Keystone Pipeline Shut After Oil Spills Into Kansas Creek

Canada's TC Energy said on Thursday it had shut its giant Keystone pipeline after an oil spill into a Kansas creek, and it was unclear how long the closure would last.

The size of the leak, which occurred about 20 miles south of a key junction in Steele City, Nebraska, is currently unknown.

The 622,000 barrel-per-day Keystone line is the primary artery shipping heavy Canadian crude from Alberta to refiners in the U.S. Midwest and the Gulf Coast.

U.S. Pipeline And Hazardous Materials Safety Administration (PHMSA) personnel are investigating the leak, which occurred near Washington, Kansas, a town of about 1,000 people.

Keystone shut the line at about 8 p.m. CT Wednesday (0200 GMT Thursday) after alarms went off and system pressure dropped, TC said in a release. It said booms were being used to contain the creek.

"The system remains shut down as our crews actively respond and work to contain and recover the oil," the release said.

Two Keystone shippers said TC had not yet notified them how long the pipeline may be shut. The company did not comment further. TC shares fell 0.6% in Toronto on Thursday.

Keystone's shutdown is expected to hamper deliveries of Canadian crude both to the U.S. storage hub in Cushing, Oklahoma and to the Gulf, where it is processed by refiners or exported.

The shutdown is expected to widen the discount on Western Canada Select (WCS) heavy oil from Alberta to U.S. crude, which was already weak due to lackluster demand for heavy, sour Canadian oil.

WCS heavy blend crude for January delivery in Hardisty, Alberta, settled at around a $26-per-barrel discount to U.S. West Texas Intermediate (WTI) on Wednesday. [O/R]

"It's really a worst-case scenario if this outage is long-lasting," said Rory Johnston, founder of energy newsletter Commodity Context, noting that if the price falls further, shippers may opt to move crude by rail.

Steele City is roughly the junction where Keystone splits, with one segment moving crude to Illinois refineries and the other carrying oil south to Oklahoma and the Gulf Coast.

If the spill is located south of the junction, TC may be able to quickly restart the segment to Illinois, RBC analyst Robert Kwan said in a note.

Past shutdowns have generally lasted about two weeks, but this could last longer as it involves a water body, Kwan said.

There have been seven spills on Keystone since it became operational in June 2010, according to PHMSA data. The largest were in December 2017, when more than 6,600 barrels spilled in South Dakota, and in November 2019, when more than 4,500 barrels spilled in North Dakota, according to PHMSA.

On Nov. 15, TC announced it would curtail volumes on the pipeline due to some severe weather-related incidents, without specifying the size or duration of the curbs.