As Keystone stalls, TransCanada OKs bigger East Coast pipeline

(Reuters) - TransCanada Corp gave the green light to building a $12 billion oil pipeline to ship Canada's Western oil sands crude to refiners on its east coast and beyond, scaling up the project as its U.S.-bound Keystone XL line remains stalled in Washington.

The company said it would move forward with building a 1.1 million barrel per day Energy East Pipeline after "strong market support." That would be larger than the 850,000 bpd capacity it had mentioned in April, when it first began seeking customer commitments for the project.

The conduit should be in service by late 2017 for deliveries to Quebec and 2018 for New Brunswick. It would be the largest project yet to deliver burgeoning oil sands crude to seaborne markets on Canada's coasts, as energy companies fret about the regulatory hurdles and market limitations of pumping more oil to the United States, currently the nation's only major customer.

The project may raise more questions about the fate of TransCanada's Keystone XL, the 800,000 bpd Canada-Texas pipeline that has been awaiting U.S. State Department approval for years. President Barack Obama is expected to make a final decision on the line by later this year, but the lengthy delays have forced shippers to seek other outlets.

"Energy East is one solution for transporting crude oil, but the industry also requires additional pipelines such as Keystone XL to transport growing supplies of Canadian and U.S. crude oil to existing North American markets," TransCanada Chief Executive Officer Russ Girling said.

"Both pipelines are required to meet the need for safe and reliable pipeline infrastructure and are underpinned with binding, long-term agreements."

The company received 900,000 bpd worth of firm, long-term contract commitments to use the Energy East line, more than enough to replace imports to Canada's own refineries.

Canada imported more than 700,000 bpd from abroad last year, according to the National Energy Board, to supply six refineries east of the Ontario-Quebec border.

Oil sent on the planned line could supplant much of those imports while giving oil sands producers access to high-priced Atlantic markets for the first time.

The pipeline will ship crude from Alberta and Saskatchewan to delivery points in Montreal and the Quebec City region, and terminate at Canaport in Saint John, New Brunswick, where TransCanada has formed a joint venture with Irving Oil to build, own and operate a new deep water marine terminal, it said.

The line would likely diminish the need to ship crude by rail to East Coast refiners, a trend that has come under fire following the derailment of a crude-laden train in the small lakeside town of Lac Megantic that killed 47 people.

But TransCanada is also likely to face stiff resistance from some groups over the construction of the line, as similar projects to Canada's West Coast have faced delays due to objections by First Nations groups and environmentalists.

The company said it would seek the necessary regulatory approvals early next year. The pipeline will require converting 3,000 kilometers (1,864 miles) of TransCanada's existing main natural gas line to carry crude oil instead, and build approximately 1,400 kilometers (870 miles) of new pipeline.

(Reporting by Jonathan Leff; Editing by Lisa Von Ahn)