* U.S. watchdog says Tesoro 2010 explosion was preventable
* Watchdog says oil industry needs to toughen standard
* Tesoro disagrees with several of probe's findings (Recasts first paragraphs, adds investigator comments and no comment from Washington state agency)
By Erwin Seba
Jan 30 (Reuters) - A U.S. safety agency blamed Tesoro Corp. for an explosion at a refinery in Washington state that killed seven workers in 2010, saying in a draft report released on Thursday that the company had failed to identify the damage hydrogen was causing to steel components.
The seven workers were engulfed by a fireball of hydrogen and naphtha at Tesoro's Anacortes refinery in 2010 when they were checking for leaks and helping with the start-up of another, nearby heat exchanger when piping on a heat exchanger in operation suddenly failed.
Five of the workers died on the day of the explosion. Two others died within the following month.
The U.S. Chemical Safety Board (CSB) also faulted industry practices recommended by the American Petroleum Institute, saying that they do not require refiners to take necessary steps to prevent high-temperature hydrogen attack that allows minute cracks to form in carbon steel like that on the heat exchanger which ruptured at the Anacortes refinery on April 2, 2010.
The head of the agency's western regional office said the accident was preventable.
"If Tesoro had used the materials to construct the heat exchanger that they used to repair the unit after the accident, then the accident wouldn't have happened," regional head Don Holmstrom said.
He said that use of inherently safer technology was the surest way to prevent accidents like the rupture of piping on a naphtha hydrotreater heat exchanger at the Anacortes refinery.
The CSB, a five-member board appointed by the president that investigates chemical fires, said in a statement that the investigation "cited deficiencies in the company's safety culture that led to a 'complacent' attitude toward flammable leaks and occasional fires."
The agency said investigators also found that "during the unit startup, Tesoro did not correct the history of hazardous conditions or limit the number of people involved in the hazardous non-routine startup of the heat exchangers."
In a statement, Tesoro criticized the draft report and said the board's investigation teams had suffered heavy turnover.
"We respectfully disagree with several findings in the draft report and, most importantly, take exception to CSB's inaccurate depiction of our process safety culture," Tesoro said.
The company said it would discuss disagreements with the board over the probe's findings once the report is approved by the CSB.
The CSB has no regulatory or law enforcement power, but recommends policies and standards to industry and government. It plans to vote on a final version of the report this year.
EYES STATE STANDARDS
The CSB also said the Washington State Department of Labor & Industries, which regulates workplace safety, needed tougher standards and should perform a safety audit of the state's five refineries.
A spokeswoman for Labor & Industries said the agency had no immediate comment on the CSB report on Thursday.
The report suggests Washington state switch its regulatory system to one like that in the UK that requires use of the safest possible technology.
A similar recommendation for California by the board staff led to sharp disagreements among the board's three members at a public meeting in Richmond, California, on Jan. 15. Two board members said such a radical overhaul would not ensure safer refineries and chemical plants.
The California proposals were made after an Aug. 6, 2012, fire at Chevron Corp's Richmond refinery sent 15,000 San Francisco Bay-area residents to areas hospitals with complaints of respiratory problems.
In its report about Tesoro's Anacortes blast, the CSB also said the U.S. Environmental Protection Agency does not enforce the use of inherently safer technology, but could do so under its current powers.
The Anacortes explosion was the deadliest at a U.S. refinery since the 2005 explosion at a Texas City, Texas, refinery then owned by BP Plc., which killed 15 workers and injured another 180.
In a separate investigation completed six months after the blast, the Washington Department of Labor & Industries found the explosion was preventable, but came about because Tesoro did not stick to its own guidelines for maintaining equipment. (Reporting by Erwin Seba in Houston; Editing by Terry Wade, Jason Neely and Leslie Adler)