September 10, 2010 / 4:30 AM / in 7 years

Enbridge keeps U.S.-bound pipeline shut after leak

HOUSTON/NEW YORK (Reuters) - A key oil pipeline supplying Canadian crude to the United States, Enbridge Inc’s 670,000-barrel-per-day Line 6A, remained shut on Friday after the line leaked in Illinois on Thursday.

U.S. crude and petroleum product prices rose, as the outage threatened to reduce oil supply to the industrial U.S. Midwest region.

Enbridge and U.S. government officials said crude that leaked from the Enbridge line in Romeoville, Illinois on Thursday was contained and a clean-up effort has begun.

“The cleanup is progressing well,” Enbridge spokeswoman Jennifer Varey said.

Varey declined to say when Enbridge could be ready to restart the pipeline. The move would require approval from the U.S. Department of Transportation, which did not immediately return phone calls seeking comment.

The size of the leak, discovered around noon on Thursday from the underground pipeline in a residential area, wasn’t immediately known. Officials said it appeared much less severe than a 19,500 gallon leak from another Enbridge line, the 190,000 bpd Line 6B, which fouled a river system in Michigan in late July.

The 6A line is a crucial part of Enbridge’s Lakehead pipeline system, which feeds Midwest oil refineries and the Cushing, Oklahoma, crude storage hub, the delivery point for U.S. crude futures.

Oil futures rose on Friday in reaction to the pipeline shutdown. U.S. crude futures for October delivery rose to three-week highs, gaining $2.20 a barrel to $76.45 at 11:05 a.m. EDT.

U.S. futures also gained against Europe’s benchmark crude, Brent, which was up a more modest 92 cents at $78.35.

Oil traders gauged the potential threat to U.S. oil supplies from Canada, by far the largest foreign supplier. U.S. crude oil for near-term delivery gained sharply against barrels for delivery later on. October U.S. crude futures traded at a 99 cent per barrel discount to November barrels early Friday, narrowing the spread that was up to $2.16 a barrel on Thursday.

Earlier this year, the U.S. Department of Transportation ordered Enbridge to improve monitoring for corrosion on the Lakehead pipeline system, parts of which are more than three decades old.

Physical cash crude in the U.S. Gulf of Mexico region gained on Friday, with sour crude grade Mars up 30 cents a barrel against futures. The Gulf of Mexico cash grades could be in higher demand to ship northward to the Midwest, traders said.

Cash petroleum product prices in Chicago and the U.S. Gulf Coast also jumped, on expectations any prolonged outage could affect leave refiners in the immediate region, which process over 1.2 million bpd, scrambling for alternative supplies.

In Canada, local cash crude differentials may weaken because the pipeline outage could mean less available capacity to transport Canadian crude southward into the world’s largest oil consuming market, traders and brokers said Friday.

“I would imagine Enbridge will have to begin limit (receiving crude) very soon, and yes, Canadian pricing is very weak,” said one Houston-based oil trader who declined to be named.

JP Morgan analysts said the 6A line “is very important for the flow of oil to Cushing, and the duration of the outage will be critical to inventory levels at the NYMEX pricing point,” they said in a daily oil note.

But the pipeline may take much less time to repair and restart than Enbridge’s 190,000 bpd 6B pipeline -- another branch of the company’s massive Lakehead system. The 6B outage is complicated by its location under a creek bed, and although repairs were completed on that line last month, U.S. authorities have not approved it to resume crude shipments.

Some U.S. Midwest region refiners are still reeling from the 6B outage, which forced them to cut crude runs.

In reference to the latest leak, at 6A, which happened underground in a residential area, JP Morgan analysts said “such leaks are not unusual, and in normal circumstances we would expect the line to be up and running in a matter of days.”

Calgary-based Enbridge’s Line 6A runs from Superior, Wisconsin to Griffith, Indiana.

Canada shipped 1.75 million barrels of crude to the United States in the week to September 3, making it by far the largest foreign supplier. Saudi Arabia, the No. 2 supplier, shipped 1.16 million bpd to U.S. markets last week, according to data from the U.S. Energy Information Administration.

Reporting by Joshua Schneyer, Erwin Seba, Bruce Nichols, David Sheppard and Selam Gebrekidan; writing by Matthew Robinson and Joshua Schneyer; Editing by David Gregorio

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