Construction of the Keystone crude oil pipeline is moving forward, and crews are continuing to work toward an initial fourth-quarter 2009
in-service date. When complete, the Keystone Pipeline System will extend 3,456 kilometers (2,148 miles) with 30 and 36-in. pipe from Hardisty, Alberta, to markets in the Midwestern United States. The pipeline will have an initial nominal capacity of 435,000 bpd and serve markets in Wood River and Patoka, Illinois. Commissioning of this segment is expected to commence in late 2009 with commercial operations to follow in early 2010. The line will subsequently be expanded to a nominal capacity of 590,000 bpd and extended to Cushing, Oklahoma. Commissioning of the Cushing segment is expected to commence in late 2010.

Several contractors are working to move the project forward. In the U.S., Henkels & McCoy, Inc. completed work on Spread 1A last year, which included nearly 130 miles of 30-in. pipe from the U.S./Canadian border to Barnes?County, North Dakota. Michels Corp. is building Spreads 2A and 3B, which calls for construction of nearly 275 miles of 30-in. pipe in North Dakota and South Dakota. Work is continuing on Spread 3B, which runs from Day?County to Hutchinson?County, South Dakota. Here, crews are working toward a November completion date.

Spreads 4B through 8B, involving 678 miles of 30-in. pipe in South Dakota, Nebraska, Missouri and Illinois, are being built by Mid West Constructors, a consortium of H.C. Price Co., Gregory & Cook Construction, Inc., and Sheehan Pipe Line Construction Co. Work on these spreads is being performed in stages, with various dates scheduled for completion through November 2009.

Spreads 9C through 11C, involving 295 miles of 36-in. pipe from Steel City, Nebraska to Cushing, Oklahoma, will be built in 2010 by Mid West Constructors.

In the U.S., T.G. Mercer Consulting Services, Inc., is performing pipe offloading and stockpiling for spreads 1A-8B. This work includes moving 63,970 double joints of 30-in. pipe, almost 970 miles of pipe. All line pipe is double jointed (two 40-ft joints welded together) with epoxy coating for direct burial.

In Canada, Ledcor Pipeline Limited is performing the construction work, which calls for 63 miles of 30-in. pipe in Manitoba and 177 miles of 30-in. pipe in Alberta. Construction began in June 2008, and will continue to meet an October 2009 completion. Pioneer Truck Lines Ltd. is performing pipe offloading and stockpiling, through Ledcor. The line pipe is being delivered in approximately 22 meter-length joints, coated with fusion bonded epoxy.

?In Manitoba, the pipe is being offloaded from rail cars in Winnipeg and stockpiled in Morden. In Alberta, some 75 miles of pipe is being offloaded in Dunmore and stockpiled in Bindloss. The remainder of the Alberta pipe (103 miles) is being rolled in Camrose and strung directly from the pipe vendor yard to the right-of-way.?

Service and supply

As construction on the project continues, Keystone has also been awarding a number of service and supply contracts to vendors and manufacturers for the various components needed to keep the pipeline in operation once it has been placed in service. To insure measurement accuracy, Keystone has placed a $5.4-million order with Cameron to provide its 20-in. Caldon LEFM 280Ci Ultrasonic Meters, which will be used at each of the pumping stations along the length of the system, and will measure the oil as the pump discharge header is reduced from 30-plus to 20 inches. The measurement data will be used to control the flow and pressure through the pumps to meet operational requirements and optimize power consumption of the pumps. Additionally, data from the meters will provide input into the pipeline leak detection system.

In addition, the German industrial group Siemens has won a contract valued at $216 million to supply electrical and pumping equipment for the pipeline. Siemens said it would deliver 37 pumping stations, a series of electrical houses and 19 substations to supply 2,867 kilometers (1,781 miles) of the pipeline.

To analyze the integrity of the new pipe, TransCanada selected GE Oil & Gas to perform a series of crack detection inspections using its UltraScan Duo Device. GE says it is the first ultrasonic “smart pig” to utilize phased array sensors to search for multiple types of cracks and other microscopic flaws in just one run of the line. In April, the GE Oil & Gas PII Pipeline Solutions group completed its largest pipeline inspection project by helping TransCanada evaluate the condition of an 864-kilometer (537-mile) portion of a natural gas pipeline in Canada. This part of the pipeline, which covers a span equivalent to the distance between Paris and Berlin, needed to be inspected prior to being converted to carry crude oil.

As part of the larger Keystone Pipeline development, TransCanada is converting its 34-in. mainline gas pipeline between Burstall, Saskatchewan, and Carman, Manitoba. The initiative will allow crude oil to be transported to U.S. Midwest markets at Wood River and Patoka, Illinois and to Cushing, Oklahoma. The converted pipeline will transport liquids at its approved operating pressure of 880 psig (6,067kPa). To ensure optimal availability of the converted pipeline, TransCanada first had to make sure it was free of stress corrosion cracking (SCC) that could potentially lead to leaks. Between October 2008 and March 2009, GE’s field team performed crack-detection inspection runs in three segments of the natural gas pipeline of 182, 195, and 158 miles (294, 315 and 255 kilometers) in length, respectively.

The project’s scope and schedule requirements meant that GE needed to simultaneously deploy several types of in-line inspection (ILI) tools. Prior to deployment, TransCanada had to develop a special pipeline manifold to accommodate all the tools and ensure that no air bubbles were left in the line. A total of eight tools were dispatched in section 1, and seven tools in section 2. Six of those were batching tools. TransCanada’s most serious challenge was the need
to control a three-kilometer batch of fluid (in the winter diesel-like Frac Fluid is used) in a given pipeline segment to ensure GE’s ILI tools could move at a consistent speed needed for accurate data collection. Canada’s National Energy Board, which sets
regulations for the country’s pipeline operators, is reviewing the conversion project.

Last fall, Telvent announced that it had won a contract from TransCanada to supply a Central Control System solution for the Keystone pipeline. As part of the contract, Telvent will provide its OASyS DNA 7.5 supervisory control and data acquisition (SCADA) and SimSuite modeling systems, along with integrated Telvent Liquids Suite applications and a third-party (OSIsoft PI) Engineering Historian. Telvent will install the OASyS DNA
7.5 SCADA system; a Liquid Management System (LMS); and SimSuite modeling applications for Transient Modeling, Leak Detection, and Batch Tracking. It says it will also provide an Operator Training Simulator, which will be available one year prior to commercial operations of the pipeline, allowing Keystone operations personnel the ability to train on the Central Control System well before the pipeline is in operation.

Expansion plans

Keystone is also currently seeking the necessary regulatory approvals in Canada and the U.S. to construct and operate an expansion and extension of the pipeline system that will provide additional capacity of 500,000 bpd from Western Canada to the U.S. Gulf Coast in 2012. The Keystone Pipeline System Expansion will extend 1,702 miles from Hardisty, Alberta, to a delivery point near existing terminals in Port Arthur, Texas. Construction of the expansion facilities is anticipated to commence in 2010 following the receipt of the necessary regulatory approvals.

Recently, TransCanada announced that it had reached an agreement with ConocoPhillips to become the sole owner of the Keystone Pipeline System. It will do so through the acquisition of ConocoPhillips’ remaining interest in the project for approximately $550 million plus the assumption of approximately $200 million of short-term debt. The purchase price reflects ConocoPhillips’ capital contributions to date and includes an allowance for funds used during construction. TransCanada will also assume responsibility for ConocoPhillips’ share of the capital investment required to complete the project resulting in an incremental commitment of approximately $1.7 billion through the end of 2012. The transaction is expected to close in third quarter 2009, subject to the receipt of certain regulatory approvals.

“This acquisition represents
a unique opportunity for TransCanada to become the exclusive owner of an important oil transmission system that will play a vital role in transporting a growing supply of Canadian crude oil to the largest refining markets in the United States for decades to come,” said Hal Kvisle, TransCanada president and chief executive officer. “We believe the significant commercial support Keystone has received to date highlights the value it will create for our customers and our shareholders.”

When completed, Keystone will be one of the largest oil delivery systems in North America with the capacity to deliver 1.1 MMbpd. Keystone has secured long-term commitments for 910,000 bpd for an average term of approximately 18 years, which represents approximately 83% of the commercial design of the system. In the future, TransCanada says that the pipeline could be economically expanded from 1.1 MMbpd to 1.5 MMbpd in response to additional market demand.

The total capital cost of Keystone is expected to be approximately $12 billion. Approximately $2.7 billion has been spent to date, with the remaining $9.3 billion to be invested between now and the end of 2012.