Alternative routes for Alberta crude in works after U.S. rejects Keystone XL project

Alberta crude will find its way to market despite the delay and possible cancellation of a major pipeline to the U.S. Gulf of Mexico, industry representatives said.

However, plans to secure alternative transportation could be accelerated after U.S. President Barack Obama rejected TransCanada Corp.'s 830,000 barrel-per-day Keystone XL on Wednesday.

Oilsands producers such as Canadian Natural Resources Ltd., Suncor Energy and Cenovus Energy have been reviewing alternative means of moving their volumes since public pressure against the Alberta-to-Texas project started last year.

"We have many options to transport our oil to market and we are currently assessing all transportation possibilities," a Cenovus spokesman, Reg Curran, said Wednesday. "Although we primarily use pipelines for transportation, we've also started using rail in Saskatchewan. Other alternatives for the industry include increasing the capacity of current pipelines or reversing some others."

Oil producers already have started shipping barrels by rail, with railways and rival pipeline Enbridge Inc. jumping into the capacity void.

During a conference call on earnings in November chief executive Pat Daniel said the company had sufficient available capacity and/or relatively low-cost expansions to accommodate early volumes expected on Keystone XL.

On Wednesday Enbridge announced it expected an open season for shipping on a reversed Seaway line would be fully contracted.

The Calgary-based oil pipeline giant partnered with Enterprise Products Partners on the line, which could be shipping 150,000 bpd of crude out of storage hub Cushing, Okla., by the second quarter of this year. The partners will decide on expanding the line's current 400,000 bpd capacity after the open season ends on Feb. 10.

TransCanada said it would be submitting a new application with an alternative route to U.S. regulators, and that it kept a previous in-service date of late 2014 for the line.

The Canadian Association of Petroleum Producers took Wednesday's announcement with a grain of salt, noting the U.S. State Department left the door open for TransCanada to re-apply.

"We think this doesn't need to have an impact on the ramp up in oilsands production," Tom Huffaker, vice-president of policy and environment, told the Herald. "The pipeline is not needed immediately and obviously there are other projects that are on the table that are being looked at, and there is some capacity in the system still."

The association predicts oilsands production will hit 2.2 million barrels per day by 2015, ramping up to three million barrels per day by 2020 when a number of oilsands projects ramp up.

ConocoPhillips chief executive Jim Mulva said on Wednesday Canadian oilsands development will go ahead whether or not the Obama administration rejected the proposed pipeline.

Mulva said the U.S. rejection of Keystone would likely prompt the companies to develop other pipelines, such as a line leading west from Alberta to Canada's western coast to off-load oil to tankers headed for Asia.

"Opponents are trying to block the pipeline in the mistaken hope of stopping Canada's oilsands development. But there are compelling economic and employment incentives for Canada to continue development, wherever the oil goes," he said.

Some estimate say producers could face a capacity pinch between 2014 to 2017 without new pipelines out of Alberta.

Already several Canadian producers are shipping their barrels by rail as an alternative. The number of carloads being shipped from the North Dakota Bakken has increased to 13,000 from 500 over the past two years, Canadian Pacific Railway said. The company, Canada's second largest rail-way after Canadian National Railway, said it anticipates the number could climb to 70,000 carloads down the road, with projected revenue of $140 mil-lion for the firm.

"Shipping crude by rail is definitely a bridge," said Mar-tin King, with FirstEnergy Capital Corp. "The costs are definitely higher, but rail has been helping."

Almost one million barrels per day of oil were transported by rail in the U.S. last year, about 200,000 barrels more than the prior year, he said, noting the price differential between the U.S. Midwest and the Gulf Coast played a strong role in the trend.

Markets reaction to the news was bland, surprising analysts as the premium of Brent oil to West Texas Intermediate crude - which reached historic highs more than $28 US per barrel last fall - actually narrowed Wednesday.

"The market is not waiting around for the administration to decide. The market is finding ways to move this crude," said Mark Routt, senior oil market consultant at KBR Advanced Technologies in Houston.

Last fall Brent's premium to WTI tightened $4 a barrel in one day after Calgary-based Enbridge Inc. and U.S. partner Enterprise unveiled plans to reverse the Seaway pipeline.

The spread has since mostly traded in the $12 US to $7 US range, moving at about $9.90 US a barrel late Wednesday.

domeara@calgaryherald.com