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TC Energy launches open season to add 80,000 b/d to base Keystone system in 2023

Highlights

Open season focused on growing existing Keystone system

Competing Line 3 project slated for late 2021 completion

Houston — TC Energy said Jan. 6 it is launching an open season to add 80,000 b/d of crude capacity to the existing Keystone Pipeline system no sooner than 2023.

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TC Energy, which already plans to add 50,000 b/d of capacity to Keystone this year, would then initiate the extra contracts and volumes in 2023 to coincide with the planned completion of the Keystone XL Pipeline. If President-elect Joe Biden rejects the Keystone XL project as promised, TC Energy could still add the 80,000 b/d to the existing pipeline system in 2023 or beyond, or simply cancel the expansion.

TC Energy said it wants to replenish the existing Keystone pipeline from Hardisty, Alberta, to Pakota, Illinois, once volumes are switched over to the proposed Keystone XL Pipeline. But this approach would still allow for some capacity expansion even if the Keystone XL project is killed or, at least, delayed until after the Biden presidency.

"We remain confident in completing the KXL project," TC Energy spokesman Terry Cunha said on Jan. 6. "In fact, the capacity available in this open season is the result of capacity that will shift from base Keystone to Keystone XL once the project is in-service in 2023."

Last year, outgoing President Donald Trump issued a permit to allow the existing Keystone system to expand its capacity from the current 590,000 b/d of heavy Canadian crude oil up to 760,000 b/d.

At some point in 2021, TC Energy plans to up the capacity to 640,000 b/d, and the addition of another 80,000 b/d would eventually bring the system to 720,000 b/d even without Keystone XL.

If it is not canceled, the $8 billion Keystone XL pipeline project would move up to 830,000 b/d of heavy Canadian crude ultimately to Texas through the entire Keystone system. The 1,200-mile XL pipeline from Alberta to Nebraska would connect to the existing Keystone system.

STIFF COMPETITION

With the cancelation of Keystone XL the most likely scenario under Biden, the new open season appears to be a reaction to low crude oil demand in the current environment and the optimism that crude consumption should rise after 2023, said Sandy Fielden, director of oil research at Morningstar.

Keystone XL is also competing with Enbridge's Line 3 replacement project, which is slated for completion in the fourth quarter of 2021. The $6.75 billion Line 3 project would increase crude pipeline capacity from 370,000 b/d now up to 760,000 b/d as it moves Canadian crude from Alberta to Superior, Wisconsin. The pipeline runs more than 1,000 miles, including its largest 337-mile segment in Minnesota.

The competing pipelines are key pending projects that would serve as larger arteries to move more heavy crude oil from Canada to Midwestern US and, ultimately, to the major refining corridor along the US Gulf Coast.

"Current demand is low -- due to COVID-related demand and production cuts -- so even though they [TC Energy] have the capacity, they aren't offering it now," Fielden said. "And second, TC Energy may be offering future capacity now to keep existing shippers happy, so they don't jump to Enbridge when the Keystone XL permit is revoked."

Alternatively, TC Energy still seems optimistic KXL will move forward, said Matthew Taylor, midstream analyst at Tudor, Pickering, Holt & Co.

"This [open season] is evidence TC Energy continues to believe KXL will be built," Taylor said. "The legacy system is fully contracted today so, if KXL doesn't go ahead, this open season is unnecessary."