Enbridge Inc and TransCanada Corp have raced forward with new pipeline plans in the fierce battle to unclog a year-long U.S. oil bottleneck, which could quickly end an unprecedented distortion in crude markets.

After purchasing ConocoPhillips' stake in the 350,000 barrel-per-day Seaway pipeline for $1.15 billion, Enbridge and Enterprise Products Partners said they plan to reverse the line's flow to send crude locked up at the Cushing, Oklahoma, oil hub to the Texas coast. They will not pursue a similar project called Wrangler mooted in September.

Separately, rival TransCanada said it may begin construction of a southern leg of its proposed Keystone XL line, pending consultations with the U.S. State Department which last week postponed approval of the full-length Canada-to-Texas line to study a new route.

The companies are racing to unlock a glut of crude in the U.S. Midwest, which has built up over the year due to rising supplies from Canada and North Dakota. They aim to ship it to the Gulf Coast where it will fetch a hefty premium.

It may end a period of dramatic upheaval in the U.S. oil market that handed Midwest refiners an unexpected windfall of cheap feedstock, robbed northern producers of richer profits, revived an era of rail-oil freight, roiled airline efforts to hedge fuel costs and threatened to erode the U.S. futures contract's preeminence as the world's most-traded benchmark.

The news sent U.S. crude oil prices surging to their highest since June as traders bet the new line would help end a record gap between domestic and global prices, restoring some order to a key spread that has baffled traders all year.

U.S. crude shot more than $3 higher while Brent fell 30 cents, narrowing the Brent/WTI spread to just over $9 a barrel, its smallest gap since April. Trading volume was the highest since the start of the Libyan civil war in February.

The spread, rarely more than a few dollars in past years, surged this year due to ballooning inventories around the Cushing, Oklahoma, delivery point for the U.S. oil contract and hit a record $28 a barrel in October.

The easing of the disconnect between U.S. crude, or West Texas Intermediate, and other markets could draw some traders back to the contract after they had been sidelined.

For me, WTI hasn't been relevant for some time -- it was not fundamentally driven, so I wasn't looking at it. But now that it's fundamentally-driven again, I'll track it again, said Claude Lixi, portfolio manager at Galena Asset Management, an unit of major global oil trader Trafigura.

The reversed Seaway line could be in service at an initial capacity of 150,000 bpd by the second quarter of 2012, Enbridge said. Station additions and modifications needed to ramp up flow rates to 400,000 bpd will be completed by early 2013.

Seaway's full reversal has a net impact of around 400,000 bpd, which is a significant chunk but is still not the level needed to fully unlock the logistics bottlenecks (in the Midwest), said Daniel P. Ahn, director and head of commodity portfolio strategy for Citigroup.

Enbridge and Enterprise also plan to construct a pipeline system to link Seaway into Enterprises's existing ECHO crude terminal southeast of Houston to ease transport to regional plants.

Enterprise said it was not going to go forward with the proposed 800,000 bpd Wrangler pipeline, in which it planned to partner with Enbridge, to ship crude from Cushing to the Gulf.

Enbridge's acquisition of the stake in Seaway is expected to be completed in December, ConocoPhillips said. Conoco, which traders said had resisted pressure to reverse the line because its midcontinent refiners were benefiting from the cheaper feedstock, had already said it was selling its stake.

Shares of U.S. oil refiners Valero Energy Corp and Marathon Petroleum Corp, which have Midwest plants that have enjoyed strong margins this year due low prices and high inventories, saw shares drop after news of the reversal.

TRANSCANADA TO PURSUE CUSHING-TO-GULF PLAN

TransCanada also sought to rally back from the crushing delay to its $7 billion Keystone XL pipeline, which had faced an upswell of environmental resistance. Unable to build the cross-border portion of the line without State Department approval, the firm now looked set to build a much shorter that would also connect the Cushing hub to the Gulf Coast.

The southern portion of Keystone XL, including a $600 million lateral line from Keystone's southern terminus to Houston, would carry up to 830,000 barrels of crude a day to the Gulf Coast.

We would be in position to commence construction on (the Cushing to Gulf Coast) portion of the line literally very early in the new year, in January, Alex Pourbaix, president of TransCanada's pipeline division, said at a company presentation to analysts.

We are taking a look at the regulatory side of that. At the worst, we would require the permission of the State Department to proceed ... but we think that is something that is definitely doable.

A senior State Department official said TransCanada had not consulted with the department about beginning work on the Cushing to Gulf Coast leg of the pipeline.

The Nebraska legislature on Wednesday voted to advance a proposed law that would reroute the Keystone XL pipeline to avoid the sensitive SandHills and Ogallala aquifer, which had become a major rallying issue for green groups opposing it.

In the Nebraska legislature, bills must be voted on three times. The environmental study legislation will be voted on again on Friday, and if necessary again on Tuesday.

CONOCO SELL OFF

As part of the deals announced on Wednesday, Conoco also said it will sell its 16.55 percent interest in Colonial Pipeline Co and Colonial Ventures LLC to a subsidiary of pension fund Caisse de Depot et Placement du Quebec for $850 million.

Conoco's pipeline deals, part of its strategy to shed assets it no longer considers strategic, totaled $2 billion, the U.S. oil company said.

The deals are part of the company's effort to improve its valuation with up to $20 billion of asset sales targeted to properties the company no longer considers strategic.

(Additional reporting by Jeffrey Jones in Calgary; Janet McGurty; Jeanine Prezioso and Barani Krishnan and Mike Erman in New York; Andrew Quinn in Washington; Writing by Matthew Robinson and Jonathan Leff: editing by Gerald E. McCormick, Jim Marshall, Sofina Mirza-Reid)