October 2013

Pipe piling up

TransCanada stockpiles pipe as Keystone XL debate rages

By Ian Ewing

TransCanada Corp.’s beleaguered Keystone XL pipeline continues to cost the company money, and not just in lost revenues. More than one billion dollars’ worth of line pipe has been sourced, manufactured and paid for already. And until it goes in the ground, TransCanada is also on the hook for mounting storage and maintenance costs, as hundreds of miles of pipe languish in leased lots across the continent.

The $7-billion, 1,900-kilometre crude oil pipeline, first mooted in 2008, has been mired in legislative purgatory since 2010. In the wake of the Deepwater Horizon disaster and an Enbridge pipeline spill in Michigan, the U.S. Environmental Protection Agency ruled that a draft environmental impact study was inadequate. Despite addressing this and other concerns aired since then, TransCanada has seen various state and federal bodies delay their approval of the necessary permits as environmental groups and landowners along the pipeline route have weighed in and public opinion has soured. The project is currently in the hands of U.S. President Barack Obama, who must decide whether the pipeline is in his country’s national interest. Obama may not decide on the project until 2014.

In the meantime, TransCanada has completed the lengthy process of preparing the huge infrastructure project for construction. “In the past, the normal regulatory review process for a project like this was between 18 and 24 months,” said TransCanada spokesman Davis Sheremata. “As a result, we often needed to commit to the production of materials to make sure that things were available in a timely fashion.” Long lead time items like steel line pipe, valves, and pump stations were ordered years ago in anticipation of a normal permitting process.

TransCanada’s American pipeline manufacturer Welspun has already produced its entire 800-mile allotment for Keystone XL. “They can lay pipe faster than we can manufacture it,” explained Welspun president David Delie. About half of that pipe has since been used to build a southern spur from Cushing, Oklahoma, to Houston, Texas. This Gulf Coast project – a project that was approved without any fuss, despite being designed to the same specifications as the line heading north to Alberta. But the remaining 400 miles of Welspun’s 36-inch diameter API steel pipe has nowhere to go. TransCanada was forced to reach a deal with Welspun to store the pipe at its plant in Little Rock, Arkansas. Although neither company will disclose the cost of the arrangement, Delie will say that it is a long-term agreement, admitting that 400 miles of pipe in 80-foot segments “takes up quite a bit of space” – or close to 80 acres.

Canadian manufacturer Evraz faces the same situation. With a contract to produce about half as much pipe as Welspun, Evraz is now storing 250 miles of its product for TransCanada at its facility in Regina, Saskatchewan. Another 230 miles (worth roughly $200 million, according to reports from Washington, D.C.’s National Journal) is stockpiled at a staging area near Gascoyne, North Dakota, Sheremata ­confirmed.

Thus far, TransCanada has spent around $1.9 billion on Keystone XL, with more than half of that devoted to manufacturing the pipe. If Keystone XL ultimately does not receive U.S. government approval, TransCanada will likely be forced to either sell over 600,000 tons of pipe to other pipeline builders or design future projects around its stockpile. And although the pipe for Keystone XL is manufactured to more stringent standards than most customers require, Delie believes that ­TransCanada would still have to sell it at a discount.

Another concern is leaving the pipe out in the open indefinitely. Special coatings, applied when the pipe leaves the mill, are susceptible to deterioration in ultraviolet light. “TransCanada has had us put on a whitewash to protect the outside surface of the pipe,” revealed Delie. Inspections after construction will ensure the integrity of the pipe and its coating before it goes into operation.

Once – or if – Keystone XL is approved, Delie estimates it will take as long as six months to move all the pipe from his storage yard to the staging areas where it will be used. ­TransCanada expects the project to be complete and in service about two years after getting presidential approval.

Until that happens, though, companies are finding other ways to move product. The Wall Street Journal reported in September that American oil refiners are starting to believe that the pipeline may never be built and are looking at other options, primarily rail. However, as the Lac-Mégantic derailment tragedy showed, transporting oil by rail is not necessarily a better option. And pipeline or no, development in the oil sands is not slowing down. “We remain confident that Keystone XL will be approved,” said Sheremata. “The need in the market is there for this pipeline.”

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