WRAPUP 1-Regulator sets conditions on Keystone oil line restart

Fri Jun 3, 2011 4:02pm EDT

Related Topics

* PHMSA issues corrective action order on pipeline

* Includes, short-, long-term conditions

* Outage has boosted futures, weakened Canada oil prices (New throughout with PHMSA order)

By Jeffrey Jones and Tom Doggett

CALGARY/WASHINGTON, June 3 (Reuters) - U.S. regulators said on Friday they will not let TransCanada Corp (TRP.TO) restart its Keystone oil pipeline until they are satisfied that problems that caused at least two leaks in a month are fixed.

The corrective action order from the U.S. Pipeline and Hazardous Materials Safety Administration added uncertainty to the timing of resuming flows on the 591,000 barrel a day pipeline, pushing oil futures up as much as 50 cents a barrel as traders braced for a longer loss of Canadian crude imports.

Earlier, Calgary-based TransCanada said it had submitted a plan to restart the line, which has been shut for five days following a 10-barrel leak at a Kansas pump station that it blamed on a faulty fitting. That followed an outage in early May that shut the year-old line for a week.

While both leaks were small and the environmental impact was contained, regulators have been under pressure to get tough with operators after a series of pipeline ruptures, leaks and outages over the past 12 months, many of which have complicated operations for Canadian shippers and U.S. refiners.

PHMSA is generally quick to approve resumption plans providing there are no systemic issues, but not always. Last year they held up clearance for a smaller Enbridge Inc (ENB.TO) line for nine weeks, demanding a more rigorous response.

"Effective immediately, this order prevents TransCanada from restarting operations on their Keystone crude oil pipeline until PHMSA is satisfied with the ongoing repairs and is confident that all immediate safety concerns have been addressed," the regulator said.

Longer term, PHMSA said TransCanada will be ordered to perform metallurgical testing and analysis of the failures and review other parts of the system, which extends to the huge Cushing, Oklahoma, oil-pricing hub from Alberta.

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Officials with the body declined to give an estimated timeline for its review.

Earlier, TransCanada spokesman Terry Cunha said the company was still making repairs and modifications following the failure of a 1/2-inch fitting at the pump station.

TransCanada, meanwhile, is seeking U.S. State Department approval for a controversial $7 billion expansion of the Keystone system.

Keystone was also shut in early May due to the failure of a different type of fitting at a North Dakota pump station that caused a 500-barrel spill.

The regulator's order also revealed that a faulty fitting leaked at a pump station in South Dakota on May 25, although the incident "did not meet reportable criteria."

The longest recent pipeline shutdown was that of Enbridge Inc's (ENB.TO) Line 6B for nine weeks last summer following a 20,500 barrel spill that fouled the Kalamazoo River system in Michigan.

Regulators reviewed and rejected the first of Enbridge's restart plans and when it finally approved a resumption it imposed a series of conditions, including a strict regimen of testing, maintenance and even pipe replacement.

TransCanada said its investigation concluded that a 1/2-inch fitting at the Kansas pump station failed and there was no issue with the safety or integrity of the pipeline.

The company has replaced that type of fitting at its other pump stations to cut to the odds of a similar incident in the future, Cunha said.

The cash price for Western Canada Select heavy crude, a widely traded blend, was quoted at around $21 a barrel below benchmark West Texas Intermediate oil on Friday, a $1-$2 deeper discount than earlier this week.

(Editing by Jonathan Leff)

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