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TransCanada moves forward after Keystone XL rejection

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World Pipelines,

Despite TransCanada’s Keystone XL pipeline expansion project rejected by US President Barack Obama, the company is now attempting to make headway in the oil refinery complex, in America’s Gulf Coast.

TransCanada’s Houston Lateral pipeline and tank terminal is intended to be available by 2Q16. It will connect the existing Keystone pipeline system to the company’s Houston refineries.

Paul Miller from TransCanada stated: “Today, we probably move over 300 000 bpd of crude oil from Canada to the US Gulf Coast, and we represent about a third of that. As we see the connection of our system going to these additional markets in the US Gulf Coast, we would look to increase both our share as well as the absolute volume.”

In order to strengthen the relationship between its Houston Lateral pipeline and terminal and the Gulf Coast energy markets, the company – along with Magellan Midstream Partners LP – has decided to construct a US$50 million pipeline, which will transport 200 000 bpd from TransCanada’s terminal in Houston to Magellan’s East Houston terminal.

Miller explained: “It’s small from a dollar perspective, but it’s hugely significant from a connectivity perspective, providing connectivity to both the Houston and the Texas City refineries. [Additionally,] Louisiana is another attractive market for TransCanada, considering the existing footprint we have down to the US Gulf Coast.”

However, despite numerous smaller pipeline projects being undertaken by TransCanada, the Houston Lateral pipeline and terminal will not be able to replace the benefits or success the Keystone XL pipeline project could have brought.

Yet, TransCanada is not deterred from the Keystone XL’s rejection. In early January 2016, the company announced that it had filed a Notice of Intent to initiate a claim under Chapter 11 of the North American Free Trade Agreement (NAFTA) in response to the US Administration's decision to deny a Presidential Permit for the Keystone XL pipeline on the basis that the denial was arbitrary and unjustified. TransCanada also filed a lawsuit in the US Federal Court in Houston, Texas, asserting that the President's decision to deny construction of Keystone XL exceeded his power under the US Constitution.

TransCanada CEO Russ Girling said the Keystone XL pipeline was still possible, continuing to state: “It’s pretty clear we have been harmed in an arbitrary and discriminatory way. I don’t think there’s anybody that would say this isn’t an egregious abuse of authority and that we weren’t treated fairly or equitably to whatever standards you choose – cross-border pipelines, domestic pipelines, or imports from other countries.”

Similarly, BMO Capital Markets Analysist Ben Pham argued that the company could have a “credible case.” However, he continued to explain that “having said that, the odds appear to be against TransCanada, as no company has been successful with a NAFTA challenge so far with the US, and the process could take years to resolve unless early settlement.”

Edited from various sources by Stephanie Roker

Sources: Reuters, Financial Post, The Motley Fool, Seeking Alpha

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