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Keystone XL delay not a problem for refiners - yet

Oilfield Technology,

According to Fitch Ratings, ongoing delays surrounding the Keystone XL pipeline expansion project are not major concerns for US refiners yet. Growing volumes of rail delivered crude has boosted the availability of Canadian crudes in the Gulf. Yet, given the significant investments that Gulf Coast refiners have made in deep conversion capacity over the years, a wide heavy/light oil discount remains important for maintaining robust processing economics. Due to these investments, Gulf Coast refiners are likely to be significant beneficiaries from the increased supply of Canadian heavy oil on the Gulf Coast arising from completion of Keystone XL. Light-heavy oil spreads are remaining subdued to relative historical levels.

The benefits

Pipelines are usually the lowest cost option for crude transport, so the completion of Keystone XL is likely to provide key benefits for upstream producers in the long term by maximising the netbacks that E&P producers receive for their product. To the degree that this improves upstream realisations and improves the economies of those plays, Gulf Coast refiners indirectly benefit from more assured supply.

Also, one must note that rail and related infrastructure have an increasing role to play in master limited partnership (MLP) spinoffs from refiners. Beyond the direct impact of crude prices that a rail displacing pipeline has, refiners are able to indirectly take advantage of growth in rail cars and rail logistics and handling as growth vehicles for their spun off MLPs.

Opposition to Keystone XL

The Keystone XL expansion program has faced significant opposition over the potential environmental and economic impacts and is now in its sixth year of seeking approval. The plan called for the transportation of synthetic crude oil from Alberta, Canada to refineries on the US Gulf Coat. Keystone XL would extend the keystone pipeline that connects Alberta oil to Illinois and Cushing, Oklahoma. The proposed extension would bring the oil from Cushing to refineries in the Gulf Coast. Another part of the extension would start in Canada and connect to the existing pipeline in the US.

On 17th September a study was released claiming the Energy East pipeline would support approximately 1000 full time jobs. That carries a comparable amount of crude as the Keystone by is likely to meet some of the same opposition but with one big difference, this project does not cross international boarders so there is no need for federal approval.

Adapted from press release by Claira Lloyd

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