As oil hovers around US$90 a barrel, the race is on to more heavily tap into the world's second-largest oil reserve, and South Dakota - a major ethanol producer that typically sits on the alternative side of the fuel industry - is finding itself at the crossroads of two major oil projects.

One is a 590,000-barrel-a-day pipeline with plans to deliver Canadian crude to Patoka, Ill., and Cushing, Okla. The other is a proposed refinery that would be the first new U.S. refinery location in more than 25 years.

Supply for both projects would come from the oilsands of northern Alberta, home to some 175 billion barrels of crude, putting the region second only to Saudi Arabia in terms of the world's oil reserves.

U.S. refiners are converting their plants to handle thicker Canadian crude, and pipeline specialists such as Calgary-based TransCanada Corp. (TSX: TRP) are looking to connect supply with demand.

TransCanada plans to begin construction this spring on the Keystone pipeline, a 3,456-kilometre route passing through the Dakotas, Nebraska, Kansas and Missouri.

Robert Jones, a TransCanada vice-president and director of the Keystone project, said transporting crude oil by rail or trucks is less environmentally friendly than moving it underground. New pipelines are critical infrastructure if North America is to achieve greater energy independence, he said.

"The U.S. refiners have to do something to respond to increasing energy demands in the U.S.," Jones said. "So their choices are import more oil offshore from foreign sources or look to Canada and have a reliable source of crude oil to supply the refineries."

Jones said TransCanada already has firm long-term contracts on nearly 500,000 of the 590,000 barrels that will be transported along the route each day.

That means passage along Keystone is nearly booked, and the line won't be able to supply South Dakota's other potential oil project - the Hyperion Energy Center.

Privately held Hyperion Resources of Dallas wants to build a 400,000-barrel-per-day oil refinery in either Elk Point - which sits less than 50 miles from the planned Keystone route - or another undisclosed Midwest location.

The refinery would be built to handle Canadian crude, and the most obvious way to get it to a refinery is by pipeline, J.L. (Corky) Frank, a Hyperion project executive, told The Associated Press.

"Our 400,000 barrels a day that we'd require for our refinery would probably be more than enough to justify a separate line, in and of itself, to serve this refinery as well as any other potential customers that were on that line," he said.

Frank said the U.S. needs more refining capacity, and building refineries inland to shield them from weather-related catastrophes such as hurricanes makes sense. The Hyperion Energy Center would produce ultra-low-sulphur gasoline and diesel and be one of the most environmentally friendly in the world, he said.

Its pricetag has been estimated at between $8-$10 billion, but Frank said the industry is changing daily, so the final cost could be more or less.

Frank said Hyperion is open to partnering with pipeline companies, producers and equity firms, but the company has yet to select a final site.

-with files from The Associated Press