WASHINGTON (Reuters) - The U.S. government blocked Enbridge Inc from restarting a key Midwestern oil pipeline on Tuesday, saying last week's spill on the line was "absolutely unacceptable."
U.S. Transportation Secretary Ray LaHood blasted Enbridge over the leak of more than 1,000 barrels of crude oil in a field in Wisconsin, which shut its 318,000 barrel per day pipeline on Friday.
"I will soon meet with Enbridge's leadership team, and they will need to demonstrate why they should be allowed to continue to operate this Wisconsin pipeline without either a significant overhaul or a complete replacement," LaHood said in a statement.
"Accidents like the one in Wisconsin are absolutely unacceptable."
Federal regulator Pipeline and Hazardous Materials Safety Administration (PHMSA), a division of LaHood's department, delivered a corrective order to Enbridge on Tuesday, prohibiting it from restarting Line 14 until it can show regulators it has met safety standards.
In a statement, Enbridge said it plans to complete repairs to Line 14 by Wednesday, and will submit plans to PHMSA to restart the line. The company said corrective orders are commonly issued after pipeline incidents.
LaHood said there was no guarantee that permission would be granted to restart the line anytime soon.
Corrective orders can delay resumption of pipeline operations, sometimes for weeks or months. When an Enbridge pipeline spilled crude into Michigan's Kalamazoo River in 2010, the line was not approved for restart until six weeks later.
LaHood's department ratcheted up its oversight of pipeline safety last year after a series of high profile spills gained national attention, including Enbridge's Kalamazoo River incident.
The Wisconsin spill is another blow to Enbridge's reputation. Earlier this month, PHMSA issued a $3.7 million fine for the 2010 Michigan spill and a National Transportation Safety Board report accused Enbridge employees of ineptitude and acting like "Keystone Kops" during that accident.
Oil traders said that regulators' response to the most recent Enbridge pipeline fiasco was expected.
"This is the post-Macondo environment and Enbridge has become a serial offender on pipe leaks," said one crude oil trader. "Given the vast scale of their pipeline network, it is probably disconcerting to regulators to see so many mishaps from someone holding an intrinsic ability to provide an environmental disaster."
OIL MARKET FALLOUT
Enbridge will now need to submit a restart plan for the entire 467-mile (752-km) pipeline.
The company will also need to test the ruptured pipe, evaluate previous inspections and commission an independent probe of its integrity management.
Line 14 is a 24-inch diameter pipe that was installed in 1998, making it a relatively new line. Enbridge said the line, which carries Canadian crude to refiners in the Midwest, had been inspected twice in the past five years.
"The delay will continue to cause Midwest gasoline prices to remain elevated, and the stranded crude oil will help Brent crude widen its premium over the WTI marker," said John Kilduff, partner at Again Capital LLC in New York.
Canadian crude prices fell on Tuesday following the announcement on the pipeline spill.
Western Canada Select heavy blend for September delivery last sold for $24 a barrel under benchmark West Texas Intermediate, compared with $22 a barrel under WTI on Monday, according to Shorcan Energy Brokers.
Some Canadian oil traders speculated that the pipeline could be shut for at least two more weeks, which could lead to some oil production getting shut in, as Alberta storage is already understood to be full.
Canada is the largest source of foreign crude for the United States, supplying over 2.4 million bpd of the more than 8.3 million bpd imported by the nation on average in July. Enbridge's lines, the world's largest crude oil pipeline system, carry the lion's share of those shipments.
WISCONSIN EVENT
In Grand Marsh, Wisconsin, the site of last Friday's leak, two local residents had said over the weekend that one house had been "covered" in oil during the spill.
An Enbridge spokesman denied that, and said the spill had been limited to the pipeline right-of-way, as well as a nearby field and some trees.
In a statement, Enbridge said "the safety of people who live and work near our pipelines and the environment is Enbridge's top priority."
Enbridge kicked off one of the most sweeping expansions in its history just two months ago, announcing a multibillion-dollar series of projects aimed at moving western Canada and North Dakota oil to Eastern refineries and eliminating costly bottlenecks in the U.S. Midwest.
Enbridge shares fell 80 cents to C$41.03 in Toronto on Tuesday