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The all-American Keystone XL is ready for business: Erica Alini

Why the southern leg might be enough

Daniel Acker/Bloomberg via Getty Images

Daniel Acker/Bloomberg via Getty Images

In May, I wrote about how there might be enough crude supply in the U.S. mid-continent alone to justify completion of the southern leg of the Keystone XL—without, that is, the troublesome bit that crosses the border into Canada. Less than five months later, the prospect of an all-American Keystone has never seemed so real.

While the permit application to build the northern leg of Keystone has entered its sixth year of controversy and agonizing wait, the part that connects the oil hub of Cushing, Okla. to refineries in Texas will be finished by the end of October. The so-called Keystone Gulf Coast will initially take in 700,000 barrels of oil per day, with the capacity to expand to 830,000, TransCanada said in a press release earlier this month.

The intra-U.S. project didn’t need approval from the White House because it doesn’t cross the national border. And, ironically, its completion might make construction of its northern twin less, rather than more, likely.

The Keystone Gulf Coast will increase the flow of crude from the U.S. mid-continent to the coast of Texas, easing current bottlenecks. This will in turn reduce the current gap between the West Texas Intermediate price benchmark for North American oil, whose contracts are settled in Cushing, and world oil prices. Reducing (or even eliminating) the WTI discount was, of course, the whole reason why TransCanada wanted to build the Keystone XL, but the primary beneficiary was supposed to be Alberta’s oil.

Instead, the big winners could be U.S. producers of light, sweet oil. That’s not the kind of crude that would help Gulf Coast refineries substitute their now-dwindling imports of heavy oil from Mexico and Venezuela. Western Canada’s oilsands would have been a better fit. But they might just have to make do with, forgive the pun, what’s coming down the pipe.

TransCanada, for its part, still seems very focused on the beleaguered northern part of Keystone XL. Executives and spokespeople are always loath to discuss any Plan-B type options that would do away with building the connection from Western Canada to Cushing. The completed southern leg, though, will tempt U.S. producers to pressure TransCanada to pipe more of their stuff. In the eyes of the White House, it could be another reason to turn down the northern leg.

Erica Alini is a reporter based in Cambridge, Mass., and a regular contributor to CanadianBusiness.com, where she covers the U.S. economy.