By Robert Campbell NEW YORK, June 20 (Reuters) - Sometime in the future a pipeline will be built that will bring the U.S. oil market back into equilibrium, but as we saw last week uncertainty over the timing of this transition has roiled the market. Traders have long bet that infrastructure bottlenecks at Cushing, Oklahoma, which prevent surplus oil supplies from flowing to the Gulf Coast, will eventually be alleviated. Until recently everyone thought this would happen by 2013, allowing excess stocks at Cushing to drain and restoring the connection between West Texas Intermediate crude oil futures and the rest of the market. This month, it seems, traders have reassessed that date and perhaps are also starting to price in the possibility of a nightmare scenario where needed pipelines are not built. Two big proposed pipelines, TransCanada's Keystone XL and the Double E, have the potential to start clearing the crude oil glut in the middle of the North American continent from 2013, if everything goes according to plan. What if everything does not go according to plan? Until recently, the market thought everything was going to plan and that WTI would soon be sorted out. Keystone XL has run into a wall of political and bureaucratic obstacles, following a spate of embarrassing oil leaks that has complicated permitting. Unlike most oil pipelines, Keystone, which crosses a U.S. border, needs a "presidential permit" from the State Department, increasing the environmental and political scrutiny of the permitting process. A pitched battle has already broken out between the Environmental Protection Agency and the State Department over the pipeline, with the EPA demanding a new review of the line and the greenhouse gas consequences of increasing U.S. imports of Canadian oil sands crude oil. [ID:nN07101222] Chart 1, below, shows how the spread between long-dated Brent and West Texas Intermediate crude oil futures has moved almost in lock-step with developments in the saga. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Chart 1: r.reuters.com/dud32s Chart 2: r.reuters.com/hyz99r Background on Midwest pipe projects: [ID:nN07117168] Keystone market study: link.reuters.com/gez99r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> Certainly, Canadian crude oil producers expect to continue to increase exports to the U.S. Midwest, helped in part by upgrades at refineries outside Detroit, Chicago and St. Louis. The improvements will boost heavy crude processing there, and back out domestic and imported sweet grades. (See Chart 2). TransCanada has not changed its forecast start date for Keystone XL from early 2013. But, after a string of spills and leaks, it faces calls for a tough new environmental review that could delay construction for months, if not years. No problem. There's the Double E pipeline that will take 450,000 barrels a day from Cushing to the Houston Ship Channel by then. Or will there be? The big hurdle for Double E (named, because of its backing by Enterprise Products Partners and Energy Transfer Partners) is signing up enough customers with enough financial muscle to commit to multi-year mandatory shipping contracts. In theory, there are many companies who would want to ship Midwestern crude to the U.S. Gulf Coast, including everyone who runs a refinery in the Houston area and every oil producer in Canada dreaming of triple-digit crude prices. The problem is that many of these companies have likely already signed up to take space on Keystone XL, and TransCanada is unlikely to release them any time soon from their binding commitments. So, the nightmare scenario for the U.S. oil patch is the following: Keystone XL delayed for further review, while Double E flops after failing to attract enough customers. We'll know more in July when the Double E backers should be able to announce whether they have enough customers to build the line or not. [ID:nN07109551] The irony of all of this is that Keystone XL is not needed, or at least not now. Keystone XL is designed as a "bullet line" that will mainly ship oil directly from Alberta to Houston. But export capacity from Western Canada is expected to remain in surplus until sometime after 2020, according to a study prepared by EnSys for the U.S. State Department. What is needed is the 700,000 bpd in capacity that Keystone XL would provide between Cushing, Oklahoma --the delivery point for WTI futures-- and the U.S. Gulf Coast. TransCanada cannot simply build one part of the line without the rest of the system: the two, and their supporting commercial commitments, are one line. The upshot is that there are large risks to forward price scenarios in the United States. Until Keystone is approved or formally scrapped, competing pipelines may fail to get enough customers. At some point, the United States will almost certainly approve new export capacity for Canadian oil producers into the U.S. Midwest, and the huge gap between WTI and Brent will eventually bring in alternative shipping routes. But delays, especially without a clear timeframe for a resolution of the pipeline bottleneck, mean the wide and volatile spreads between Brent and WTI will persist and likely worsen. (Editing by Carole Vaporean)

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