, an increase which would require at least two Keystone-sized pipes to handle the additional volumes.

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