Exxon pipeline leaks thousands of barrels of Canadian oil in Arkansas

By Matthew Robinson and David Sheppard

NEW YORK (Reuters) - Exxon Mobil was working to clean up thousands of barrels of oil inMayflower, Arkansas, after a pipeline carrying heavy Canadian crude ruptured, a major spill likely to stoke debate over transporting Canada's oil to the United States.

Exxon shut the Pegasus pipeline, which can carry more than 90,000 barrels per day (bpd) of crude oil from Pakota, Illinois, to Nederland, Texas, after the leak was discovered on Friday afternoon, the company said in a statement.

Exxon, hit with a $1.7 million fine by regulators this week over a 2011 spill in the Yellowstone River, said a few thousand barrels of oil had been observed.

A company spokesman confirmed the line was carrying Canadian Wabasca Heavy crude. That grade is a heavy bitumen crude diluted with lighter liquids to allow it to flow through pipelines, according to the Canadian Energy Pipeline Association (CEPA), which referred to Wabasca as "oil sands" in a report.

The spill occurred as the U.S. State Department is considering the fate of the 800,000 bpd Keystone XL pipeline, which would carry crude from Canada's oil sands to the Gulf Coast. Environmentalists, concerned about the impact of developing the oil sands, have sought to block its approval.

Supporters say Keystone will help bring down the cost of fuel in the United States.

The Arkansas spill was the second incident this week where Canadian crude has spilled in the United States. On Wednesday, a train carrying Canadian crude derailed in Minnesota, spilling 15,000 gallons of oil.

Exxon expanded the Pegasus pipeline in 2009 to carry more Canadian crude from the Midwest to the Gulf Coast refining hub and installed what it called new "leak detection technology".

Exxon said federal, state and local officials were on site and the company said it was staging a response for a spill of more than 10,000 barrels "to be conservative". Clean-up crews had recovered approximately 4,500 barrels of oil and water.

"The air quality does not likely present a human health risk, with the exception of the high pooling areas, where clean-up crews are working with safety equipment," Exxon said in a statement.

U.S. media said the spill was in a subdivision. Mayflower city police said the oil had not reached Lake Conway nearby.

The U.S. Environmental Protection Agency categorized the rupture as a "major spill," Exxon said, and 22 homes were evacuated following the incident.

A spokesman for the Department of Transportation confirmed that an inspector from the Pipeline and Hazardous Materials Safety Administration had been sent to the scene to determine what caused the failure. The Environmental Protection Agency is the federal on-scene coordinator for the spill.

Some environmentalists argue that oil sands crudes are more corrosive than conventional oil, although a CEPA report, put together by oil and gas consultancy Penspen, argued diluted bitumen is no more corrosive than other heavy crude.

The U.S. Department of Transportation earlier this week proposed a fine of 1.7 million for Exxon over pipeline safety violations relating to a 2011 oil spill in the Yellowstone River. Exxon's Silvertip pipeline, which carries 40,000 barrels per day of crude in Montana, leaked about 1,500 barrels of oil into the river in July 2011 after heavy flooding in the area.

In 1989, the Exxon Valdez supertanker struck a reef in Prince William Sound off Alaska and spilled 250,000 barrels of crude oil.

(Additional reporting by Timothy Gardner in WASHINGTON; Editing by Philip Barbara, Eric Beech and Paul Tait)

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