Exxon's Weekend Holiday Gift: Oil Spill Hits Yellowstone River (XOM, COP, CHSCP, TRP)

In the early morning hours Saturday, July 2nd, a 12-inch crude oil pipeline owned and operated by Exxon Mobil Corp. (NYSE: XOM) ruptured, spilling an estimated 1,000 barrels (42,000 gallons) of crude into the Yellowstone River about 15 miles west of Billings, Montana. The pipeline feeds the 60,000 barrel/day Exxon refinery in Billings as well as the 58,000 barrel/day ConocoPhillips Corp. (NYSE: COP) refinery and a CHS, Inc. (NASDAQ: CHSCP) 60,000 barrel/day Cenex Refinery in Laurel, Montana, near where the pipeline rupture occurred.

According to reports the leak was discovered quickly and the pipeline shut down after just half an hour. Some residents downstream of the leak were evacuated, but most have since been allowed to return. The Billings Gazette is providing special coverage of the spill.

Exxon officials have suggested that this year’s unusually high water in the Yellowstone contributed to the rupture to the Silvertip Pipeline, which runs from the Wyoming-Montana border roughly along US Highway 310 and crosses underneath the river near Laurel. The slick caused by the spill had traveled about 150 river miles by late Saturday afternoon, and could reach its confluence with the Missouri River as early as tomorrow. Once the slick gets into the Missouri, officials say it will be much harder to contain.

The size of this spill is not what matters, though less is certainly better than more. What will matter is the impact this spill will have on the current debate over the Keystone XL pipeline proposed by TransCanada Corp. (NYSE: TRP) to carry synthetic crude from Alberta’s oil sands to the US Gulf Coast.

The proposed route crosses both the Missouri and Yellowstone Rivers, and will transport 500,000 barrels/day in its 36-inch pipeline, far more than the 12-inch Silvertip line.

Once the current leak is cleaned up and the cause determined, there are certain to be demands for tighter rules governing pipeline construction. Those rules will surely raise the cost of building the Keystone XL pipeline, and the long battle will continue.

The leak into the Yellowstone could even possibly lead to denial of a permit for the proposed Keystone XL. The Yellowstone is an iconic American river, often touted as the longest undammed river in the US (sort of true). It shares a name with the nation’s first national park, which millions of people visit every year and millions more probably want to but can’t afford the gasoline.

This is a case where size doesn’t matter. Messing up the Yellowstone in any way is a big mistake.  The timing and the public relations damage will not exactly help an industry trying to move past a certain disaster that took place in the Gulf of Mexico.

Paul Ausick