WASHINGTON - Even though Nebraska is finally on-side with TransCanada Corp.'s Keystone XL crude pipeline, experts say oil producers who would use the proposed Alberta-to-Texas line should keep their options open.
The big oil companies shouldn't just rely on the planned megaproject as the only way to get the large amounts of oilsands crude coming from northern Alberta to markets in the next few years, the experts said Tuesday.
While the refining centres in the U.S. Gulf Coast are key, getting Canadian crude to the energy-hungry markets in China and other Asian countries is important as well, said energy consultant Lance Mortlock.
As well, finding markets by using rival pipelines, truck, rail or other means also provides more options.
"Dependence on one customer is a risky strategy in any industry that you look at, because if that customer changes its buying habits, you are exposed tremendously to those changes," said Mortlock, with Ernst & Young's oil and gas practice in Calgary.
Responding to news last week that the State Department would delay its decision on Keystone XL until early 2013, several Canadian politicians -- from the federal natural resources and finance ministers to the premier of Alberta -- stressed the need for a West Coast outlet so Canadian oil can be shipped by tanker to the U.S., China or other parts of Asia.
Even if the issue of getting Canadian crude to the Texas coast is resolved, Canada can't stand idly by while other countries manoevre to supply energy to booming Asian economies, Mortlock said.
"We need to be careful that we move quickly, but at the same time do the due diligence around the environmental impacts," he said. "But if we move too slowly then we may miss the boat. We need to be careful of that."
Enbridge is planning to build a line between Alberta and the northern B.C. port of Kitimat, though that proposal has run into vehement opposition. Thousands of people are set to speak at National Energy Board hearings beginning in January, signalling the regulatory process could drag on.
Kinder Morgan is looking to expand its Trans Mountain line to Vancouver and Washington State, though that proposal is in its early stages, too.
Mortlock said it's not an either-or choice between sending Canadian crude to Asian or U.S. markets.
"We need both. We need to diversify our supply base."
Keystone XL would be a vital conduit for Alberta oilsands producers who want to send their crude to the lucrative U.S. Gulf Coast market. But if the project is delayed for long enough, shippers may be forced to find other ways to get their oil to market.
Not only is oilsands production expected to rise in the years ahead as operators such as Imperial Oil, Canadian Natural Resources and Cenovus undertake major expansions to their projects.
But output is also growing in the Bakken region. The Bakken is an oil-rich zone that underlies parts of Saskatchewan, Montana and North Dakota.
Recently, landlocked North American crude varieties have been trading at a steep discount to water-borne crudes such as Brent from the North Sea. An outlet for oilsands and Bakken crude to the Gulf would supplant oil the United States imports from overseas, thereby improving the bottom line of North American producers.
TransCanada rival Enbridge Inc. (TSX:ENB) is planning two U.S. pipeline projects -- one from the Chicago area to Cushing, Okla., and one from Cushing to the Gulf Coast -- that together would compete with Keystone XL.
Enbridge CEO Pat Daniel said last week it's likely enough customers are interested in the proposals -- called Flanagan South and Wrangler, respectively -- for both to move ahead. He also said Enbridge's existing systems may be able to take on more oilsands volumes in the absence of Keystone XL.
"Ultimately, down the road, I think that there could be room for more than one pipeline project," said CIBC commodities strategist Katherine Spector.
Already, companies have managed to move crude out of the oversupplied U.S. Midwest to the Gulf by rail, barge and truck, Spector said.
"We all knew they could do a bit of that, but I think they've managed to get creative and do a lot more of that than people expected," she said.
"And you can see why -- if you get US$15 more per barrel down in the Gulf, then you're going to think real hard about how to move those barrels."
The U.S. State Department was expected to decide on Keystone XL by the end of this year, but said last week it would delay its ruling to find a new route that avoids the ecologically sensitive Sand Hills region.
TransCanada and Nebraska legislators said Monday they would work out a new route together, with the state conducting its own review. While TransCanada believes the move will expedite the process by as much as six months, the State Department is sticking to its early 2013 time frame for now.
Lanny Pendill, an analyst with Edward Jones in St. Louis, said the development was positive, but not overwhelmingly so.
"Officially it has not changed the time line and this extended time line is what's putting the project at risk to competing proposals," he said.
The Cushing, Okla, storage hub is brimming with crude, and a way to get that down to the Gulf is sorely needed now, he said.
"I think it's going to take more than one pipe. So to the extent, let's say, the decisions are delayed and shippers decide to jump to a competing proposal, I don't think that means that TransCanada doesn't build this pipe," he said.
"It may just mean that they're not the first pipe, because I think we're going to need more than one major pipe going to the Gulf coast anyway."
