* Must submit safety plan for U.S. system
* Independent expert to oversee implementation
* Company says safety improvements are working
By Jeffrey Jones and Ayesha Rascoe
CALGARY/WASHINGTON, Aug 2 The U.S. pipeline
regulator raised pressure on Enbridge Inc on Thursday
over the latest spill on its U.S. oil pipeline network,
demanding that it submit a plan to improve the safety of the
entire 1,900 mile (3,060 km) system before restarting a key
The U.S. Pipeline and Hazardous Materials Safety
Administration said it added new conditions to this week's
corrective action order for the restart of Line 14 to address
failures on that pipeline as well as a string of others in
recent years on its U.S. system, part of the world's longest
network for transporting oil and petroleum products.
The move came as Enbridge's top executives defended the
company's safety record amid growing public pressure. They said
quick action to stop the flow of crude from the 318,000 barrel
per day pipeline in rural Wisconsin showed it had bolstered
safety procedures after a devastating 2010 Michigan oil spill.
"PHMSA has communicated its longstanding concerns about this
pattern of failures with (Enbridge) over the past several
years," PHMSA wrote in the amendment to its order. "Given the
nature, circumstances, and gravity of this pattern of accidents,
additional corrective measures are warranted."
The added demand is almost certain to mean the pipeline
remains idle for even longer, potentially months, according to
experts. That would tighten supply of light, sweet crude for
Chicago-area refineries at the height of the U.S. driving
Benchmark gasoline jumped over 1 percent on Thursday
as Midwest premiums spiked this week to a near record high.
The situation is being watched closely by the energy
industry, environmentalists, Canadian regulators and Enbridge's
investors. The company, which transports most of Canada's oil
exports to the United States, is struggling to win approval to
restart the pipeline and proceed with a C$3.2 billion ($3.2
billion) expansion of the Canadian and U.S. Midwest parts of its
network to eliminate bottlenecks.
Line 14 ruptured on Friday near Grand Marsh, Wisconsin,
spilling more than 1,000 barrels into a field. Enbridge said it
has made repairs. Shippers are worried a lengthy outage could
also back up crude supplies in Alberta, forcing some producers
to shut in production.
DEFECTS, PREVIOUS SPILLS
In its initial corrective action order, which set out 12
safety measures, tests and analyses Enbridge must undertake
before it can restart the pipeline, PHMSA chided Enbridge,
saying its "integrity management program may be inadequate".
The regulator noted that defects had been discovered when
Line 14 was built 14 years ago and that it had ruptured in
Wisconsin in 2007, spilling 1,500 barrels of oil.
It also noted the 2010 rupture of Line 6B in Michigan, which
sent 20,500 barrels of crude into the Kalamazoo river system,
leading to a nine-week shutdown and $750 million of repairs.
Besides developing a plan to address all its safety issues,
Enbridge must appoint an independent expert to oversee its
implementation, PHMSA said.
An Enbridge spokeswoman said the company expected to submit
the information that the regulator required, including the
latest demand, late on Thursday, adding that many of the
improvements sought on the U.S. system are already under way.
"This is a very serious corrective action order," said
Richard Kuprewicz, head of Accufacts Inc, a pipeline consulting
firm. "The amended corrective action order calls for basically a
management audit of certain critical processes within the
company, given the recent failures and apparent breakdowns that
may be signaling that the management team is losing control of
Despite PHMSA's strong words, company executives said on a
conference call to discuss second-quarter financial results that
heightened attention to leaks is driven more by the debate over
Canadian oil sands development and Enbridge's contentious C$6
billion Northern Gateway pipeline to Canada's West Coast than by
Enbridge's own safety record.
Still, much of the call focused not on the 7 percent
increase in adjusted quarterly profit but on the Line 14 leak
and other incidents, as analysts and investors grow more
concerned about the increased regulatory scrutiny and other ways
that the issue is clouding Enbridge's business prospects.
Enbridge shares fell 1.5 percent to C$39.90 on the Toronto
Stock Exchange, losing close to 20 Canadian cents after word of
the amendment to the PHMSA order. They have lost 5 percent since
July 26, the day before the Wisconsin spill.
"Normally it's environmentalists who focus in on that, but
it is potentially starting to have an impact on their actual
business and that's why people are starting to take notice on
the investing side," UBS Securities analyst Chad Friess said.
Besides complicating approvals for new projects, ruptures
force Enbridge to spend more on maintenance and testing. That
has an impact on profit the costs cannot be passed on to
shippers within a regulated toll structure, he said.
President Al Monaco pointed to Enbridge's operational risk
management plan, involving pipeline integrity, leak detection,
control center operations and corporate safety culture. The plan
was improved in response to the Michigan incident.
"We have had a very good record of safety over the years and
frankly we're proud of it," he said. "The reality is when you
have major incidents as we did in 2010, you have to look at
things and kick things up a notch."
Last month, the U.S. National Transportation Safety Board
harshly criticized Enbridge for its initial response to the
Michigan spill. On Wednesday, Canada's National Energy Board
said it would audit Enbridge's pipeline control-room procedures
as it studies the NTSB report.
Some of the Line 14 crude has been rerouted to other
Enbridge pipelines, but the company said it did not yet know if
the outage will force it to ration space for the month.