More than five days after TC Energy Corp. shut down its Keystone pipeline to the United States, the company still hasn’t said what caused the 14,000-barrel spill into a Kansas creek on Dec. 7, nor has it said when oil might resume flowing.

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TC Energy's troubles mount as Keystone spill remains unexplained after five days Back to video

In its latest update, TC Energy said it’s working to contain the spill in Washington County, Kansas, which is shaping up to be one of the worst onshore crude spills in the U.S. in nearly a decade, The Associated Press reported, citing government data.

The Calgary-based company said Dec. 12 that some 2,598 barrels of oil and water had been recovered using vacuum trucks and booms. TC Energy’s share price was little changed, suggesting investors so far are willing to be patient.

But the already widening discount on Canadian crude jumped following the spill, temporarily reaching a price differential of US$31 per barrel compared with the benchmark West Texas Intermediate (WTI), before falling back to close around $28.30, according to data from Commodity Context.

TC Energy has been extremely vague

Rory Johnston, founder of Commodity Context

Prices for Canada’s heavy sour blend of crude oil have been softening for the past six months due to a shortage of refining capacity and a surplus of sour crude on the market — thanks in part to the Biden administration’s large release of mostly sour barrels from the U.S. Strategic Petroleum Reserve in a bid to curb high fuel prices.

Despite weaker prices, Canadian producers were at least able to take comfort in having relatively unfettered access to critical Gulf Coast markets for the first time in years following the expansion of Enbridge Inc.’s Line 3 pipeline in 2021, a welcome departure from the pipeline bottlenecks that had plagued the industry for years previously.

TC Energy’s emergency shutdown of Keystone changes that. 

“What’s been driving differentials has not been anything pipeline. It’s been entirely a global market kind of quality-driven sell-off in the value of those barrels. That changed Thursday,” said Rory Johnston, founder of Commodity Context, a research firm. “Now it’s a question of, how long is the line going to be down? We don’t know. TC Energy has been extremely vague.”

The halt to flows on the pipeline, which typically transports more than 600,000 barrels per day of crude oil between Hardisty, Alta. and refineries in the U.S. midwest and Gulf Coast, likely will result in a rapid increase in inventories of crude oil in Western Canada, and, depending on the duration of the outage, could drive Canadian crude prices lower, according to analysts.

“It is going to increase the cost of shipping heavy oil,” said Randy Ollenberger, managing director at BMO Capital Markets. “It’s also going to translate to rising inventories in Western Canada — and as those inventories rise, that could create some additional problems if we start to see those inventories get closer to those capacity numbers.”

Keystone transports 12 to 14 per cent of western Canadian crude oil exports to the U.S. and is one of just four major crude oil export pipelines from Western Canada, according to government data.

Experts have compared the latest incident to Keystone’s spill in the fall of 2019, which was smaller in size and still resulted in the pipeline being shut down for nearly two weeks, prompting a massive surge in crude inventories in Western Canada.

And despite the capacity gains provided by the expansion to Enbridge’s Line 3 last year, pipeline capacity was becoming tight even before the latest outage — similar to the circumstances that surrounded Keystone’s last outage, said Wood Mackenzie analyst Dylan White.

“There’s limited alternate options to move crude barrels out of Western Canada and down to the U.S.,” White said. “That’s where we see barrels back into storage pretty much immediately, and then if the pipeline outage lasts long enough, then there’s a chance that we would see shipments shift over to crude by rail.”

One difference from the incident in 2019 is the location of the spill, White said. The 2019 spill occurred along Keystone’s trunk line in North Dakota, resulting in a shutdown of the entire system. This time, the spill occurred south of a fork in the pipeline that extends eastwards to Patoka, Ill., opening up the possibility of at least a partial restart of the pipeline.

The disruption to Keystone’s operations comes at a difficult time for TC Energy. The Canadian pipeline giant announced last month its intention to sell $5 billion in assets next year and was rumoured to be looking at selling Keystone. The company has also faced investor scrutiny over the rising costs associated with construction of its embattled Coastal GasLink pipeline to Canada’s west coast.

Now, U.S. government data on the volume of leaks from Keystone indicates it has spilled more crude oil than any other pipeline in the U.S. since 2010, according to Bloomberg News.

This latest incident is unlikely to improve public perceptions of pipelines, Johnston said.

“Keystone, of all pipelines, because of Keystone XL, has this infamous character to it,” Johnston said. “I think you’ve seen plenty of people saying, ‘Oh yeah, wasn’t this the pipeline that we were supposed to expand and was going to be really safe?’

“It’s certainly not doing any favours for an industry that’s hoping to increase their perceived safety and kind of social licence for other projects, because, again, we’re probably going to need additional pipeline sometime.”

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