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TransCanada said it had secured 500,000 bpd worth of 20-year commitments from shippers willing to use its Keystone XL pipeline in an upbeat update on the progress of the notoriously controversial project. This amount is about 60 percent of the 830,000-bpd pipeline.
Alberta’s government was instrumental in forging this support, by committing 50,000 bpd to the pipeline from some of the oil it receives as royalties instead of cash, which would also help oil producers in the province get a better price for their crude and opt for pipelines instead of rail, Alberta’s Prime Minister Rachel Notley said.
This is widely seen as a major step towards Keystone XL becoming a reality despite persistent opposition from environmentalists, including a recently launched lawsuit against the U.S. presidential administration for greenlighting the project after the Obama administration’s veto.
Analysts cited by the Globe and Mail seem to be wary of too much enthusiasm, though. They note that Alberta’s participation in the commitments suggests there wasn’t strong enough interest from shippers to begin with. Still, there was a chance that the commitments will work, Wood Mackenzie analyst Zachary Rogers says.
"Producers aren't going to jump at the bit to sign a 20-year contract if they're not entirely sure that the market is going to want the crude," he told the Globe and Mail. "But signs this year are tilting in their favour."
For Albertan oil producers, any new pipeline is good news. Western Canadian Select heavy crude has been trading at a substantial discount to WTI as the existing pipeline capacity fills up and producers are forced to use more expensive rail transport. Meanwhile, production is booming, and with higher WTI it will continue booming based on the latest demand forecasts.
TransCanada said that with these commitments, the first stages of construction of the US$8-billion Keystone XL could start in 2019.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.