Kinder Morgan to Expand Canadian Pipeline to West Coast

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Kinder Morgan Energy Partners LP [KMP +1.11%] said Thursday it will begin a $5 billion expansion of its Trans Mountain pipeline, nearly tripling the capacity of crude oil it can ship to Canada's west coast—the latest project aimed at moving the country's rising oil production to markets outside the U.S.

Currently, almost all Canadian crude exports travel to the U.S. While Canadian oil output has been climbing fast, pipeline capacity to move it from the country's biggest oil patch in landlocked Alberta to U.S. refining markets is stretched.

The resulting glut, and rising oil production in the U.S. itself, has depressed prices for Canadian crude. Canadian government officials, meanwhile, have boosted support for westward-flowing pipelines in order to diversify toward Asian markets. That effort accelerated after the White House earlier this year rejected a big pipeline-expansion project, TransCanada Corp.'s [TRP +0.87%] Keystone XL, which would have sent more Alberta crude south of the border.

The Trans Mountain line already ships a small amount of crude to Vancouver from Alberta. The expansion will increase that volume to 850,000 barrels a day from 300,000 barrels a day currently. The boost will allow Asian buyers to load Canadian crude in significant volumes in Vancouver and ship it across the Pacific in tankers. The project also envisions an expansion at the pipeline's terminal in Vancouver, which will allow more tankers to take on oil.

In 2011, just 1.65% of Canadian crude oil went to markets outside of the U.S., according to Canada's National Energy Board.

The expansion is competing with other projects to bring Canadian oil to the west coast. Enbridge Inc. ENB +0.39% has proposed the Northern Gateway oil pipeline, which would take oil from Alberta to a small, northern port in British Columbia.

Enbridge's pipeline is expected to cost $5.5 billion and would also be completed in 2017. But that line faces strong resistance from native groups.

Because Kinder Morgan is expanding a pipeline across British Columbia that has been in place for 60 years, it may have an easier time gaining support from native groups, which have significant land claims in the province. The company will expand the line by "twinning" it—building a new pipeline alongside the current one.

Canadian oil executives have sought to open new markets for their crude, especially after the White House rejected the Keystone XL project. The pipeline became ensnared in a political battle in Washington, with environmental groups and many Democrats opposing the pipeline. Republicans embraced it as a way to bolster energy security and create jobs.

U.S. President Barack Obama has said he is open to reviewing Keystone XL again, if TransCanada reapplied for a permit. A decision wouldn't be made, though, before this year's presidential election. Late last month, the government of Canadian Prime Minister Stephen Harper said it would streamline regulatory reviews of big energy and mining projects meant to move resources to markets.Mr. Harper and other Canadian officials have said they want to open up new markets for Canada's resources in China and Asia, instead of relying on the U.S. as its biggest buyer.