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Enbridge Illinois Pipeline Leak Pushes Crude Higher

Sept. 10 (Bloomberg) -- The closure of an Enbridge Energy Partners LP pipeline that can ship more than one-third of oil imported by U.S. Midwest refiners has forced one company to seek other supply and pushed futures prices up the most in six weeks.

Enbridge’s 670,000-barrel-a-day Line 6A remains shut after leaking oil yesterday in Romeoville, Illinois, 30 miles (48 kilometers) southwest of Chicago. Citgo Petroleum Corp. said it’s seeking alternate supplies for its 170,500-barrel-a-day Lemont refinery.

“We are still draining oil out of the pipeline, but the site is contained,” Terri Larson, a spokeswoman for Enbridge, said in a telephone interview. There is no estimate when the pipeline might restart, she said.

Crude oil for October delivery rose $2.20, or 3 percent, to $76.45 a barrel on the New York Mercantile Exchange. The discount between October and November contracts narrowed 62 cents to 92 cents a barrel.

“The pipeline is pushing prices higher,” said Peter Beutel, president of trading advisory company Cameron Hanover Inc. in New Canaan, Connecticut. “There’s a fear that supplies will get tighter in the Midwest. You’re seeing short covering and buying, as people try to figure out how long the pipeline will be down and what the impact will be.”

At the time of the leak the pipeline was transporting about 459,000 barrels per day of heavy crude, the company said in a statement. Neither the size nor the cause of the leak has been determined, Enbridge said.

Limit Imports

The closure may further limit imports from Canada, already curtailed after the company shut its Line 6B in Michigan July 26 after the line ruptured.

Canada is the largest exporter of crude oil to the U.S., sending 2.2 million barrels a day in June, according to the Energy Department, and more than a quarter of that arrives by pipeline into the Chicago area.

“This cuts U.S. imports of crude and could translate into falling U.S. inventories, leaving Midwest refiners short of feedstock,” said Tim Evans, an analyst at Citi Futures Perspective in New York. “It’s important to remember this is a logistics issue. Probably the same number of barrels are coming out of the ground in Canada and their arrival will be delayed.”

Alternative Supplies

Refiners in the region may ship oil from Cushing, Oklahoma, the Midwest storage hub, driving up the price of futures traded in New York. Wholesale gasoline prices in Chicago rose the most since March 2009, and a pipeline operator froze orders to ship fuel up from the Gulf Coast because of high demand.

The 34-inch line, operated by Houston-based Enbridge and part of the company’s Lakehead System, runs 466 miles (750 kilometers) from Superior, Wisconsin, to Griffith, Indiana, according to an Enbridge website showing pipeline locations. It carries light, medium and sour crudes.

“There was oil that bubbled up into the street,” Mike Flaherty, assistant chief of the Romeoville Fire Department, said in an interview. The pipeline, buried at least five feet below the surface, leaked in the area of a business park, he said.

Enbridge was notified of the leak yesterday at 12:28 p.m. local time and shut the line down immediately, the company said. Enbridge’s schedulers are working with shippers to divert crude oil volumes to other available pipelines and storage facilities.

Citgo Lemont

Citgo’s Lemont refinery will seek other sources of crude to minimize disruptions until the situation is resolved, the company said in an e-mailed statement. The plant is operating at reduced rates due to planned maintenance.

In addition to Citgo’s refinery, ConocoPhillips’ Wood River plant and Exxon Mobil Corp.’s Joliet refinery, all in Illinois, along with BP Plc’s Whiting plant in Indiana, are located in the vicinity of the pipeline.

The four refineries can process about 1.22 million barrels a day, almost half of the refinery capacity in states that comprise the Midwest refining region known as PADD 2 and about 7 percent of overall U.S. capacity, according to data compiled by Bloomberg.

“The refinery is still operating and we’re meeting all customer needs,” said Kevin Allexon, a spokesman for Exxon, in an e-mail.

Chicago Prices

Fuel prices in Chicago soared on speculation refiners would have to reduce output if crude supply is curtailed. The premium to futures traded on Nymex for 87-octane conventional gasoline more than doubled to 31.5 cents at 4:30 p.m. in New York, according to data compiled by Bloomberg. The premium was the highest since June 2009. The price for prompt delivery rose 22.02 cents, or 11 percent, to $2.2881 a gallon.

On the Gulf Coast, the premium for conventional gasoline doubled to 6 cents a gallon.

Explorer Pipeline Co. said it froze orders to ship gasoline and distillate fuels from the Gulf Coast to Chicago for the first time since November 2007 because it was inundated with requests. The line can carry 380,000 barrels a day of fuel to Chicago.

Kinder Morgan Inc., the Houston-based pipeline company, which operates the Express and Platte pipelines that can ship crude from Canada through Colorado to the Midwest, isn’t considering such a move “at this point in time,” Andy Galarnyk, a spokesman for Kinder Morgan Canada, said.

“We are monitoring the situation,” he said. As for interest from shippers, “we’ve see no noticeable change as of yet.”

Freight Derivatives

There is speculation in the freight derivatives market that the Enbridge situation will cause an increase in shipments of gasoline to the U.S. from Europe, Ben Goggin, a freight derivatives broker at SSY Futures Ltd., said by e-mail.

Fourth-quarter contracts for shipping 37,000 metric ton cargoes of gasoline to the U.S. from Europe climbed to 163.5 Worldscale points from 162, he said.

The premium to futures for 87-grade conventional gasoline in New York Harbor widened 1.12 cents to 4 cents a gallon, the largest premium in a year.

Gasoline for October delivery gained 3.77 cents, or 1.9 percent, to $1.9731 a gallon on the exchange.

Canadian oil producers may have to curtail output if exports to the U.S. are limited and storage tanks in Alberta fill up.

“There is still uncertainty as to whether those pipelines are going to be back up and running, so that will put downward pressure on our pricing, but it’s just too early for us to be able to speculate on what that will do” to production, said Siren Fisekci, a spokeswoman for Calgary-based Canadian Oil Sands Ltd.

To contact the reporter on this story: Paul Burkhardt in New York at pburkhardt@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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