South Dakota Regulator Raises Prospect of Revoking Keystone Permit

A South Dakota state official said Thursday that a federal agency's diagnosis of a recent leak in TransCanada Corp.'s Keystone pipeline could signal a systemic problem and could lead the state to revoke the permit that allows the company to operate the pipeline.

Gary Hanson, vice chairman of the South Dakota Public Utilities Commission, said in an interview Thursday that recent findings on the cause of the leak raised concerns about more widespread problems, because they showed the rupture in the pipe may have been caused by a weight placed on the pipeline during its construction meant to keep it from floating in groundwater. The commission regulates utilities and pipelines in the state.

"I'm worried about their standard operating procedure," said Mr. Hanson. "The permit gives them permission to construct and operate the pipeline in the state of South Dakota, provided they follow all contingencies outlined in the permit. They may not have abided by all of those contingencies."

Mr. Hanson said the utilities commission wouldn't make a decision on revoking the permit before receiving a final report from the federal agency, the Pipeline and Hazardous Materials Safety Administration (PHMSA.) Revoking the permit could force TransCanada to stop pumping oil through the pipeline, a major artery for crude deliveries to refineries in the U.S.

It moves almost 600,000 barrels of oil a day when operating at full capacity. A pause earlier this month helped oil prices jump to two-year highs.

The findings on the cause of the leak came as PHMSA earlier this week ordered TransCanada to conduct additional testing to "identify and address any threats to the integrity of the pipeline system" following the leak.

The pipeline, which pumps oil from Canada's Alberta province to Illinois and the U.S. Gulf, sprung the leak in South Dakota on Nov. 16. An estimated 210,000 gallons of crude oil leaked out of the pipeline, according to TransCanada. It was the second leak in the state since the beginning of last year.

South Dakota gave TransCanada permission to build Keystone through their state in 2007. TransCanada has been moving oil through Keystone since 2010.

The Keystone pipeline has long been a source of controversy for TransCanada. The Calgary-based company gained approval from Nebraska regulators on Nov. 20 to build an extension through the state. But the state regulators approved an alternative route, not the one the company preferred.

Opposition from landowners and others in Nebraska helped animate a national protest movement that effectively stalled the pipeline for years. TransCanada first proposed the project in 2008, and says it is still considering whether to proceed with the project.

Last year, PHMSA issued a "corrective action" order when Keystone developed a leak due to a weld that had had cracked.

Mr. Hanson said he is concerned by the number of leaks that have already occurred in the pipeline in its short history.

"I don't want to see additional leaks," he said. "If it's in my backyard, it's a lot of oil."

A TransCanada spokesman said the company is currently working through PHMSA's order, and wouldn't comment until the company had resolved the issue with the agency.

PHMSA said in a statement Thursday that the investigation is ongoing.

Write to Vipal Monga at

(END) Dow Jones Newswires

November 30, 2017 19:35 ET (00:35 GMT)