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Arkansas spill shows 'nightmare scenario' if Keystone approved, group warns

CALGARY - A crude oil leak from an ExxonMobil pipeline in Arkansas comes at a particularly bad time for the Canadian company looking to build the contentious Keystone XL pipeline through the American heartland.

TransCanada Corp. (TSX:TRP) hopes it's in the home stretch of a years-long process to win U.S. government approval for its multibillion-dollar project, which has been assailed by environmental groups for its potential impact on everything from fresh water sources to climate change.

The spill from ExxonMobil's Pegasus pipeline is likely the last thing TransCanada needed, with the U.S. State Department being months away from issuing a final decision on Keystone XL after repeated delays, said Queen's University professor Warren Mabee.

"I think that just is another set of bad publicity that Keystone is going to have to overcome," said Mabee, director of the Institute for Energy and Environmental Policy at the university in Kingston, Ont.

"As we move towards a decision, this just becomes another hurdle for a new project to overcome the idea that maybe these pipelines aren't as safe as they're made out to be."

The leak from the Pegasus pipeline in no way changes the facts around the safety of Keystone XL, said Mabee, yet "politically, this is a big problem."

"If it was purely down to the facts, the decision would come down easily on the side of the Keystone. That project would be approved," said Mabee.

"If you have a president or a State Department that is looking for excuses to either put this project on hold or to justify cancelling it, this works right into that argument, unfortunately."

Jim Murphy, senior counsel at the National Wildlife Federation, said the Pegasus spill serves as a "sad illustration" of the risks associated with oil pipelines.

"I think it certainly highlights the nightmare scenario that's playing out in a lot of minds along the (Keystone XL) route," he said.

In Arkansas, it doesn't appear at this point that the oil has reached any major water sources in the area, said Murphy.

"We certainly hope there's no impact to water, but the fact that this much oil was able to spill so near important water bodies I think really indicates that if that oil doesn't reach water bodies, it's more luck than anything else."

Pegasus carries 96,000 barrels per day from Patoka, Ill. a major destination for Canadian crude, including that from the oilsands to the U.S. Gulf Coast.

Keystone XL would dwarf that in size, with an initial capacity of 830,000 barrels per day.

ExxonMobil says as of Monday, some 12,000 barrels of oil and water had been recovered and crews continue to work on the cleanup. It says "a few thousand" barrels of oil could be seen in the area, but it's prepared to respond to a leak of 10,000 barrels.

The company is working on a plan to excavate and remove the broken pipeline.

Nearly three years ago, a spill from an Enbridge Inc. (TSX:ENB) pipeline in southern Michigan fouled part of the Kalamazoo River.

Although the NWF has been pushing for stronger pipeline safety regulations and response procedures, Murphy says those projects should not be built at all.

"We still have not changed our bottom line that tarsands oil is too risky and is just too destructive a fuel source for us to be developing and transporting."

TransCanada spokesman Shawn Howard called the Pegasus leak an "unfortunate circumstance" that "demonstrates the pipeline industry must continue to focus on the safe, reliable operation of its energy infrastructure."

"The fact remains that pipelines are the safest way to move oil and other products to markets to meet consumer demands and maintain our quality of life," he said.

"TransCanada plans on building the most advanced, state-of-the-art pipeline that has been built to date using the latest technology, highest strength steel and most modern welding techniques."

He said 57 new safety procedures, including remotely controlled shutoff valves and increased pipe inspections, should instill further confidence that Keystone XL will be operated safely.

The $5.3 billion Keystone XL pipeline would carry crude from Alberta to the U.S. Midwest and Nebraska, connecting with another $2.3-billion pipeline currently under construction between Oklahoma and the Texas. Those two pipelines were initially part of one project, but TransCanada decided to tackle them separately when Washington rejected its earlier proposal last year.

TransCanada refiled a new application with a reworked route through Nebraska, where there were concerns pipeline construction could damage a fragile ecosystem of grass-covered sand dunes and threaten a major aquifer.

A draft environmental report from the State Department last month flagged no major issues with the rejigged route. It will issue a final report after a comment period.


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