FACTBOX-Impact of Enbridge's key pipeline outage

by reuters | Thomson Reuters Foundation
Monday, 13 September 2010 18:15 GMT

Sept 13 (Reuters) - A key pipeline that delivers crude to the United States from Canada, its No. 1 foreign supplier, has been shut since Sept. 9 when the line began leaking oil in Romeoville, Illinois, about 30 miles (48 km) southwest of Chicago.

Calgary-based Enbridge Inc <ENB.TO>, the pipeline operator, has set no date to restart the 670,000 barrel-per-day (bpd) Line 6A. Any restart would require U.S. government approval.

The outage at 6A, a 467-mile line that runs from Superior, Wisconsin to Griffith, Indiana, threatens a major conduit for crude supplies to the U.S. Midwest. The line serves as a gathering system for crude transported to Cushing, Oklahoma, the delivery point for U.S. benchmark oil futures.

The incident is the second major problem on a key Enbridge-operated pipeline network -- the Lakehead pipeline system -- in less that two months. Enbridge shut its 190,000 bpd 6B pipeline in late July after an earlier leak spilled almost 20,000 barrels of oil into a river system in Michigan. Enbridge has not received permission to restart 6B yet.

Here are some of the main issues surrounding the incident:

ENVIRONMENTAL IMPACT

* Enbridge first reported the leak on Sept. 9 after crude oil bubbled up from a hole in the underground pipeline into a neighborhood of Romeoville, a suburb of Chicago. The spill at first appeared minor, but by Sept. 13, Enbridge said the line had leaked a total of 6,100 barrels (256,200 gallons), making it a relatively large pipeline spill.

* Enbridge is working on excavating the damaged pipeline and has located a 1-inch (2.5-cm) hole it said was the source of the leak. Work crews have collected virtually all of the spilled oil, Enbridge said on Monday.

* The U.S. Environmental Protection Agency said the 6A pipeline was leaking oil at a rate of between 200 and 600 barrels per hour as of Sept. 10, before Enbridge said it had stopped the leak.

* The Department of Transportation said it sent inspectors to investigate the leak.

OIL MARKET IMPACT

* Enbridge officials told its customers the outage was expected to have a "significant impact" on its oil distribution.

* The Enbridge line was shipping around 459,000 bpd of heavy crude before the spill, or enough to supply almost half of refinery demand in the Chicago area. Some refineries may be less affected by the pipeline outage, since they planned maintenance projects at their plants in the coming weeks. [ID:nN10229665] Factbox: [ID:nN1037716]

* The outage may affect supplies to at least four Chicago area oil refineries with combined processing capacity over 1 million bpd.

* U.S. benchmark oil futures <CLc1> have risen to their highest level in a month after the leak, gaining 4.5 percent. They traded up $1.25 a barrel at $77.70 on Monday morning.

* The threat of supply shortages has been pushing the price of refined products, like gasoline and diesel, higher in the region. [ID:nN13191079]

* The line feeds into others that deliver crude to Cushing, Oklahoma. JP Morgan analysts said the 6A outage could reduce shipments of crude by around 300,000 bpd to Cushing, which may help draw down high inventories at the crude hub.

* The Enbridge outages have helped boost the value of near-term U.S. crude relative to oil for delivery at a later date. The discount for October U.S. oil futures relative to barrels for delivery in November has narrowed to around 80 cents a barrel. Last week, the discount for front-month barrels was as high as $2.16 a barrel. <CL-1=R> Likewise the outage has increased the value of U.S. crude futures against European North Sea Brent. <CL-LCO1=R>

* The price of crude for prompt delivery in Canada has fallen since the 6A outage, since there are fewer options to ship Canadian crude to its main export market. [ID:nN09207996] Refiners in the U.S. Midwest continue to be affected by the earlier shutdown of another stretch of the Lakehead system -- much of which is more than three decades old -- and a prolonged 6A outage could further cut U.S. bound shipments of Canadian crude, which had been running at around 1.7 million barrels a day before 6A leaked.

IMPACT ON ENBRIDGE

* Shares of Enbridge, the largest operator of pipelines to distribute Canadian crude oil, fell 86 cents to trade at C$51.62 on the Toronto Stock Exchange on Monday. The shares are down 2.6 percent since the day before Illinois leak was discovered.

* Enbridge has a history of pipeline spills and incidents in the United States over the past decade, and the company had been warned twice earlier in 2010 by U.S. pipeline regulators to increase monitoring for corrosion on its Lakehead pipeline system.

* Enbridge was slapped with a $2.4 million fine in August for a deadly explosion on one of its lines back in 2007.

For a timeline on major Enbridge pipeline incidents click here: [ID:nN10254087]

LONG TERM IMPACT

* The Enbridge leak in Illinois comes amid a string of energy industry disasters this year in the United States, including BP's fatal offshore drilling rig explosion and a major gas pipeline explosion last week in a suburb of San Francisco, which killed at least 4 people. [ID:nN10265692]

* The Enbridge pipeline outages come at a time when the U.S. State Department and regulatory agencies are considering whether to grant approval for Enbridge rival TransCanada Corp <TRP.TO> to expand a pipeline system known as Keystone from Canada to Texas. Some analysts suspect that heightened U.S. regulatory scrutiny following the Enbridge incidents could affect those plans. [ID:nN11212387] (Compiled by by Joshua Schneyer; Editing by Marguerita Choy)

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