Tag Archives: oilsands

Sunshine Oilsands Plans $3.5 Billion in Capital Investment

China-backed Sunshine Oilsands Ltd. has budgeted about US$3.5 billion for capital investment in its Canadian oil-sands projects at a time when investors are on edge about the investment climate in energy-rich Canada.

The Calgary-based energy company’s projects are still in a preliminary stage, but it is aiming for its first production in the fourth quarter of 2013, with output of 5,000 barrels a day by mid-2014, Co-Chairman Shen Songning said in an interview.

Mr. Shen’s optimism about the projects—based in Athabasca Sands, Alberta—comes at a tense time for Chinese and other foreign investors hoping to capitalize on Canada’s huge reserves of oil and natural gas, much of which are expensive to extract as they are trapped in oil-sands deposits or in shale-rock formations.

Last month, the Canadian government turned down a US$5.18 billion bid by Malaysia’s state-run Petroliam Nasional Bhd., or Petronas, to acquire Canada’s Progress Energy Corp. The bid isn’t dead, however, as the two sides have agreed to resume talks on the purchase.

Next week, the government is expected to rule on the US$15.1 billion purchase of Canada’s Nexen Inc. NXY.T +0.78% by China’s Cnooc Ltd. 0883.HK +1.24%

The two deals are a litmus test for Canada’s aspirations to develop its oil and gas reserves and find new export markets at a time when its main buyer, the U.S., is cutting energy imports due to the success of shale projects there.

“Conventional oil supply is in demand and global production is expected to transition toward unconventional sources,” said Mr. Shen. “We see Canada’s oil sands playing a major role in meeting the needs of the world’s growing crude demand.”

Oil sands—a mix of sand and tarlike ultraheavy crude oil called bitumen—are costly to refine, but higher crude prices in recent years have made production from oil sands more feasible. Canada’s oil sands will likely account for 4.4% of global crude-oil output by 2035, up from 1.6% in 2009, the International Energy Agency has said.

Mr. Shen said the US$3.5 billion expenditure will be funded by cash flow from existing projects and potential energy joint ventures, as well as bank loans and proceeds from Sunshine Oilsands’ Hong Kong initial public offering in March. Possible joint-venture investors include China sovereign-wealth fund China Investment Corp. and China oil company China Petrochemical Corp., also known as Sinopec Group.

The company’s oil-sands projects can achieve positive cash flow per barrel when West Texas Intermediate prices are above US$50 a barrel, Mr. Shen said.

“We see oil prices hovering around US$100 a barrel over the next three to five years as demand for oil is rising on the back of strong economic growth in Asia,” he said. He didn’t specify whether he was referring to benchmark West Texas Intermediate or Brent crude.

He also said the company’s operations could benefit from falling natural-gas prices, because fuel costs account for 20% of Sunshine Oilsands’ total production expenses.

Sunshine Oilsands, which raised $579 million from the Hong Kong IPO, is planning a secondary listing in Toronto in the fourth quarter to increase shareholder value. The company’s share price has fallen 46% in Hong Kong since the stock’s debut.

“Our current share prices are extremely undervalued,” Mr. Shen said, adding the company’s net asset value per share is at 21.40 Hong Kong dollars (US$2.76). Shares in Sunshine Oilsands closed at HK$2.62 on Thursday.

In response to the decline in its share price, Sunshine Oilsands recently announced a $50 million share-repurchase program.

SOURCE: http://online.wsj.com/article/SB10001424052970204712904578092052566429508.html

TransCanada Plans $3 Billion Oil-Sands Line With PetroChina

TransCanada Corp. (TRP) and a unit of PetroChina Co. Ltd. agreed to develop a C$3 billion ($3 billion) oil pipeline to ship crude from oil-sands projects in northern Alberta.

TransCanada and Phoenix Energy Holdings Ltd. will each own 50 percent of the proposed Grand Rapids Pipeline, which will ship oil 500 kilometers (310 miles) from the Fort McMurray oil- sands production area to Edmonton, according to a statement today. The stake would be the largest taken by a Chinese company in a Canadian pipeline, according to data compiled by Bloomberg.

“This is the first major pipeline project to meet the needs of this fast-growing area,” TransCanada Chief Executive Officer Russ Girling said in the statement.

The plan includes a 900,000 barrel-a-day crude pipeline, and a 330,000 barrel-a-day pipeline for diluent, fluids mixed with tar-like bitumen so it can flow through pipelines. The project is expected to be in service by 2017.

“Transportation in the Athabasca region has become a bottleneck,” Zhiming Li, the chief executive officer of closely held Phoenix, said in the statement. “This transportation solution will be important to Phoenix and other potential producers in the area to monetize their huge resources.”

TransCanada will operate the system and Phoenix has agreed to ship crude on it.

Phoenix is a unit of publicly traded PetroChina, controlled by Chinese state-owned China National Petroleum Corp., according to filings. CNPC owns a controlling interest in PetroChina. Margaret Jia, a spokeswoman for CNPC companies in Canada, didn’t immediately return telephone calls seeking comment.

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Alberta pipeline spills prompt questions

EDMONTON – Three pipeline spills in Alberta this spring have many people wondering whether there are better ways to move the petroleum products that are the lifeblood of Alberta’s economy.

The oil industry’s reliance on pipelines — which organizations such as the Canadian Association of Petroleum Producers and the Canadian Energy Pipelines Association say are the safest way to transport products— have companies like TransCanada and Enbridge proposing to expand their lines to carry Alberta bitumen to refineries in Texas and tankers at Kitimat, B.C., for shipment to Asia and its hungry economy.

“The industry really does move all of its oil and natural gas products through pipeline to get to market,” says Greg Stringham, vice-president of markets and oilsands CAPP. “Today in Canada, we are actually producing … almost three million barrels a day, and that’s across the country of course, from the field, to the upgraders, to refineries.”

To put that volume in perspective, CN Rail began in 2010 to test its ability to move heavy crude, light oil, and bitumen to markets in Eastern Canada and the United States.

The company moved three million barrels of oil last year, and expects to move 15 million barrels in 2012. That’s about five days worth of total production.

“Rail does play a part. But (pipelines) are the main transportation grid we use to move oil across the continent. It really has proven to be a very reliable, very safe, and a very efficient way to move this product,” Stringham says. “We are getting fairly constrained on the pipeline capacity given the growth that is happening.”

The use of tanker trucks to move oil is more difficult to measure. Alberta Transportation does not keep track of vehicles carrying petroleum on roads, but can say 430 of 602 “incidents” in 2011 involved petroleum products. The department defines “incidents” as anything that prevents a product from getting to its destination.

Expanding the reach Alberta’s pipelines is key in maintaining the province’s economic stake in the global oil market, provincial Energy Minister Ken Hughes says.

With that need comes a responsibility to maintain the pipeline system.

“The industry as well as the government need to ensure that we have ways to demonstrate the solid aspects of this way of transporting fuels across Canada,” Hughes says. “North America will continue to be heavy users of oil and of natural gas. Those products have to get to market somehow. What we need to do is ensure that they get there with as few incidents as possible.”

The Pembina Institute think-tank, which is among the environmental groups supporting a call for an independent investigation of Alberta’s pipelines, suggests there could be alternatives to building pipelines — particularly the proposed Enbridge Northern Gateway line to Kitimat, B.C., which has raised concerns from First Nations communities and municipalities along the proposed northern route to the West Coast.

Nathan Lemphers, a senior policy analyst in the Pembina Institute’s oilsands program, says the capacity of existing pipelines could be increased by increasing the number of pumping stations. Alternatively, companies could transport more product via rail.

“It’s not necessarily a clear-cut solution. There’s benefits and drawbacks to each method of transporting oil,” Lemphers says.

Pipelines leak. Trains derail, tanker trucks crash.

Since trains typically move less product than pipelines, spills are smaller. Derailments can be recognized far faster than pipeline spills.

A natural gas operator in Michigan was the first to notice oil spilling from Enbridge’s pipeline at the Kalamazoo River in 2010. The incident has since netted the company a multimillion-dollar fine in the United States and raised questions about the state of the control room in Edmonton, after testimony given during the investigation shed light on what was happening during the 17 hours it took to shut the line.

“When you have the government coming out and saying, well, simply trust us, we have adequate measures in place without actually coming forward and offering evidence for that position, it puts the government in a fairly precarious situation,” Lemphers says. “Having more information on the table will help ground further discussions” about pipeline expansion.

“Having pipelines in your backyard is nothing new for Albertans, but Albertans also have strong ties to the land and want to see the land conserved,” he says.

Doug Goss still remembers an oil spill that cut summer short at Wabamun Lake in 2005.

“It was a disaster, in every sense of the word,” Goss says. “When you get to the point where the front of the beach is covered in oil and there’s dead animals all over the place, and you’re told you can’t use the lake for the rest of the summer for any reason, it’s pretty devastating.”

But unlike the recent spills, the one at Wabamun Lake was from a 43-car train derailment.

That summer, 1.1 million litres (7,000 barrels) of Bunker C fuel oil spilled into the lake, creating a seven-kilometre slick. The cleanup took nearly a year and cost CN Rail an estimated $28 million.

“We haven’t had any issues since that spill many years ago. We cross our fingers all the time that that won’t happen again,” Goss says. “As a resident, we would be proponents of whatever system is proven to be the safest to transport substances like oil.”

The Wabamun incident sparked a provincial study and recommendations for a faster, more comprehensive response to environmental disasters.

Despite a growing volume of freight being moved along its tracks, CN’s derailments are down. In 2011, the company had 55 main track derailments, compared to 110 in 2005. To date, there have been 27 derailments along main tracks compared to 34 at this time last year.

SOURCE: http://www.edmontonjournal.com/news/Alberta+pipeline+spills+prompt+questions/6896510/story.html

Canada gives preliminary OK for new pipeline

The Canadian government said it conditionally approved plans by a division of TransCanada to expand natural gas pipeline capacity in the country’s west.

The National Energy Board announced it approved of three natural gas loops in northeastern British Columbia and northwestern Alberta. The 69-mile loops make up the so-called Northwest Mainline Expansion Project submitted by NOVA Gas Transmission Ltd., TransCanada’s Alberta division.

The $325 million project will link natural gas supplies in the region to markets in Canada and the United States, the NEB said.

“The NEB’s approval of this project is contingent on conditions that (NOVA) must meet,” the agency said in a statement. “The conditions relate to pipeline integrity, the protection of the environment, protection and monitoring of caribou habitat, and matters of public and Aboriginal consultation.”

The company estimates production from shale and conventional natural gas plays in the region could reach around 3.5 million cubic feet per day by 2025.
SOURCE: http://www.upi.com/Business_News/Energy-Resources/2012/02/29/Canada-gives-preliminary-OK-for-new-pipeline/UPI-26551330519419/

Northern Gateway regulatory decision expected months later than Enbridge target

CALGARY – The regulatory panel weighing the controversial Northern Gateway oil pipeline said Tuesday it will likely make its decision in about two years, several months later than estimated by the builder, Calgary-based Enbridge Inc.

The proposed 1,200-kilometre pipeline would ship oilsands crude from Alberta to Kitimat, B.C., where it would be loaded onto tankers that could transport it to Asia — providing exporters with alternatives to the United States, the biggest importer of Canadian crude.

However, as with the Keystone XL pipeline that TransCanada Ltd. (TSX:TRP) hopes to build from Alberta to refineries along the Gulf Coast in the southern United States, Enbridge’s Northern Gateway proposal faces opposition on environmental and other grounds.

Thousands of people are set to speak at hearings across northern British Columbia and Alberta between January of next year and April 2013.

The joint review panel said Tuesday, in announcing several dates for the hearings, that it expects to release an environmental assessment report in the fall of 2013, and announce its final decision around the end of that year.

Enbridge CEO Pat Daniel said in May he was anticipating an early 2013 decision, but it’s clear from the hearing schedule that won’t be the case.

The company issued a statement late Tuesday saying it “welcomes clarity around the hearing process.”

“We understand that there is significant public interest in the Northern Gateway project. The JRP seems to be ensuring that there is a thorough inclusive process, and we are supportive of that. We see value in a well-defined process and remain committed to the regulatory review,” Enbridge spokesman Paul Stanway said in an emailed statement.

Enbridge also faces a longer review process than it expected for a proposal to reverse part of an oil pipeline in Ontario.

The National Energy Board said Monday it will begin oral hearings this fall into Enbridge’s Line 9 proposal.

Enbridge originally aimed to begin work on the $20-million Line 9 reversal project in early 2012, with start-up anticipated in the fall of next year.

“While the schedule extends further into 2012 than we had anticipated, we respect the board’s desire to enable stakeholders and communities affected by the project to have the opportunity to participate in the regulatory review process,” Enbridge spokeswoman Jennifer Varey said in an earlier email Tuesday.

Opposition to major pipeline projects has grown since the disastrous offshore spill in the Gulf of Mexico after BP’s leased Deepwater Horizon rig experienced a fatal explosion in April 2010.

The pipeline industry’s reputation as a relatively reliable and environmentally safe way to transport oil was tarnished by a much smaller spill in July 2010, involving an Enbridge pipeline in southern Michigan.

There have also been periodic small-scale leaks at the original Keystone pipeline and a major spill at the Rainbow pipeline in northern Alberta operated by Plains Midstream Canada.

SOURCE: http://www.winnipegfreepress.com/business/breakingnews/neb-to-hold-hearings-into-enbridge-line-9-oil-pipeline-reversal-in-ontario-135101398.html

Risks for expanding a heavy crude oil pipeline are too high

Within weeks, Secretary of State Hillary Clinton is supposed to decide whether to authorize a 1,600-mile expansion of a tar sands crude oil pipeline network across six Midwestern, Western and Southern U.S. states and three Canadian provinces. Alternatively, she could pass the decision on to President Barack Obama.

The expanded pipeline network, owned and operated by a Canadian company called TransCanada, would be able to push 450 million to 550 million gallons of heavy tar sands crude per day from a processing facility northeast of Calgary, Alberta, to refineries and ports on the Gulf of Mexico.

The expansion, called Keystone XL, would interconnect with TransCanada’s Keystone 1 pipeline, which phased into operation in 2010 and early 2011. Keystone 1 stretches 2,151 miles from Alberta to Cushing, Okla. It includes a leg that cuts from west to east across Missouri, dives under the Mississippi River just north of St. Louis, connects on the Illinois side to the Wood River Refinery at Roxana and ends at a storage site at Patoka, Ill.

Bitumen, the petroleum essence of tar sands crude, is a heavy, nearly solid substance that requires dilution with toxic solvents before it can move through pipelines. Even then, high-pressure pumps are required to keep the material moving, and friction of the diluted bitumen against the inner walls of the pipes raises temperatures to 150 degrees or higher.

  • At a U.S. House oversight subcommittee hearing in June, Cynthia Quarterman, the head of the U.S. Pipeline and Hazardous Materials Safety Administration, testified that current integrity standards for oil pipelines do not consider the abrasive effects of tar sands oil. She said no studies of such effects were done before or since the integrity regulations were adopted.
  • In 18 of the last 21 years, toxic liquid spills from pipelines in the United States were greater than 4 million gallons per year. Pipeline equipment failures, installation errors and construction defects were the main reason for half of the spills; 42 percent involved crude oil.
  • In the summer of 2010, a pipeline near Marshall, Mich., operated by Enbridge Energy spewed 843,000 gallons of tar sands crude into the Kalamazoo River. More than a year later, 35 miles of the river remain closed, and estimates of the costs are at half a billion dollars and rising.
  • This summer, an Exxon Mobil pipeline in Montana burst and sent at least 42,000 of regular crude oil into the Yellowstone River. After an initial denial, the company said that the pipeline previously had carried abrasive tar sands crude, raising concerns that corrosion that might have contributed to the failure.

A report commissioned by TransCanada projected the equivalent of nearly 120,000 full-time jobs resulting from the Keystone XL project, although more recently, proponents have been using a figure of 20,000. A State Department analysis projected closer to 2,500 jobs per year for two years.

Project boosters also are touting increased American energy security because tar sands crude would come from Canada, not the Middle East or other trouble spots. But recent TransCanada annual reports to stockholders note that more than 80 percent of Keystone’s capacity already is committed under contracts averaging 18 years, and at least one large purchaser, Valero Energy, has suggested to its investors that much of that heavy crude could be refined into diesel and shipped to markets in Central and South America and Europe.

SOURCE: http://www.mercedsunstar.com/2011/10/11/2077674/risks-for-expanding-a-heavy-crude.html#ixzz1aW3dBfio

Canadian officials dismiss accident risks on oilsands pipeline

Ottawa – Federal bureaucrats are casting doubts on claims that a controversial oilsands pipeline expansion in the United States would be prone to accidents because of the corrosive nature of crude oil derived from Alberta’s bitumen deposits, according to internal government briefing notes.

The possibility of pipeline leaks caused by the crude oil from the region, commonly referred to as the tarsands, was raised in February by several American environmental and advocacy groups, led by the Natural Resources Defense Council.

The concerns were dismissed at the time by the Alberta government as well as TransCanada, which is proposing the multi-billion dollar Keystone XL pipeline expansion that would link the oilsands to the Gulf Coast of Texas.

An assessment of the environmental groups’ report by Natural Resources Canada, released to Postmedia News through access to information legislation, has also defended the safety of the project while acknowledging the damaging nature of the warnings on public opinion.

“This is a new area of research for everyone,” said a briefing note drafted by Bruce Akins, a senior adviser on oil and gas regulations issues at Natural Resources Canada. “Further, (a government scientific research unit) suggests that with proper care and treatment, a pipeline carrying more corrosive products should be able to last as long as one carrying less corrosive products.”

Akins also warned that the NRDC report could influence the project’s fate as well as another pipeline project, proposed by Enbridge, that would link the oilsands with the British Columbia coast.

“However, once posted on the Internet, an (environmental group’s) report tends to have its own life, and will be cited repeatedly, regardless of whether some or all of its assertions have been debunked, or responded to,” said the briefing note. “What will be most important is whether this report, and its recommendation to not certificate the Keystone XL pipeline in the U.S. until further safety research has taken place and regulations passed (which would take years), is taken seriously by the U.S. administration.”

A scientist at the department’s research lab, CanmetENERGY, who is studying the corrosive properties of different petroleum products, explained in an interview that the high Total Acid Number of bitumen crude oil would not cause corrosion at temperatures under 200 C.

“Since the pipeline is running at much lower temperature, say 55 degrees centigrade, this is not going to have any impact on it,” said Heather Dettman, a bio-processing senior scientist who is based in Alberta. “The TAN can impact in the refineries, but you have to be above (temperatures of) 200 degrees Celsius.”

She said water could also cause corrosion, but noted this also applies to other forms of oil if the pipeline is not adequately built.

The assurances from the Canadian government were immediately rejected by Richard Kuprewicz, an engineer who advises a U.S. government safety panel on pipelines. Kuprewicz said that weaker existing regulations in the U.S., compared to Canada, could allow for corrosion, even at temperatures under 100 C.

“I don’t want to embarrass anybody, but they have no idea what they’re talking about,” said Kuprewicz, who runs a pipeline consulting firm. “This line will have water in it, just by the nature of the beast.”

But he stressed that the company could address concerns promptly if it was willing to work with environmental groups.

“These aren’t deal killers but you’ve got to address them right up front,” said Kuprewicz. “If the parties were to get in a room and act as adults and clearly address their concerns, and rather than be in denial and try to fight, the parties could say, we could address these issues by (working together).”

Recent protests against the Keystone expansion project that have provoked hundreds of arrests in the U.S. have been indirectly aimed at growth of the oilsands industry which requires higher amounts of water, energy and land use when compared with conventional oil production.

Recent statistics from Environment Canada have revealed that the oilsands industry now contributes to global warming more than all of the cars on Canadian roads and that it is projected to continue exponential growth that could cancel out efforts of other Canadian industries to reduce their carbon footprint and meet targets set by Prime Minister Stephen Harper under the Copenhagen climate change agreement.

Policy analysts at the Natural Resources Defense Council said the existing evidence from the records of pipeline companies indicate that the U.S. government and scientists have not done enough research to analyze the risks.

“What we’re calling for is additional study,” said Anthony Swift from NRDC international program. “We’re seeing new pipelines devoted to the movement of this particular substance and the fact that we’re moving forward on these projects with no due diligence is highly disturbing.”

SOURCE: http://www.canada.com/business/Exclusive+Feds+dismiss+accident+risks+oilsands+pipeline/5432407/story.html#ixzz1YjMH99vP

House pipeline bill would delay new safety measures

As the President considers whether to approve the controversial Keystone XL pipeline, a bill in the U.S. House of Representatives would prohibit regulators from implementing safety rules recommended by the National Transportation Safety Board.

The agency charged with regulating the nations 2.5 million miles of pipelines, the Department of Transportation’s Pipelines and Hazardous Materials Safety Administration, became a target for reform as reports detailed the dept’s understaffing and heavy ties to industry.

Lawmakers from communities impacted by the recent disasters promised to strengthen pipeline oversight in legislation to reauthorize federal pipeline safety programs, but action has been slow, and a bill that moved through the House Transportation and Infrastructure Committee this month is distressingly weak, pipeline safety advocates say.

The Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011, sponsored by Bill Shuster (R-PA) requires the Dept. of Transportation to conduct a study on expanding “integrity management rules” for how pipeline operators test and monitor their lines for corrosion and other problems.

Under current rules PHMSA only requires regular testing on lines that run through “high consequence areas” — places that are highly populated or ecologically sensitive.

The Shuster bill prohibits regulators from expanding integrity management requirements beyond high consequence areas.

It also requires regulators to study and report on leak detection systems, but prohibits the dept. from developing new standards for leak detection systems or requiring operators to use them.

As the committee took up and reported the bill on Sept. 8, Carl Weimer, executive director of the Pipeline Safety Trust, criticized the measure as a “partisan industry-driven effort.”

“The weak nature of this proposed legislation seems to ignore the specific strong recommendations just a week ago from the National Transportation Safety Board (NTSB), and the voiced intention of many within the pipeline industry to use the tragedies of the past fifteen months as the impetus to move pipeline safety forward in many areas.”

The NTSB report on the San Bruno pipeline explosion recommended that PHMSA require all operators to equip systems with tools for detecting leaks, require automatic shut-off valves in high consequence areas, require pressure testing for all pre-1970 gas lines and implement enhanced oversight of pipeline integrity management programs.

Shuster’s bill neglects all of these items, Weimer said.

“Just last week NTSB recommended that to avoid more tragedies like San Bruno regulations should be changed to ‘require automatic shutoff valves or remote control valves in high consequence areas and in class 3 and 4 locations be installed,’” he said. “This bill, unlike the bill from House Energy and Power, does not even ask for a study of installing such important valves on existing pipelines through populated communities.”

In July the House Energy and Commerce Subcommittee on Energy and Power approved pipeline safety legislation that set deadlines for updates leak detection rules and automated valve use and placement, and strengthened guidelines for river crossings, and gas gathering lines.

The two House bills must now be reconciled.

Association of Oil Pipelines President and CEO Andy Black commended the House Transportation and Infrastructure Committee for “passing a strong reauthorization bills that wisely avoids imposing new regulations without sufficient evidence current regulatory requirements have failed.”

In an open letter, Sens. Barbara Boxer and Diane Feinstein (D-CA) warned that the House Transportation Committee bill would block important reforms and urged PHMSA to immediately adopt all of NTSB’s latest pipeline safety recommendations.

SOURCE: http://michiganmessenger.com/52610/house-pipeline-bill-would-delay-new-safety-measures

Pipeline Spills Put Safeguards Under Scrutiny

This summer, an Exxon Mobil pipeline carrying oil across Montana burst suddenly, soiling the swollen Yellowstone River with an estimated 42,000 gallons of crude just weeks after a company inspection and federal review had found nothing seriously wrong.

Crews in July picked up booms to contain oil in the Kalamazoo River near Marshall, Mich.

And in the Midwest, a 35-mile stretch of the Kalamazoo River near Marshall, Mich., once teeming with swimmers and boaters, remains closed nearly 14 months after an Enbridge Energy pipeline hemorrhaged 843,000 gallons of oil that will cost more than $500 million to clean up.

While investigators have yet to determine the cause of either accident, the spills have drawn attention to oversight of the 167,000-mile system of hazardous liquid pipelines crisscrossing the nation.

The little-known federal agency charged with monitoring the system and enforcing safety measures — the Pipeline and Hazardous Materials Safety Administration — is chronically short of inspectors and lacks the resources needed to hire more, leaving too much of the regulatory control in the hands of pipeline operators themselves, according to federal reports, an examination of agency data and interviews with safety experts.

They portray an agency that rarely levies fines and is not active enough in policing the aging labyrinth of pipelines, which has suffered thousands of significant hazardous liquid spills over the past two decades.

Transportation Secretary Ray LaHood, who oversees the pipeline agency, acknowledges weaknesses in the program and is asking Congress to pass legislation that would increase penalties for negligent operators and authorize the hiring of additional inspectors. That may be a tough sell in a Congress averse to new spending and stricter regulation.

“We need to know with great certainty that inspections and replacements have been done in a timely way that will prevent these kinds of spills from happening,” he said.

Federal records show that although the pipeline industry reported 25 percent fewer significant incidents from 2001 through 2010 than in the prior decade, the amount of hazardous liquids being spilled, though down, remains substantial. There are still more than 100 significant spills each year — a trend that dates back more than 20 years. And the percentage of dangerous liquids recovered by pipeline operators after a spill has dropped considerably in recent years.

The industry, however, believes the current system works and points with pride to what it considers a record of improvement.

“Data shows that releases from pipelines have declined over the last decade as the result of stringent regulation and the industry’s continued commitment to safety,” wrote Peter Lidiak, pipeline director for the American Petroleum Institute, an industry group, in an e-mailed response.

Throwing more resources and money at the problem may not be the answer for the tiny agency, because there remain deeper concerns about how it works, especially its reluctance to mandate safety improvements or to level meaningful fines for wrongdoing.

Such concerns come at a critical time for the agency. The State Department last month gave a provisional green light to a controversial 1,661-mile pipeline from Canada to Texas, called Keystone XL, that will carry a trickier form of crude — and fall under the agency’s purview. And a just-released National Transportation Safety Board report on a natural gas pipeline explosion in San Bruno, Calif., that last year cost eight people their lives, characterized the agency’s regulatory practices as lax and inadequate. In the report, the safety board urged the Transportation Department to go back and audit many of the pipeline agency’s safety and enforcement policies.

An analysis of federal reports and safety documents by The New York Times suggests that while the agency performs better than it did 10 years ago, it still struggles to safeguard a transport network laced with risks.

For example, the agency requires companies to focus their inspections on only the 44 percent of the nation’s land-based liquid pipelines that could affect high consequence areas — those near population centers or considered environmentally delicate — which leaves thousands of miles of lines loosely regulated and operating essentially on the honor system. Meanwhile, budget limits and attrition have left the agency with 118 inspectors — 17 shy of what federal law authorizes.

Pipeline operators, critics argue, have too much autonomy over their lines, and too much wiggle room when it comes to carrying out important safeguards, like whether to install costly but crucial automated shut-off valves.

“The system as it presently exists, I don’t think it really protects the public,” said Representative Corrine Brown of Florida, the ranking Democrat on the House transportation subcommittee on railroads, pipelines and hazardous materials. “Self-reporting doesn’t work. We need additional rules and regulations to make sure we’re doing what we’re supposed to be doing to protect communities.”

She and other lawmakers want Congress and the Obama administration to bolster rules, hire more inspectors and reinvest in the pipeline infrastructure, much of which was laid from the 1950s to the 1970s.
New Project, New Risks

The Keystone XL project is different from most other pipelines in that it will carry a gritty mixture that includes bitumen, a crude drawn from Canadian oil sands that environmentalists argue is more corrosive and difficult to clean when spilled. In its report, the State Department cited 57 special conditions designed to keep the Keystone pipeline safe and wrote that it would have little environmental impact if operated according to regulations.

The National Wildlife Federation and other environmental groups assailed that conclusion, saying the State Department had not sufficiently accounted for the impacts of a major spill. More than 1,200 people were arrested during two weeks of protests against Keystone XL outside the White House this summer.

Richard Kuprewicz, a former pipeline engineer for the oil company Arco who serves on an advisory committee to the pipeline agency, said the current regulatory system was not fully prepared to monitor a project like Keystone XL, given the number of leaks the agency already contends with.

“We’re seeing too many ruptures,” Mr. Kuprewicz said. “The numbers are too high.”

Since 1990, more than 5,600 incidents were reported involving land-based hazardous liquid pipelines, releasing a total of more than 110 million gallons of mostly crude and petroleum products, according to analysis of federal data. The pipeline safety agency considered more than half — at least 100 spills each year — to be “significant,” meaning they caused a fire, serious injury or fatality or released at least 2,100 gallons, among other factors.

Pipeline operators reported recovering less than half of all hazardous liquids spilled over the last two decades, according to federal records. And the ratio is not improving: after recovering more than 60 percent of liquids spilled in 2005 and 2006, operators recovered less than a third between 2007 and 2010.

Nearly half of all incidents since 2002 arose from malfunctioning equipment, construction flaws and other technical problems with pipelines. Corrosion, which the agency considers to be different from equipment failure, is the second leading cause, and to blame nearly one-quarter of the time.

In written testimony to Congress after the Yellowstone spill, Cynthia L. Quarterman, the pipeline agency’s top official, emphasized oversight upgrades like increased money for state safety agencies and more extensive training for agency employees. She also noted a decline in significant incidents.

Yet a recent report by the Congressional Research Service, while acknowledging progress, also outlined problems, noting that “recent pipeline incidents suggest there continues to be room for improvement.”

The report said the pipeline agency was hampered by a chronic inspector shortage. Fifteen states are certified to perform their own liquid pipeline inspections, but budget problems within state agencies are also a matter of “great concern,” it said.

The National Transportation Safety Board report on San Bruno said the pipeline agency’s monitoring of state oversight programs and its own enforcement program had been “weak.”

And when something goes wrong, very little happens in the way of penalties, The Times found. For every five significant incidents reported at a hazardous liquid pipeline between 2002 and 2010, the agency issued one fine. (The article continues…)

Read More & SOURCE: http://www.nytimes.com/2011/09/10/business/energy-environment/agency-struggles-to-safeguard-pipeline-system.html?pagewanted=1&_r=2&adxnnlx=1315832412-RHYGj9x6NYkG9hdY/N9NnQ

Oil sands critics target a new concern – pipelines

The crude oil that is pulled from Canada’s oil sands is thick and heavy, a black tar-like substance that takes large amounts of energy and effort to make into end products like gasoline and diesel. Even some people in the Alberta energy industry describe it as “nasty” stuff.

But is it also dangerous?

Over the past few months, critics of the oil sands have taken a new tack. They are now arguing that oil sands crude, which contains more contaminants than traditional sources of crude, poses a risk to pipeline safety – and they’ve linked the recent spate of North American oil pipeline spills to what they say is the corrosive content of oil sands products.

It’s an argument that began with environmental groups, but has now been taken up by legislators. Last week, for example, Alcee Hastings, a U.S. Democratic congressman, warned that “the risk of an oil spill from these tar sands pipelines is very real.”

“The oil eats away the pipelines, compromising them and leading to frequent spills,” he said during a debate on the proposed TransCanada Corp. Keystone XL pipeline, which will bring oil sands crude to the U.S. Gulf Coast if it is approved. That echoes a February report from the Natural Resources Defense Council, an influential U.S. environmental group, which called oil sands crude a “highly corrosive, acidic, and potentially unstable” substance that “may be putting America’s public safety at risk.”

That conclusion has always been contradicted by industry, which has maintained that oil sands crude is safe. TransCanada, for example, has argued that it simply would not place at risk its $13-billion Keystone line by filling it with a dangerous substance. Yet the debate highlights the political obstacles that exist for the project, a crucial piece of infrastructure for getting the ever-rising volume of Alberta oil to market.

The two sides have left little middle ground between them. So who is right?

Interviews with academics, engineers and federal officials make clear that oil sands crude does indeed appear to pose additional risks. But those risks are largely borne by refineries that have had to deal with a dirtier and more corrosive substance than industry has been accustomed to.

In pipelines, independent sources suggest that the danger is substantially lower. Indeed, in decades past, thick bitumen was actually used to coat pipelines as protection against corrosion. And pipelines are partly shielded by the fact that they operate nearer room temperatures. Refineries, in contrast, process crude at up to 400 degrees Celsius, and the fierce heat promotes a series of chemical interactions that don’t happen at lower temperatures.

The corrosion question largely surrounds the properties of diluted bitumen, also called “dilbit.”

Oil sands producers generally produce two different products. One, “synthetic crude,” has passed through a sort of pre-refinery, called an upgrader, to transform it into a lighter substance that contains far fewer impurities. Dilbit comes from producers that don’t run upgraders. Instead, they take the oil sands crude and, with minimal processing, thin it with a lighter oil and pump it into a pipeline. As a result, it contains far higher levels of numerous noxious substances, including sulphur, acids, salts and sediments.

That in itself has raised some concerns.

Take sulphur, for example. Oil sands crude contains sulphur levels up to 10 times higher than other oil. But in dilbit, the sulphur is locked up with heavy oil molecules. As a result, it is largely harmless inside a pipeline, said Harvey Yarranton, a professor of chemical and petroleum engineering at the University of Calgary.

“You’d have to put it into reaction temperatures to release that sulphur – and those are above 300 Celsius,” he said.

Acids and salts are also found in substantially elevated levels in dilbit. But both substances are “not corrosive under pipeline conditions,” according to Natural Resources Canada, whose researchers have studied the corrosiveness of different oils. Acids need temperatures above 200 Celsius for corrosion to occur, the government said in a statement.

One area of concern remains sediments – little bits of sand that are embedded in oil. Industry measures these in pounds per 1,000 barrels. Conventional oil might measure 30 to 50 pounds per 1,000 barrels. Scott Bieber, a marketing manager with oil field services giant Baker Hughes Inc., has seen oil sands bitumen hit 500.

Sediments can contribute to corrosion in pipelines – and they have become a significant menace in refineries, where they have proven difficult to remove and help foul wastewater, Mr. Bieber said.

And environmental critics say that with the expansion in the oil sands, more study needs to be done of the effects dilbit has on pipelines. In particular, the thickness of oil sands crude – it’s far more viscous than conventional oil – creates friction inside pipelines that creates higher temperatures.

With Keystone XL, TransCanada has predicted temperatures as high as 55 Celsius. That remains far from the heat in a refinery, but higher temperatures do speed corrosion, and Anthony Swift, an energy analyst with the National Resources Defense Council, said governments both in Canada and the U.S. should take notice.

“There’s enough information out there about [the risks of] this stuff that merits a study,” he said. “The government should be protecting the public, and it’s a huge concern when they turn a blind eye to a potential danger.”

SOURCE: http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/oil-sands-critics-target-a-new-concern-pipelines/article2116408/