Analysis: Pipeline safety delays endanger oil supply, nature

WASHINGTON Mon Nov 1, 2010 8:33am EDT

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WASHINGTON (Reuters) - Pipeline leaks, like one that cut U.S. crude imports last month and pushed oil prices up $4 a barrel, may become more frequent as the U.S. delays safety reforms on its aging 2.5 million mile network of energy lines.

Following BP's Gulf of Mexico spill, oil companies face a torrent of new offshore rules. But some advocates say making pipelines on land safer is just as urgent.

"Our current laws and regulations aren't working," said Michigan congressman Mark Schauer, who sponsored a bill to make pipeline operators report leaks within an hour.

The country's massive web of pipelines is run by 3,000 companies and transports most of the U.S. oil and gas supply. The pipes run mostly underground, a feature industry officials say makes them safe and unobtrusive.

Yet, three serious oil spills have occurred on decades-old onshore pipelines since May, and a 54 year-old PG&E gas line exploded in a California suburb last month, killing eight people and destroying 37 homes.

From 2006 through 2009 U.S. oil and gas pipeline accidents killed 56 people, caused $1.2 billion in property damage and spilled 381,000 barrels of oil, government data shows.

(Graphic on pipeline accidents in recent years: link.reuters.com/hah92q)

Bills pending in Congress, including one offered by the Obama administration, would add 30 percent more federal pipeline inspectors, more than double maximum fines to $2.5 million, and force more inspections on some lines.

A few lawmakers are crusading for reform, but a pipeline law is unlikely to pass this year, they said.

"Every day we delay strong pipeline safety reforms is one we put ourselves at risk," said Rick Kessler of Pipeline Safety Trust, which pushes for stricter rules.

Total pipeline incidents have declined in recent years, but serious incidents -- involving death or injury -- reached a six-year high of 47 last year. Market disruptions also appear to have worsened, one analyst said.

"The system is vulnerable," said energy market analyst Phil Flynn of PFGBest. "We've had a lot of pipeline incidents and outages this year and I think there could be more."

Oil surged almost $4 a barrel in the days after Calgary-based Enbridge Inc.'s 670,000 barrel-per-day (bpd) 6A pipeline spewed 6,000 barrels in Illinois last month. During an eight-day shutdown of the 41 year-old line, Chicago gasoline prices rose 25 cents a gallon.

Federal pipeline inspectors -- who inspect only a small portion of the pipe network -- number 135, or one for every 18,500 miles of U.S. pipeline. That compares to one federal railroad inspector -- 400 in all -- per 350 miles of railroad.

Delays leave the Pipeline and Hazardous Materials Safety Administration (PHMSA), the federal regulator, without funds to hire new inspectors or an order from Congress to toughen rules.

PHMSA oversees the largest lines in the 2.5 million mile network, while state regulators monitor others, including about 2 million miles of local gas distribution pipes. California, the most populous U.S. state, has only 9 state inspectors.

PHMSA last week began a "public comment" period on whether to order operators to use new anti-corrosion systems, install new safety valves and toughen leak detection requirements.

"We are still reviewing the proposed rulemaking," Enbridge told Reuters. "We are encouraged with the effort PHMSA is taking to seek input and research on these important issues.

If any of the measures gain approval, they could be implemented next year at earliest. Safety enhancements, however, would raise operating costs for pipelines.

"It all depends how far you want to go," said Mark Routt, an industry consultant with KBC. "The cost of government-mandated safety measures would mean higher pipeline tariffs, which are passed on to consumers."

Oil is trading near $82 a barrel, down from a record $147 in 2008.

MOST BIG LEAKS ON PIPELINES AGED OVER 30

Enbridge's leak was the second this year on its key Canadian crude export network, running since 1969. Another line -- already subject to a PHMSA warning about corrosion -- gushed 19,500 barrels into a Michigan river system in July and was closed for nine weeks, the fifth longest shutdown after a major oil pipeline spill since 2002.

The Enbridge leaks are under investigation and spokeswoman Terri Larson said both lines are running at reduced pressures.

At a hearing, Representative Edward Markey said over 400 corrosion defects were found since 2007 on one of the lines.

Corrosion from age is common and no reason for alarm unless it threatens to wear through pipe walls. At-risk areas can be patched or replaced.

"Pipelines can run indefinitely if operators have a deliberate program to maintain and repair them," Routt said.

"But it takes being very deliberate."

Even tiny corrosion holes can wreak havoc. A 5,000 barrel spill on BP's aging Prudhoe Bay pipeline network in 2006 -- which led to the discovery of more widespread corrosion and months of shutdowns -- came from a dime-sized hole.

Enbridge's leaks followed a 5,000 barrel spill in May from an unmanned pump station on the 33 year-old Trans Alaska Pipeline System (TAPS), which carries 10 percent of domestic crude. A brief shutdown helped to send oil prices higher.

The above-ground line, operating since 1977, was originally licensed for 30 years and suffered some even larger spills early on. It's now expected to keep running for decades more.

"The physical life of TAPS can be continually extended due to the TAPS owners' comprehensive program of pipeline maintenance and repair," partial-owner ConocoPhillips told regulators in 2006.

PHMSA data shows that since 1985 over 60 percent of the biggest oil pipeline spills were on lines over 30 years old, and 81 percent were on lines over 20.

PHMSA Administrator Cynthia Quarterman declined to comment for the story.

Like the refineries they serve, many pipelines date to the 1960s or earlier. Old lines are rarely retired. The length of active U.S. pipelines has grown more than 20-fold since the 1920s, while oil refining grew 10-fold over the same period.

Pipelines, including new ones, are gaining importance as the United States relies on more Canadian oilsands crude, a sediment-laden oil that studies say may corrode lines faster.

A new line proposed by TransCanada would bring 510,000 barrels a day of the oil to Texas by 2015. But the $7 billion project, known as Keystone XL, is opposed by groups who want to cut reliance on Canada's heavy oil.

Fines for safety breaches -- up to $1 million -- can be small compared to costs of a pipeline shut down. Big pipeline operators set their own agenda for maintenance and repairs and say regulations may already be sufficient.

"Our own inspections work because the incentives are there and operators never win if there's an accident," said Andrew Black of industry group Association of Oil Pipe Lines. "The safety record has improved this decade."

Major U.S. operators of liquid pipelines spent $2.7 billion between 2004 and 2009 on pipeline integrity measures, including sending inspection machines through pipelines, Black said.

PHMSA can close down pipelines if it sees risk of a future accident, but a spokesman could not recall when the agency last did so. More often, it requires operators to reduce pressure, or issues warnings and corrective action orders. One was sent to Enbridge this year, urging it to more closely monitor a line that leaked just months later.

"The fees for noncompliance probably need reviewing since they have gotten too small relative to the risk of catastrophic (pipeline) failure," said Routt.

(Editing by Alden Bentley)

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