May 31, 2011 / 1:07 PM / in 6 years

TransCanada shuts Keystone line due to new leak

CALGARY, Alberta (Reuters) - TransCanada Corp cannot yet say when it will restart its 591,000 barrel per day Keystone oil pipeline as its second spill in less than a month pushed oil prices higher, while other lines carrying Canadian oil to the United States were also closed.

The company said on Tuesday the line was shut on Sunday after a half-inch fitting failed at its Severance pumping station in Kansas. The fitting leaked less than 10 barrels (420 gallons) of oil, said company spokesman Terry Cunha, down from an earlier estimate of a 40-barrel spill.

“It’s all contained within our pumping station,” he said. “It’s all been cleaned up and the fitting’s been replaced, and we hope to have the system up and running as soon as possible.”

Canada is the largest supplier of oil to the United States, shipping about 2 million barrels a day, but the pipelines that deliver that crude have been subject to leaks, spills and shutdowns.

Indeed, Enbridge Inc, whose lines carry the bulk of Canada’s crude exports, said storm-related power outages on the weekend shut down a number of its oil pipelines in the U.S. upper Midwest [ID:nN31299604]. The system is expected to return to normal operations later on Tuesday.

Keystone which runs from Hardisty, Alberta, to Cushing, Oklahoma, is a key feed for the Cushing oil storage hub, the pricing point for the New York Mercantile Exchange’s benchmark crude contract.

U.S. crude prices rallied on news of the outage, rising at one stage by almost $3 a barrel to a high of $103.39 on Tuesday, climbing faster than London-based benchmark Brent. By 12:40 p.m. EDT, prices had pulled back on weaker U.S. economic data, but were still up by around $1.40 a barrel.

Differentials for West Texas Sour crude moved up about 25 cents on the news of the pipeline shutdown, traders said, with bids holding $2.25 under benchmark West Texas Intermediate and offers up 10 cents to $2.15 under.

“I think it (WTS) is partly being used as a backup if the line is down for a while,” said John Troland, an independent oil consultant based in Houston.

Record levels of crude at Cushing should mitigate any large price moves. Last week, inventories at the oil delivery hub stood at 40.1 million barrels, slightly below the record high of 41.9 million reached earlier in May.

The shutdowns had little immediate effect on Canadian cash crude prices.

A problem with a larger fitting was blamed for a 500-barrel leak earlier this month at another Keystone pumping station in North Dakota. That shut the line for six days while the company replaced similar fittings at its other pumping stations.

The spills come at an inopportune time for TransCanada, which is seeking approval of a $7 billion expansion of Keystone.

The Keystone XL project would add a line from Hardisty, Alberta, to Steele City, Nebraska, and an extension from Cushing to Nederland, Texas, to take Canadian crude oil to the Gulf Coast refining hub.

The extension has been bitterly opposed by some state and federal legislators, as well as environmental groups concerned about greenhouse gas emissions from expanded oil sands production.

There are also concerns about the threat of oil spills in sensitive areas along the route. Opponents will likely use the weekend spill to further bolster their case against the line.

The U.S. State Department is expected to rule on whether to approve the line by year end.

Additional reporting by Jeffrey Jones, Julie Gordon, David Sheppard and Janet McGurty; editing by Rob Wilson

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