TransCanada Corp. officials emphasized that the recent rejection of a Presidential Permit by the U.S. State Department for the Keystone XL Pipeline was not based on the merits of the company’s application, but the 60-day decision deadline imposed by Congress in a bill to extend payroll tax cuts in January. The State Department rejection was due to not having enough time to fully consider the project.

“We’re obviously disappointed with that decision. A TransCanada commitment to the project remains very strong, and the company will reapply for the Presidential Permit,” Russ Girling, TransCanada’s president and chief executive, said during the company’s Q4 2011 conference call on Feb. 14.

He also stated that critics of the 1,661-mile pipeline who claim that the crude oil transported from Canadian tar sands to the U.S. Gulf Coast would be exported to foreign countries are wrong.

“Let me be clear. Keystone XL is not a pipeline built to export crude oil from the United States. It’s meant to fill that need. It will directly displace heavy crude oil that is currently being imported from Venezuela, Mexico and the Middle East, which is currently being refined in the Gulf Coast. It will replace that supply with the secure, stable supply of U.S. and Canadian crude oil. Contracts U.S. refiners have in place with Venezuela and Mexico for crude oil are set to expire in the coming years. There will be a gap in supply that must be filled, and Keystone XL will help fill that gap with Canadian and U.S. oil,” he said.

Additional domestic volumes will be unlocked out of the Cushing bottleneck via the $50 Cushing Marketlink Pipeline, which will use a portion of the Keystone XL to ship them to the Gulf Coast. Girling also noted that the company will be able to increase the capacity on Keystone XL by 830,000 barrels per day (b/d) via the $600 million Houston Lateral Pipeline that will ship volumes from Hardisty, Alberta, Canada to Houston.

“The Houston Lateral would more than double the U.S. Gulf Coast refining capacity directly accessible from the Keystone pipeline system to more than 4 million b/d. At this point, the capacity of the entire Keystone system has largely been reserved under long-term contracts. I think this is a clear sign that the marketplace needs and wants this pipeline in place as soon as possible,” he said.

As of the end of 2011, the company had spent approximately $2.4 billion on the Keystone XL Pipeline and anticipates spending an additional $600 million on the project this year. Should the pipeline’s alternate route and a new Presidential Permit approved, then the system would be in-service in early 2015.

While these crude oil pipelines will take up a large portion of TransCanada’s capital spending this year, the company is also reviewing projects to transport LNG to the West Coast for export. Such a project’s time frame would be between 2018 and 2020.

“If the market wants to go to the West Coast, we think we’re a strong candidate to build that pipeline,” Greg Lohnes, TransCanada’s president of natural gas pipelines, said. “We’re one of the few that have the experience to build in very difficult mountainous conditions. We’ve done that in Canada, South America and Mexico…We continue to talk to our shippers and to interested parties about the merits of the Alberta system.”

Contact the author, Frank Nieto, at fnieto@hartenergy.com.