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As US Gets Tough on Oil Pipelines, Outages Get Longer

Monday, 06 Aug 2012 01:34 PM

Enbridge Inc.'s ruptured pipeline, which leaked about 1,200 barrels of crude into a rural Wisconsin field 10 days ago, seemed like no big deal.

The scene was contained within hours, the line repaired within days. The leak was miles from running water or endangered wildlife. The immediate impact was limited to the evacuation of two houses and "veterinary attention" for some horses and cows.

And yet some experts and traders warn that Canada's Enbridge might not be able to restart its 318,000-barrel-per-day Line 14 for weeks — or even months — as a once-obscure U.S. regulatory agency gets more comfortable with flexing its recently enhanced muscles.

The Pipeline and Hazardous Materials Safety Administration is in the spotlight after two big accidents in 2010 — BP Plc's Macondo disaster in the Gulf of Mexico and another Enbridge leak of 20,000 barrels into Michigan's Kalamazoo River in one of the biggest spills onshore.

"Pipeline accidents have a high profile right now," said Andy Black, head of the Association of Oil Pipelines trade group.

The U.S. Transportation Department, which oversees the PHMSA, began a new pipeline safety effort in 2011, urging operators to replace aging infrastructure and winning Congressional support for more resources and enforcement powers.

Based on interviews with industry experts and a Reuters review of the agency's recent enforcement record, the change has been noticeable, and the message is clear: If pipelines are found wanting, do not count on a quick resumption in oil flows. That message may be doubly true for Enbridge, which has suffered a string of incidents — one on the same pipeline years earlier.

Last Tuesday, the agency issued Enbridge a corrective action order, a tough but not uncommon response to a spill. Since 2007, the PHMSA has issued 23 such orders.

But the agency went a step further on Thursday. It demanded an exhaustive safety plan, which it and an independent auditor must review, for the entire 1,900-mile (3,060-km) Lakehead pipeline system, not just Line 14. Those were among the toughest terms for any order since a pair of BP oil spills in Alaska in 2006.

"This is PHMSA saying: 'We mean business,'" said industry consultant Don Deaver, a former Exxon pipeline engineer. It could take weeks to hire the independent inspector and begin a review of the system, he added.

BLACK EYE

The Wisconsin spill was the latest black eye for Enbridge's pipeline network, the main conduit for Canadian crude exports and one of the largest systems in the world. The company says it has had a 99.999 percent success rate in delivering 12 billion barrels over the past decade and is investing $800 million this year as it strives for a perfect record.

But U.S. Transport Secretary Ray LaHood blasted Enbridge last week, demanding the company demonstrate why it should be able to keep operating the pipeline without a complete replacement or major overhaul.

The rupture on Line 14 left a 4-foot by 6-inch (1.2-metre by 15-cm) gash, according to the initial report. The cause of the pipeline failure has not been determined.

Enbridge said on Friday that it had submitted safety plans for both Line 14 and the Lakehead system and was waiting for news. Neither the company nor the PHMSA offered a timetable for when shipments might resume.

The PHMSA will move forward when it is certain that the pipeline is not posing a risk to public safety, said spokeswoman Jeannie Layson.

The agency's pipeline oversight has faced some criticism in the past.

In a report on Enbridge's 2010 spill in Michigan released last month, the National Transportation Safety Board charged that PHMSA's review of Enbridge's oil spill response plan in that case was "inadequate."

Looking at the incident on its own merits, some see little reason for holding up approval.

"I'd be really surprised if this not up and running pretty darn quick, unless they find something structurally flawed," said Sarah Emerson, president of consulting firm Energy Security Analysis Inc in Boston.

Oil traders were less certain.

The disruption helped trigger a record surge in Chicago wholesale gasoline premiums as local refineries operated by BP and Exxon Mobil Corp face tighter supplies. It also threatens to depress crude prices in Canada as a lack of alternative pipelines leaves producers few avenues for export.

"I am expecting an extended standoff — weeks not days," said one crude trader.

CORRECTIVE ACTION

At issue is the corrective action order, a list of demands the PHMSA can issue whenever it determines that a pipeline is "hazardous to life, property, or the environment."

The agency determines how and when to apply an order, based on the age of the pipe, the commodities being transported, the operating pressure, the surrounding area and any other factors "deemed important" by the PHMSA associate administrator.

According to a Reuters review of such orders over the past five years, most followed large pipeline leaks or spills in sensitive areas.

The remedies tend to follow a fairly clear pattern.

The orders typically require the PHMSA's permission for a company to resume operations on the pipeline in question. They usually set out a number of additional measures: running the pipeline at reduced pressure; conducting mechanical or metallurgical tests within a month, and additional tests within several months; and reporting more frequently to regulators.

Richard Kuprewicz, head of pipeline consulting firm Accufacts Inc, said Enbridge's history was a major reason why a relatively small spill is getting such a close look.

Besides the 2010 spill, Enbridge's Line 14 experienced a leak of 1,500 barrels in Wisconsin back in 2007 — an incident that did not result in a corrective order. In November of that year, another Enbridge line caught fire in northern Minnesota, killing two workers.

"There are other issues showing up that indicate the integrity management program is seriously incomplete," Kuprewicz said.

HARD TO PLEASE

It also seems to be getting more difficult for companies to satisfy the PHMSA, whose most powerful enforcement tool is blocking the operation of a line. The agency has rarely fined a company more than $1 million; the $3.7 million penalty it issued against Enbridge a month ago for the 2010 spill was the largest ever.

Of five corrective orders issued to oil companies between 2007 and early 2010, none resulted in the closure of a pipeline for more than a week, according to the agency's own data. The longest outage — five days — occurred on Line 2 of Enbridge's Lakehead system, which spilled 2,237 barrels of crude in Neche, North Dakota, in January 2008, the data showed.

But outages have tended to last far longer since the Michigan spill in mid-2010 heightened public anxiety over oil pipelines. Of 14 incidents that resulted in corrective action orders since that leak, at least eight have resulted in pipeline closures of 25 days or more.

For example, Exxon Mobil's Silvertip line received a corrective order after a spill in Yellowstone County, Montana, last year and was shut for 85 days. Another Exxon pipeline in Louisiana was still shut after a leak on April 28; the company has requested a hearing to discuss aspects of the order.

"The fines are still small — a drop in the bucket compared to the revenues that pipeline companies generate," said Deaver, the former Exxon engineer.

But Deaver said Secretary LaHood's hard-hitting statement demanding Enbridge demonstrate why it should be allowed to continue operating its pipeline without major changes "indicates they are getting more serious."

© 2017 Thomson/Reuters. All rights reserved.

 
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