TransCanada to restart Keystone pipeline on Tuesday

By Nia Williams

CALGARY, Alberta (Reuters) - The Keystone crude oil pipeline will restart at reduced pressure on Tuesday, TransCanada Corp said, nearly two weeks after closing the line after it leaked 5,000 barrels of crude in rural South Dakota.

Calgary-based TransCanada shut down the 590,000 barrel-per-day pipeline, one of Canada's main crude export routes linking Alberta's oil fields to U.S. refineries, on Nov. 16. The company is still cleaning up the spill and investigating the cause.

TransCanada said on Monday the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) reviewed its repair and restart plans. It said it will start operating the pipeline at reduced pressure, and gradually boost the volume of crude moving through.

TransCanada did not specify what the reduced pressure would be or when the pipeline would return to full capacity. PHMSA did not immediately respond to a request for comment.

"We are communicating plans to our customers and will continue working closely with them as we begin to return to normal operating conditions," TransCanada said in a statement.

In its most recent update, TransCanada said it has so far cleaned up 1,065 barrels of oil.

The cleanup "is going as fast as we would hope, they are working 24 hours a day," said Brian Walsh, environmental scientist manager with the South Dakota Department of Environment and Natural Resources.

Keystone has leaked substantially more oil, and more often, in the United States than the company indicated to regulators in risk assessments before operations began in 2010, according to documents reviewed by Reuters.

The Keystone outage roiled crude oil prices on both sides of the border as market players anticipated a glut of crude building up in Alberta while inventories fell in the U.S. futures trading hub of Cushing, Oklahoma.

The West Texas Intermediate (WTI) prompt spread widened to a session low of negative 10 cents on news of the pipeline returning to service. Traders see the spread as an indicator for supply at Cushing.

The discount on Western Canada Select heavy blend crude for December delivery in Hardisty, Alberta, narrowed in thin trade to $17.90 a barrel below U.S. crude, according to Shorcan Energy brokers. On Friday December WCS settled at $21.50 a barrel under the U.S. benchmark.

The Keystone spill in South Dakota came days before neighbouring Nebraska approved a route for TransCanada's planned Keystone XL pipeline, but the approved route differed from the company's preferred path. TransCanada has asked the state to reconsider, according to a filing posted on the Nebraska Public Service Commission website on Monday.

A company spokesman said TransCanada is seeking a "clarification" on the Nov. 20 decision, but did not provide further details.

On Saturday, landowners opposed to the pipeline responded to TransCanada's request with their own motion seeking oral arguments on the issue.

A PSC spokesperson said the body has 60 days to respond to TransCanada's motion.

(Additional reporting by Catherine Ngai in New York, Val Volcovici in Washington and Ethan Lou in Calgary; Editing by David Gregorio)