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A Keystone pipeline pump station operates outside Steele City, Neb., in this file photo taken March 10, 2014. On Wednesday, TransCanada said it will take longer than originally thought to get the pipeline running again after it was shut down over the weekend due to what the company describes as a small leak in South Dakota.LANE HICKENBOTTOM/Reuters

The widening price differential for Western Canadian crude due to a small leak and shutdown on TransCanada Corp.'s Keystone line is a sign of the vulnerability and limitations of Canada's market access for oil, says RBC analyst Michael Tran.

On Wednesday, TransCanada said it will take longer than originally thought to get the Keystone pipeline – which delivers crude from Alberta to Oklahoma, and to Illinois – running again after it was shut down over the weekend due to what the company describes as a small leak in South Dakota.

Although the restart was originally slated for Friday, spokesman Mark Cooper now says the company has indicated to shippers that the best-case scenario would be an opening early next week.

TransCanada will curtail shipments on the 590,000-barrel-per-day pipeline by 35 per cent for the remainder of the month. Canadian heavy crude differentials, the discount of Canadian crude against the U.S. benchmark, widened on news of the prolonged shutdown.

"The key implication here is obviously quite negative for Western Canadian Select, given that when you look around, there's only so many places you can move a barrel outside of Canada – and Keystone is obviously one of the biggest outlets for Canada," said Mr. Tran, a New York-based energy analyst at RBC Dominion Securities Inc.

Even if this particular issue with TransCanada is resolved in the days ahead, the larger problem for Canada's oil producers seeking the best world prices for their commodity remains, he said.

"This is a key structural issue," Mr. Tran said. "There's only so many different ways out."

Western Canadian Select heavy blend crude for May delivery in Hardisty, Alta., last traded at $14.90 per barrel below the West Texas intermediate benchmark, according to Shorcan Energy brokers. That compares with a settlement of $14.20 on Tuesday.

The outage has disrupted crude supplies to Midwest refiners, forcing refiner Phillips 66 to cut run rates at its 306,000 bpd Wood River refinery in Roxana, Ill. On Tuesday, Phillips shut a 64,000 bpd sour crude unit and a 16,000 bpd coker at that facility.

In Wednesday, Mr. Cooper said TransCanada recognizes a shutdown of the Keystone line has impacts on both shippers and refining facilities. "We regret the impact this may have caused customers and we are working to resolve this incident as quickly and safely as possible."

He added that the scene is controlled, the pipe is depressurized and there are so far no signs of any significant environmental impact. The company is methodically excavating soil to find out what went wrong, Mr. Cooper said.

Environmental campaigners have pointed to the leak – and the fact that TransCanada was alerted to it by a landowner instead of its own monitoring systems – as a sign that pipelines pose an environmental risk.

With a report from Reuters

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 21/05/24 4:00pm EDT.

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Phillips 66
-0.19%144.14
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TC Energy Corp
+0.26%39.16
TRP-T
TC Energy Corp
+0.93%53.44

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