By Ayesha Rascoe
WASHINGTON (Reuters) - The U.S. government blocked Enbridge Inc from restarting a key 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 a 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."
The department ratcheted up its oversight of pipeline safety last year after a series of high profile spills gained national attention, including a 2010 spill on another Enbridge line that fouled part of the Kalamazoo River in Michigan.
The Wisconsin spill is another blow to Enbridge's reputation. Earlier this month, the department's Pipeline and Hazardous Materials Safety Administration issued a $3.7 million fine for the 2010 spill. A National Transportation Safety Board report accused Enbridge employees of acting like "Keystone Kops" during that accident.
Traders said the delay from the government was not unexpected.
"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."
MORE TESTING REQUIRED
Enbridge will now need to submit a restart plan for the entire 467-mile (752-km) pipeline to the Transportation Department's pipeline safety agency for approval before resuming operations.
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 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.
"That is not good for Canadian producers," one oil market source said.
Enbridge did not immediately provide comment on the government order.
The company had said earlier it expected repairs on the line to be completed on Tuesday.
Two local residents had said over the weekend that one house near the site of the Wisconsin leak had been "covered" in oil, but an Enbridge spokesman said that this was incorrect and reiterated that the release had been limited to the pipeline right-of-way, as well as a nearby field and some trees.
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.
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.
(Additional reporting by Scott Haggett, David Sheppard, Janet McGurty, Jeffrey Jones, Robert Gibbons; Editing by Maureen Bavdek, Marguerita Choy and David Gregorio)