Keystone oil pipeline resumes normal operations after disruption

The Keystone oil pipeline network resumed normal operations July 23 after a nearly weeklong reduction in capacity triggered by damage at a third-party electric substation, operator TC Energy said.

The 590,000 b/d crude artery from Canada to the US operated at a reduced capacity since July 17 after vandalism damaged a transformer at an East River Electric Power Cooperative substation in rural South Dakota that solely services the TC Energy flagship oil pipeline.

The company declared force majeure on the pipeline network July 18 and operated all week at a reduced, but unspecified, capacity while electric transformer repairs were completed. Pricing impacts were limited due to the relatively short nature of the disruption and because some crude oil flows continued at the lesser capacity.

"TC Energy has safely resumed normal operations of the Keystone Pipeline System," the company said in a statement. "We are communicating directly with our customers as we resume normal operations."

East River Electric Power Cooperative, which operates the Carpenter Substation in Beadle County, said a criminal investigation is underway. East River said the damaged transformer was leaking mineral oil when the problem was detected.

Active trading for September barrels of Western Canadian crude had not yet begun much this past week, and market sources did not indicate the Keystone disruption notably impacted pricing.

Market indications put the heavy sour benchmark, Western Canadian Select, for September at a $20.30/b discount to the WTI calendar month average on July 20 -- $1.05 stronger week on week. NYMEX September WTI settled $1.65 lower at $94.70/b on July 22, and ICE September Brent declined 66 cents to settle at $103.20/b.

The pipeline runs from Hardisty, Alberta, through North Dakota, South Dakota and Nebraska, where it splits with one leg moving crude east through Missouri for deliveries into Patoka, Illinois, and the other moving south to Cushing, Oklahoma, and then onto Houston, Texas.

Values for heavy sour Western Canadian Select crude had come under pressure already in recent weeks as supplies of heavier, sour grades along the US have increased following the release of barrels from the US Strategic Petroleum Reserve.

Crude choices

Because crude oil takeaway capacity leaving Canada is already tight, said AJ O'Donnell, product team director for East Daley Capital, there are only a few alternate ways to move displaced crude oil if Keystone had remained at a lower capacity for much longer.

Enbridge's Mainline network into the US potentially could accommodate another 150,000-200,000 b/d in additional volumes into the US, O'Donnell said, and Enbridge's Express Pipeline to Guernsey, Wyoming, could handle maybe 30,000 b/d. However, there are limited ways to move crude beyond the Guernsey hub.

Otherwise, more expensive crude-by-rail exports are the fallback option for shipping the heavy barrels of Canadian crude, he said.

"There's plenty of capacity here [via rail], but it's more expensive and what is available on demand is questionable," O'Donnell added.

TC Energy has aimed to to move more Canadian volumes -- and US shale barrels -- entirely through its own, 2,700-mile Keystone system, which includes the Marketlink Pipeline. Marketlink Pipeline can move 750,000 b/d from Cushing to Nederland, Texas. The Keystone Houston Lateral provides an additional, 47-mile expansion to Houston markets.