Keystone Pipeline volumes rise to about 610,000 b/d from capacity hike

TC Energy said its Keystone Pipeline crude volumes rose to roughly 610,000 b/d in the second quarter from a previous baseline capacity of 590,000 b/d as the Canadian pipeline operator aims to increase volumes from the Alberta oil sands to the US Gulf Coast through more modest optimization efforts.

TC Energy said July 28 that, using an open season that dates all the way back to 2019, it aims to continue to ramp up Keystone volumes through the end of 2022, but declined to provide specific volumes, citing commercially sensitive deals. TC said it placed almost one-third of its open season contracts into service during the past quarter. The goal also is to grow the southern leg of the Keystone network, the Marketlink Pipeline, which runs from the Cushing, Oklahoma storage hub to the Texas Gulf Coast.

"We safely reached nearly 610,000 b/d a day as we placed about 30% of the 2019 open season contracts into service," CEO François Poirier said during a July 28 earnings call. "We're increasing long-haul volumes on Keystone, and we're also working to increase utilizations on Marketlink."

The earnings call comes just five days after Keystone returned to normal service following a nearly weeklong reduction in capacity triggered by damage at a third-party electric substation.

TC Energy continues to take smaller, measured steps to grow Keystone after the 2021 cancelation of the infamous Keystone XL Pipeline project that became the political epicenter of the climate change battle and had its permits yanked as soon as President Joe Biden entered office. The $8 billion Keystone XL project would have moved up to 830,000 b/d of heavy crude. The 1,200-mile XL pipeline from Alberta to Nebraska would have connected to the existing Keystone system.

TC Energy in 2021 also put its base Keystone system open season on hold following the axing of Keystone XL and a reduction crude demand during the worst of the COVID-19 pandemic.

However, TC Energy now wants to move more Canadian volumes -- and US shale barrels -- through its 2,700-mile Keystone system, which includes Marketlink. The Marketlink Pipeline can move 750,000 b/d from Cushing to Nederland, Texas. The Keystone Houston Lateral provides an additional, 47-mile expansion to Houston markets.

The question is how much higher TC plans to grow base Keystone's capacity.

TC Energy for years has planned and delayed a 50,000 b/d capacity expansion to Keystone through optimization efforts. Also, TC sought to add 80,000 b/d to base Keystone through open season contracting if other barrels were moved onto Keystone XL. In addition, former President Donald Trump in 2020 issued a permit to allow the existing Keystone system to expand its capacity up to 760,000 b/d from 590,000 b/d.

TC Energy said July 28 it has $200 million in capital dedicated to overall liquids pipelines capacity increases from 2022 through 2023.

Bevin Wirzba, the company's executive vice president of strategy and group executive of Canadian pipelines, said profits in the second quarter benefited from stronger Keystone volumes, but suffered headwinds from some weaker Marketlink volumes. TC Energy has an open season this year for new Marketlink contracts amid higher crude oil prices and rising US and Canadian production volumes.

TC Energy also recently expanded its Houston storage tank terminal to accommodate more volumes. And, currently, TC is building a 3.5-mile pipeline link from Nederland to North America's largest refinery by the Motiva Terminal at Port Neches, Texas. That project is expected to come online by the end of the third quarter.

"Both of those open seasons were very successful," Wirzba said of Marketlink and the Port Neches lateral. The aim is to soon turn Marketlink from a financial headwind to a tailwind, he said.

Disruption investigation

In the meantime, the FBI is investigating the July Keystone disruption that forced the nearly weeklong reduction in capacity.

Keystone operated at a reduced capacity starting July 17 after vandalism damaged a transformer at an East River Electric Power Cooperative substation in rural South Dakota that solely services the TC Energy flagship oil pipeline.

The company declared force majeure on the pipeline network July 18 and operated all week at a reduced, but unspecified capacity while electric transformer repairs were completed. Pricing impacts were limited due to the relatively short nature of the disruption and because some crude oil flows continued at the lesser capacity.

East River Electric Power Cooperative, which operates the Carpenter Substation in Beadle County, said a criminal investigation remains underway. East River said the damaged transformer was leaking mineral oil when the problem was detected.

AJ O'Donnell, product team director for East Daley Capital, said the disruption shines a light on the vulnerabilities of North America's energy infrastructure and how easily the second-largest source of Canadian crude into the US can be impacted. US refiners, especially along the US Gulf Coast, are increasingly reliant on heavy Canadian barrels with supplies limited from the rest of the world.

"It's always concerning when a huge pipeline like this goes down, especially in a constrained market like Canada is right now," O'Donnell said. "It definitely can impact prices and send more volumes to rail."

"Obviously if the situation had dragged on, this situation starts to compound," he said. "We just don't have the diversity of supply right now with Russia cut off."