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(Reuters) - A new crude oil pipeline from a key terminal in Louisiana to refineries near Port Arthur, Texas, will be built at about half the size envisioned late last year, Shell Pipeline LP said on Thursday after securing customer commitments for the project.

The Westward Ho Pipeline, which will carry crude oil from St. James, Louisiana, to Gulf of Mexico refiners just across the Texas border, will have an initial capacity of 300,000 barrels per day, the subsidiary of Royal Dutch Shell said.

Shell hopes to start the pipeline by the third quarter of 2015 if it secures regulatory approval.

Shell had initially proposed a 900,000-bpd line when it started soliciting interest during an informal "open season" last year. That figure had shrunk to 600,000 bpd by December, when Shell said it had received an "encouraging response."

The latest capacity was determined "based on open season results," company spokeswoman Kayla Macke said in an email. "But (the line) may be expanded to handle a materially higher volume by adding pumping capacity subject to shipper demand."

The line is slated to deliver Gulf of Mexico sour crude and foreign crudes to Port Arthur in Texas. But it faces competition from other lines and crude flows to that region, which oil traders said may have affected the prospects of building it to carry bigger volumes.

Another conduit, the Seaway pipeline which carries 150,000 bpd of crude from Cushing, Oklahoma to near Houston, is also set to expand by as much as three-fold, and the southern Texas region also receives ample sea-borne crude from foreign and Gulf of Mexico oil fields.

"The area is receiving or will receive a lot of crude from elsewhere, by pipe, barge, rail, truck and tanker ship," said Brian Glenn, a crude oil trading and marketing officials at Falco Energy.

The St. James terminal is the delivery point for the Gulf Coast physical crude benchmark Light Louisiana Sweet. It is also a major destination for Bakken crude oil from North Dakota that is delivered on rail cars.

Westward Ho will also have access to the oil hub at Clovelly, Louisiana, the delivery point of Mars Sour crude.

(In July 12 story, corrects paragraph 6 to show pipeline will carry sour and foreign crudes, not light sweet crude)

(Reporting by Selam Gebrekidan and Joshua Schneyer in New York; Editing by Lisa Von Ahn and Marguerita Choy)

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