East Texas

From Staff, Wire Reports

A partnership that will build a crude oil pipeline from Canada to the Texas Gulf Coast, running through part of East Texas, will nearly double the structure’s capacity.

Alberta, Canada-based Trans-Canada Corp. and Houston-based ConocoPhillips Co. said they will spend $7 billion to increase the daily capacity of the Keystone Pipeline by 500,000 barrels. The pipeline is a 1,980-mile project between Hardisty, Alberta, and a delivery point near existing terminals in Nederland to serve the Port Arthur market. Another 50-mile pipeline would transport crude from Liberty County to Houston.

“We think that there is a demand for Canadian crude on the Gulf Coast, so there is a business opportunity,” Glenn Johnston, Trans-Canada project manager, said in June after conducting an open house meeting with landowners and other parties in Tyler.

Johnston, at that meeting, said the pipeline’s initial capacity would be 700,000 barrels a day. The project, which has now climbed to a total cost of $12.2 billion, will eventually move 1.1 million barrels of oil per day, the partnership said Wednesday.

A map shows the pipeline route to be through the eastern sections of Wood and Smith counties, the northeast and southeast corners of Cherokee County and the northwest corner of Nacogdoches County.

The proposed route would run southward, east of several communities, including Winnsboro, Hawkins, Winona, New Chapel Hill, Arp, New Summerfield, Reklaw and Wells.

Forty-one pump stations would be constructed from Canada to the Gulf, including six in Texas. According to the map, one pump station would be in the Arp area, another south of Winnsboro and another north of Wells.

Of its entire length, 1,673 miles of the pipeline would be built in the United States, Johnson said.

Demand for oil has driven the price for a barrel of oil up 80 percent above where it was a year ago and up about 40 percent from the start of the year. That includes demand for crude from oil sands, previously an afterthought in the crude market.

Unlike the benchmark light, sweet crude, oil extracted from the Alberta oil sands of northern Canada is a dirty, bottom-of-the-barrel substance that is more difficult to refine into gasoline and diesel.

U.S. refiners have been converting plants to handle the thicker Canadian crude as supplies for lighter crude continue to tighten.

The Canadian province of Alberta is home to vast reserves of oil sands. Industry officials estimate the region could yield as much as 175 billion barrels of oil, which would make Canada second only to Saudi Arabia in crude oil reserves.

In western Canada, oil sands production has grown fourfold since 1990 and exceeded 1.2 million barrels a day last year, according to the Canadian Association of Petroleum Producers. That could grow to 3 million barrels a day by 2015 — not an insignificant amount, given that the current global output of oil is roughly 85 million barrels a day.

Gulf Coast refiners have traditionally processed crude oil from Mexico and Venezuela. But output from the Mexican Cantarell oil field is in decline and many Venezuelan contracts will change over the next couple years as the South American country shifts its oil from the U.S. to other markets across the world, said Russ Girling, president of TransCanada’s pipelines division.

Stephen Schork, an analyst and trader, said the potential for oil development in Canada is what allowed ConocoPhillips to walk away from Venezuela. The pipeline and its expansion offers the company a more stable crude supply.

“I think that it certainly is a welcome sign, because any sort of event that kind of mutes the geopolitical influences on oil or commodities in general is a good thing,” Schork said.

TransCanada said construction has already begun in Manitoba and North Dakota. The company hopes to begin delivering tar sands crude through its 36-inch pipeline to refineries in Wood River and Patoka in Illinois by late 2009 and Cushing, Okla., by late 2010.

TransCanada and ConocoPhil-lips signed an agreement in 2005 to use the Keystone pipeline to deliver crude to ConocoPhillips’ Wood River, Ill., and Borger refineries, which are being expanded. The deal gives ConocoPhillips a 50 percent ownership stake in the pipeline.

ConocoPhillips spokesman Bill Graham said the pipeline expansion fits into the company’s strategy of bringing together its North American assets.