Kinder Morgan Energy Partners LP (KMP), Enbridge Inc (USA) (ENB): What Canada Is Doing to Improve Pipeline Safety

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Last week, the Canadian government announced that it will enforce more stringent standards for pipelines under its jurisdiction.

The Honorable Joe Oliver, Canada’s Minister of Natural Resources, said that pipelines will need to have the financial capability to “respond to any incident and remedy damage.”

Kinder Morgan Energy Partners LP (NYSE:KMP)

Major crude oil pipelines, for instance, must have “a minimum financial capability of $1 billion,” he said. He also announced additional measures, including new safety rules for pipeline operators and new financial penalties for violators, which are set to come into effect shortly.

According to Canada’s Department of Natural Resources, some of these additional measures include:

1) New fines that will soon come into force that will preventatively address contraventions quickly so that larger issues do not arise in the future. The penalties to companies and individuals for a range of infractions can range from $25,000 to a maximum of $100,000;
2) Requiring companies to appoint an accountable senior officer whose duty is to ensure their management system and programs are in compliance;
3) Ensuring companies’ emergency and environmental plans are transparent and easily available to the public; and
4) Enshrining in law the ‘polluter pays’ principle explicitly in law. Currently it is only implicit; Some pipelines are regulated by the federal government and others by the province.

Why pipeline safety is crucial
The announcement came at the end of a month in which a seemingly unusual number of Canadian pipeline spills were reported. In early June, Apache Corporation (NYSE:APA) reported a pipeline spill in northern Alberta that released 2.5 million gallons of contaminated water, impacting an area of about 100 acres.

Shortly thereafter, Kinder Morgan Energy Partners LP (NYSE:KMP)’s Trans Mountain pipeline discharged about 12 barrels of crude oil in southwestern British Columbia near the town of Kingsvale. The pipeline, which transports crude oil and refined products from Alberta to Canada’s west coast, suffered another accident last week, when an unspecified amount of oil leaked near the town of Hope in British Columbia, some 100 miles east of Vancouver. Kinder Morgan Energy Partners LP (NYSE:KMP) shut the pipeline down on Thursday, as it investigates the cause of the spill, and begins the cleanup process.

Other spills reported in recent weeks include an Enbridge Inc (USA) (NYSE:ENB) pipeline spill north of Cheecham, Alberta, which leaked some 750 barrels of light, synthetic crude oil, and a pipeline operated by Penn West Petroleum Ltd (USA) (NYSE:PWE) that spilled more than 5,000 liters of oil in northern Alberta, affecting surface waters and muskeg lands covering an estimated area of roughly 2.5 square kilometers.

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