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TransCanada President and CEO Russ Girling . (TODD KOROL/TODD KOROL/REUTERS)
TransCanada President and CEO Russ Girling . (TODD KOROL/TODD KOROL/REUTERS)

Customers push for construction of Keystone's southern leg Add to ...

TransCanada Corp. is facing strong demand from customers to proceed with the southern leg of its proposed Keystone XL pipeline project, even as it has pushed back the expected startup date for the entire $7.8-billion project until early 2015.

Alex Pourbaix, TransCanada’s president of energy pipelines, said the company will make a decision within months on whether to proceed with the line from Cushing, Okla., to the massive refining hub on the Texas Gulf Coast.

“Those discussions are ongoing right now,” Mr. Pourbaix said in a conference call on Tuesday. “We’ve certainly had a high level of interest from potential shippers. Obviously, the differentials between Cushing and the Gulf Coast are at a pretty significant level right now, and we think there is a pretty compelling need for the project.”

A glut of crude inventories at Cushing has put downward pressure on the key North American benchmark crude, West Texas intermediate, which is trading more than $17 (U.S.) below internationally traded crudes such as North Sea Brent. Canadian oil prices are set against the WTI benchmark.

The Cushing-to-Texas leg would complement TransCanada’s existing Keystone line, which carries Alberta crude to markets in the Midwest as well as to the small refining hub at Cushing, and would help break the logjam that has created such gaping difference between North American and international crude prices.

TransCanada’s competitor, Enbridge Inc., is pursuing a plan with partner Enterprise Products to reverse the existing, underutilized Seaway pipeline to carry crude from Cushing to Texas.

Mr. Pourbaix said TransCanada remains focused on completing the entire Keystone XL project, which would carry more than 800,000 barrels of crude a day from Canada and North Dakota to Gulf Coast refineries.

He said the company now expects to commence shipments by early 2015. The previously planned startup date was at the end of 2014.

Last month, the Obama administration rejected TransCanada’s permit application saying it did not have enough time to study a new route under a deadline imposed by Republicans in Congress. The administration said the company was free to reapply with its new route, though it is not clear whether the State Department – which handles the cross-border construction permit – will adhere to an earlier schedule of completing the review by early 2013, as TransCanada expects.

The Calgary-based energy company is now working with the state of Nebraska to reroute the pipeline around the environmentally sensitive Sandhills region. Mr. Pourbaix said there is more work to do before a new route can be determined.

TransCanada has already spent $2.4-billion in capital costs for engineering, right-of-way and materials in preparation for construction and expects to allocate another $600-million this year, in the assumption that the project will win approval after the November presidential election.

In reporting its fourth-quarter results Tuesday, TransCanada said its profit rose in the fourth quarter from the same period in 2010. Earnings were $375-million in the fourth quarter of 2011 – or 53 cents a share – compared with $269-million or 39 cents a year earlier.

The company said it had higher income from the commissioning of the original Keystone pipeline in early 2011, as well as increased Alberta power prices, but that was offset by lower contributions from Bruce Power, and weakness in natural gas storage and U.S. power.

For the full year, TransCanada reported a profit of $1.57-billion, up from $1.36-billion in 2010. It also increased its dividend by 5 per cent to 44 cents per common share, starting in the current quarter.

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