By Nia Williams and Matthew Robinson
CALGARY, Alberta, Oct 2 (Reuters) - The southern portion ofTransCanada Corp's Keystone XL oil pipeline is 95percent complete and the company is focused starting the line bythe end of 2013, a TransCanada spokesman said on Wednesday.
Rumors that the line's start might be delayed into 2014 havedogged the North American crude market in recent weeks.TransCanada's comments that the line would start on schedulehelped narrow international Brent crude's premium to U.S. oilfutures by around 70 cents to around $5.13 in afternoon trade.
Initial capacity on the Gulf Coast pipeline, which will shipcrude from the Cushing, Oklahoma, delivery point of the U.S. oilfutures contract to Nederland, Texas, will be 700,000 barrelsper day, expandable up to 830,000 bpd, TransCanada spokesmanShawn Howard said.
He declined to discuss customer volume commitments for theline, but added it is "overwhelmingly subscribed".
The market has been focused on the startup of the pipelineas it will provide another conduit to the Gulf Coast refiningcenter for inventories of crude that swelled to record levelsearlier this year at Cushing due to surging production fromCanada, North Dakota and Texas.
Howard said major construction of the pipeline is expectedto be complete by the end of October. Testing on the line isalready underway and expected to be complete in early November,and the company will begin filling the line shortly afterwards.
"Once construction is done there's commissioning work thathas to take place and continued testing. That will take sometime," Howard said in response to questions about when shippingwould start.
"We remain focused on the project becoming operational nearthe end of 2013."
In an April filing with the U.S. Federal Energy RegulatoryCommission, TransCanada said early leased capacity on thepipeline would be "approximately 400,000 bpd".
TransCanada's yearend target is unchanged from previousprogress updates.
Traders have been tracking the line's progress as it couldspeed the draw of crude oil stocks at Cushing significantly andpush WTI prices higher.
The startup of the Keystone Gulf Coast line, adding tocapacity from other pipelines such as Seaway that are alreadymoving crude out of, or bypassing, Cushing, could narrow thespread even further as inventories at the hub are drawn downfurther, according to Morgan Stanley.
"The structural crude shortage in Cushing will only worsenwith the addition of new pipelines in late 2013 and 1Q14," thebank said in a research note.
"With the Gulf Coast oversupply likely to take longer toplay out and no need for spot barrels to flow out of Cushinguntil late 2014 at the earliest, WTI should trade much closer toBrent for most of 2014, and potentially at a premium in 1H14."
Cushing inventories have plunged by nearly 17 millionbarrels over the past 13 weeks as pipelines send more crude toGulf Coast refiners, creating fears that another glut could bebuilt up in the Houston area.
Another TransCanada spokesman, Grady Semmens, told Reutersthe initial delivery location will be Sunoco Logistics PartnersLP's Nederland terminal in Texas. Semmens saidTransCanada has been in discussion with a number of customersabout possible connections to the Gulf Coast pipeline, butdeclined to give specifics.
However, in September Valero Energy Corp said in anSEC filing for subsidiary Valero Energy Partners that a 400,000pipeline connecting the TransCanada pipeline to Valero's Lucasstorage terminal would be put into service during the firstquarter of 2014.
The Lucas Storage terminal is connected to Valero's PortArthur plant, and the refiner has taken a minimum quarterlythroughput commitment of 45,000 bpd, which could be increased to150,000 bpd if the complete Keystone XL pipeline is built.
Semmens also told Reuters construction on the 48-mileHouston lateral project pipeline, which will transport crudefrom the Keystone Gulf Coast line to refineries in the Houstonarea, would start in the fourth quarter of 2013. Completion isscheduled for late third quarter to early fourth quarter 2014.
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