Market News

 June 14, 2013
Kinder shuts only pipe carrying Canadian crude to West Coast

 Kinder Morgan Inc., the largest U.S. pipeline operator by market value, shut the only line that carries Canadian crude to the West Coast after discovering a spill of light crude in a remote region of British Columbia.

Workers found the 12-barrel spill from the Trans Mountain Pipeline yesterday while performing routine maintenance, Andy Galarnyk, a Calgary-based spokesman for Kinder, said by e-mail.

The company shut the 300,000-barrel-a-day line, which carries both light and heavy oil, and is making repairs.

The Trans Mountain line is the only system in North America that transports oil and refined products to the West Coast, Kinder Morgan said on its website. The pipeline transports liquids from Edmonton, Alberta, to central British Columbia, Vancouver and the Puget Sound area in Washington.

Canada exported 51,200 barrels a day of heavy crude and 92,400 barrels a day of light crude to Anacortes, Washington, in January, according to data compiled by the Canadian National Energy Board.

Canadian heavy crude fluctuated on the spot market after the shutdown trapped barrels in Alberta, underscoring how rising oil production in western Canada has outpaced pipeline construction. The discount of Western Canada Select to the U.S. benchmark West Texas Intermediate widened to a record $42.50 in December.

WCS on the spot market weakened today by as much as $4.50 a barrel to a $15.50 discount to U.S. benchmark West Texas Intermediate crude, according to Net Energy Inc.. The grade recovered, trading at an $11 discount, unchanged from yesterday, as of 3:52 p.m. New York time, the Calgary oil broker said.

Market Anticipation

"Every day is 300,000 barrels, so the market may be anticipating a two- to three-day outage or longer pending approval from the regulators to restart," said Andy Lipow, president of Houston-based Lipow Oil Associates LLC. "There's simply a lack of information in the market regarding downtime."

Kinder Morgan proposes expanding the capacity of Trans Mountain by installing a new pipeline parallel to the existing one. The proposed twinned line would be able to carry about 540,000 barrels a day of heavy crude and the existing line could transport 350,000 barrels a day of lighter crude and refined products, Tammy Sauer, quality control supervisor for the company, said June 6 at a Crude Oil Quality Association conference in Seattle.

Environmental Objections

Environmental groups have opposed the Trans Mountain expansion and other Canadian pipeline projects, such as TransCanada Corp.'s Keystone XL, on the grounds that they would allow expanded oil production in Alberta's tar sands, which the groups say is more environmentally damaging than conventional drilling.

"British Columbia is one of the most environmentally sensitive states/provinces in North America," said Bradley Olsen, a Houston-based analyst for Tudor Pickering Holt & Co. "The spill will undoubtedly be used as a rallying cry by environmental protesters in opposing KM's expansion."