Planned Pipelines to Rival Keystone XL

Two major energy companies are planning to build new pipelines that will move as much as 850,000 barrels of crude oil a day from Canada to refineries along the Gulf Coast by mid-2014, in the latest effort to cope with a surge of oil production in North America.

The separate projects, planned by Houston-based Enterprise Products Partners LP and Enbridge Inc. of Calgary, will compete with TransCanada Corp.'s proposed Keystone XL pipeline, a massive project to move crude from the oil sands of Alberta to U.S. refineries. The Keystone project was delayed late last year after pressure from environmental groups and has become a hot-button topic in the U.S. presidential campaign, with critics of the Obama administration contending that the delay will contribute to high gasoline prices in the future.

Enbridge and Enterprise already operate the Seaway Pipeline, which used to move oil north—from Freeport, Texas, near Houston, to the massive oil storage hub in Cushing, Okla. Last year the companies said they would reverse the flow of that pipeline because a recent surge in Canadian and U.S. oil production has created an overabundance at that location. The reversal will let Seaway move as much as 150,000 barrels a day south to refiners by June 1 and 400,000 barrels a day by early next year by adding new pumping stations.

The companies said Monday they now have enough long-term commitments from new customers to also build a new 30-inch pipeline along the same right-of-way, which will add up to 450,000 barrels per day in capacity by the middle of 2014. Two smaller pipeline projects will connect the Seaway pipeline to Enterprise's storage hub along the Houston Ship Channel and to refineries near Port Arthur, Texas.

Enbridge, which is one of the largest shippers of Canadian crude oil to the U.S. with a capacity of 2.5 million barrels a day, is also going to start work on a pipeline to move oil from its existing Flanagan, Ill., pipeline hub to Cushing. The pipeline, which will run alongside an existing conduit, will have an initial capacity of 585,000 barrels per day.

The Enterprise and Enbridge projects don't face the same hurdles as Keystone XL, like a U.S. State Department review, because the cross-border portions of their pipelines are already built, experts say. But the new pipelines will require approval from the U.S. Federal Energy Regulatory Commission, which oversees how much pipeline owners can charge for moving products, and the U.S. Army Corps of Engineers, which must review the engineering and environmental plans.

While environmental groups have focused most of their efforts on blocking Keystone, they still have concerns about the Flanagan and Seaway projects, said Anthony Swift, a lawyer for the Natural Resources Defense Council.

Crude from oil sands may be more corrosive than other oils and thus make pipelines more likely to leak, Mr. Swift said. An oil-sands crude leak from an Enbridge pipeline near the Kalamazoo River in Michigan in July 2010 proved to be particularly costly to clean up, he said.

"The NRDC does not oppose pipelines, but we do oppose tar sands pipelines," Mr. Swift said. "It makes sense to know how to build a pipeline safely before you proceed with this kind of infrastructure."

The U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration is studying whether Canadian oil sands are more corrosive than other crude oils, with the results expected by July 2013.

The Enterprise and Enbridge projects don't negate the need for the Keystone XL, analysts said. Canadian oil-sands production is expected to double to 3 million barrels a day between 2010 and 2020, while total Canadian crude production is expected to increase 50% to 4.2 million barrels a day over that period, according to the Canadian Association of Petroleum Producers.

In the U.S., the Energy Information Administration expects oil production to increase by as much as 20% by 2020 as drillers tap into large oil shale formations that were considered uneconomical before the industry successfully paired the techniques of hydraulic fracturing and horizontal drilling.

Keystone and Seaway's combined capacity to move oil south from Cushing may be more than is needed in 2014 when they start up, said Rusty Braziel, an energy infrastructure analyst, but both will likely be running at full capacity soon after.