11/16/2011 11:09 EST | Updated 01/16/2012 05:12 EST

TransCanada may be able to speed up Cushing-to-Texas leg of Keystone XL

CALGARY - It may be possible for TransCanada Corp. to build the most urgently needed leg of its delayed Keystone XL oil pipeline as early as next year, an executive with the pipeline giant said Wednesday.

A massive glut of crude at the Cushing, Okla., storage hub has been depressing U.S. oil prices for some time, and industry players are eager to send those volumes to refineries on the U.S. Gulf Coast as a means to relieve the pressure.

Indeed, TransCanada rival Enbridge Inc. (TSX:ENB) announced Wednesday that it would pay US$1.15 billion to acquire a half-stake in the Seaway pipeline and reverse its flow to bring crude from Cushing to the Gulf. Analysts say there's enough demand to support more than one such line.

The need for a Gulf option is less immediate for oilsands producers, who would use the 2,700-kilometre Keystone XL pipeline to get their oil to the market once projects currently in development start up a few years from now.

It's conceivable that TransCanada (TSX:TRP) could tackle the Cushing-to-Gulf-Coast leg before the rest of the system, said Alex Pourbaix, TransCanada's president of energy and oil pipelines.

"The first thing that we need to do is spend a little bit of time with our shippers and see sort of where they stand," he told investors and analysts in Toronto.

"Certainly the message we're hearing is that they would very much like to see that Cushing-to-Gulf-Coast phase come in as soon as possible. So we'll take a very hard look at the commercial underpinnings for that."

The U.S. State Department has final say over whether Keystone XL can go ahead, as it would cross an international border. It was supposed to announce its decision by the end of this year, but last week said it would delay its ruling into 2013.

At issue was the proposed route Keystone XL would take through ecologically sensitive areas of Nebraska. The State Department says it will take 12 to 18 months to review a new route, but TransCanada believes a deal with the Nebraska government to work out a new route could speed the process up.

It's unclear at this point whether the State Department would take well to TransCanada starting construction on part of the pipeline that covers a less contentious area.

Under the best case scenario, TransCanada could start digging in the new year, provided environmental assessments already completed for that part of the line don't need to be updated.

"I think at the worst we would require the permission of the State Department to proceed on that rather than as part of the entire process," said Pourbaix.

He said building the Cushing leg first is "definitely doable," but TransCanada needs to run it by the State Department.

"Out of an overabundance of caution on our own side, we would want to make sure that everybody at the State Department would be happy with that kind of a proposal."

Alberta Premier Alison Redford, speaking to a Toronto business luncheon, welcomed news that TransCanada may look to build the southern leg of Keystone XL first.

"It will demonstrate that if we build critical infrastructure, that it is environmentally sustainable," she said.

TransCanada chief executive officer Russ Girling said the company is dedicated to Keystone XL and is confident it will move forward.

He shrugged off concerns about rival proposals, saying competition is a good thing.

"It creates options for the marketplace to move those growing supplies to market and it's options that those shippers and producers and refiners are going to need as domestic supply continues to grow in the United States," he said.

And he doesn't think the competing proposals will get an easier ride from environmental groups who have been fighting hard against Keystone XL.

"Many of those environmental groups have gone on record in the last couple of days reiterating that they'll fight all pipelines in North America transporting oilsands crude to market," Girling said.

"It would be extremely naive to assume that they will go away tomorrow."

TransCanada shares gained 14 cents to $40.92 in afternoon trading on the Toronto Stock Exchange.