Kinder Morgan to expand Canada pipeline

(Photo: Kinder Morgan)

Kinder Morgan Energy Partners is throwing a $5 billion solution at Canada’s growing supply of stranded oil, announcing Thursday that it plans to nearly triple the capacity of a pipeline that would kick open the door to Asia.

The project is one of the most expensive Kinder Morgan has undertaken, due in part to the terrain and environments through which the project would run, said Emily Mir, a spokeswoman for the company.

The Houston-based pipeline giant said it will expand its Trans Mountain pipeline system, which traverses the Canadian Rockies en route from Edmonton, Alberta, to the Vancouver area of British Columbia, increasing its capacity from 300,000 barrels of crude a day to 850,000.

The expansion, pending regulatory approval, would run along the same 715-mile right of way as the existing pipeline, which has been in operation since 1953.

The company said it expects to begin construction in 2016 and finish by 2017.

The pipeline would provide a larger outlet for the vast supplies of oil produced from landlocked oil sands in Alberta and is the latest effort to move Canadian crude to international markets. Canadian oil sells at a substantial discount to world crude because it has nowhere to go, in many cases falling more than $30 a barrel below the price for West Texas Intermediate, the U.S. benchmark crude.

West Texas Intermediate rose 94 cents Thursday to close at $103.64 per barrel. Brent crude, used to set the price of international oil, was up $1.65, finishing at $121.52.

“Access to alternative markets is critically important to ensure that Canadian producers get full value for their oil,” said Ian Anderson, president of Kinder Morgan Canada. “Discounts off of WTI are extreme, and even WTI is off of Brent. So in the world scale, Canadian oil is facing serious discounts, and one of the solutions to that is accessing different markets.”

Through the first three quarters of 2011, 98 percent of all Canadian oil exports went to the United States, according to the latest data available from Canada’s National Energy Board.

Strong demand from Asia helped feed interest in the pipeline expansion, Anderson said.

The project would include an expansion to the company’s marine terminal in Vancouver, which exports 10,000 to 15,000 barrels of oil a day to China now, he said.

That would add capacity for sending oil overseas from the only pipeline that currently moves Canada’s crude to its west coast, said Jackie Forrest, senior director of global oil research for IHS Cambridge Energy Research Associates.

“The reason this pipeline is being built is because it’s really geared at exporting crude oil,” Forrest said.

Also important in Kinder Morgan’s expansion decision were declines in crude production from Alaska, which has increased demand for Canadian oil from West Coast states like Washington and California, Anderson said.

Kinder Morgan’s move to expand capacity to the Canadian west coast comes as Canadian pipeline companies Enbridge and TransCanada aim to expand capacity southward to the U.S. Gulf Coast.

Earlier this year, the Obama administration rejected TransCanada’s permit application for its proposed Keystone XL cross-border pipeline, saying a congressionally imposed deadline didn’t allow time to review a new route mapped to avoid a major aquifer in Nebraska.

TransCanada is moving forward with a proposed Gulf Coast project to help move oil from existing cross-border pipelines to Texas refineries. Along with other plans, including a joint $2 billion project that Enbridge and Houston-based Enterprise Products Partners announced last month, a series of expansions would add more than 2 million barrels a day of pipeline capacity serving the Gulf Coast.

That will offer more space for Canadian crude that currently can get across the border but remains distant from major refineries, even as cross-border pipeline expansions are still in the works.

Targeting a project that would move crude west, across Canada, made sense, given the amount of proposed pipeline expansions to ship oil into the United States, Anderson said.

“We’re just a piece of the puzzle, and, increasingly in producers’ and marketers’ minds, an important piece,” Anderson said.