The U.S. government has issued a harsh warning and a list of demands to Enbridge Inc. in the wake of a pipeline spill in rural Wisconsin, adding to the severe pressure on energy companies in their quest to rapidly expand North America's pipeline network.
The U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) is questioning Enbridge's "integrity management program" after an oil line leaked Friday on its Line 14 in rural Wisconsin.
It's the second time in less than a month that U.S. regulators have lashed out at the Canadian company because of busted pipelines. In early July, the chair of the U.S. National Transportation Safety Board compared Enbridge with the "Keystone Kops" because of the way it handled a huge spill in Michigan's waterways two years ago.
While the sharp words and fresh regulatory demands focus on Enbridge, the fallout will be felt across the industry. And growth in the oil sands could slow if major pipelines, such as Enbridge's proposed Northern Gateway to Canada's west coast and TransCanada Corp.'s Keystone XL to the U.S. Gulf Coast, are stymied as lawmakers question the industry's ability to operate safely.
If stiff regulations follow, capital costs will rise.
Enbridge will not be allowed to restart Line 14, which spilled roughly 1,200 barrels of oil last week, until it meets a series of demands regarding safety procedures. The regulator is also forcing the company to file safety reports and perform certain tests, such as mechanical and metallurgical.
The PHMSA also wants Enbridge to examine and report on the "underlying causes and contributing factors to the failure, including preventative measures employed by Enbridge."
The company must also evaluate and hand over its previous line-inspection results, as well as documents tied to its 2007 inspection.
When the line restarts, it will be under reduced pressure, and Enbridge will have to file reports on the operations.
Enbridge said it is not "unusual" for the PHMSA to issue an order after a spill and that several of the items listed in the order are well under way. "The safety of people who live and work near our pipelines and the environment is Enbridge's top priority, and we are working closely with PHMSA to ensure that the pipeline is safely restarted," the company said in a statement.
The pipeline was built in 1998, making it a remarkably young piece of pipeline infrastructure. In his letter to Enbridge, Jeffrey Wiese, associate administrator for pipeline safety at the PHMSA, noted there were defects in the line when it was built, as well as a leak in 2007.
"The history of failures on [Enbridge's] Lakehead Pipeline system, of which the affected pipeline is part, the defects originally discovered during construction, and the 2007 failure indicate that [Enbridge's] integrity management program may be inadequate," he said in a letter dated Monday. "The continued operation of the pipeline without corrective measures would be hazardous to life, property and the environment."
U.S. Transportation Secretary Ray LaHood, whose department includes the PMHSA, also issued threats Tuesday.
"Pipelines operate safely across the country every single day," Mr. LaHood said in a statement. "That's why accidents, like the one in Wisconsin, are absolutely unacceptable. I will soon meet with Enbridge's leadership team and they will need to demonstrate why they should be allowed to continue to operate this Wisconsin pipeline without either a significant overhaul or a complete replacement."
Reynold Tetzlaff, the Canadian energy leader at PricewaterhouseCoopers LLP, said Enbridge's rivals, as well as its partners, will share in its pain.
"The timing probably couldn't be worse," he said. "For some of the other proposed projects that they are trying to get through right now, well, the more negative press they receive from some of these incidents, the harder that gets. Whenever there's any sort of environmental incidents, for pipeline or any industry, the entire industry gets painted with the same picture. I don't know how it can't, because they are all trying to put in similar types of infrastructure."