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TransCanada Allowed To Increase Pressure Of Keystone

The U.S. Pipeline and Hazardous Materials Safety Administration has lifted a pressure restriction on the Keystone pipeline introduced in November after a leak, a spokesman for the authority told Reuters.

The news would certainly be welcomed in Alberta, where oil producers are grappling with persistent pipeline and rail car capacity that has seen Western Canadian Select trade at an ever-growing discount to WTI. In the United States, however, the reduced flow in Keystone has made possible a drawdown in inventories at the strategic petroleum reserve in Cushing, Oklahoma.

The PHMSA ordered the pressure reduction for Keystone after a spill of some 9,700 barrels of crude in South Dakota. Initially, the spill was estimated at 5,000 barrels but TransCanada later revised the figure. The spill was probably caused by damage to the pipeline that was already present during its construction.

Keystone immediately shut off the 590,000-bpd pipeline, but reopened it at lower pressure two weeks later. The timing of the spill, however, was very bad for TransCanada as it awaited the Nebraska Public Service Commission to decide on another, very controversial project: the Keystone XL pipeline. Still, despite the vocal opposition and the worry that the spill could tip the scales against Keystone XL, the Nebraska regulators voted in favor of the new pipeline.

Related: Cheap Hydrogen Could Soon Become A Reality

Earlier this week, Reuters reported that TransCanada will begin work on Keystone XL this fall, citing a letter from the State Department to Native American communities in Montana, near the route of the pipeline. The letter warned the communities about the start of preliminary activities around the construction site, including vegetation clearing ahead of the launch of construction in 2019.

TransCanada, however, has not yet made a final investment decision on the US$8-billion project that will come as additional relief to Albertan oil producers. Despite the lack of a FID, TransCanada confirmed it expected construction of Keystone XL to begin in 2019.

By Irina Slav for Oilprice.com

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