WASHINGTON – Three years after an oil pipeline rupture in Michigan spilled 843,000 gallons of sludge, government regulators still have not produced promised rules to compel operators to detect leaks.

An oil spill in North Dakota last month and the continued debate over construction of TransCanada Corp. (TRP)’s Keystone XL Pipeline have led to renewed criticism about the government’s inaction on pipeline safety.

“It’s outrageous,” Rick Kessler, president of the Pipeline Safety Trust and a Washington lobbyist, said in an interview. “This is glacial. It’s incredibly frustrating, and there never is a straight answer about where the bottleneck is.”

Pipeline safety, a little-noticed backwater of Washington policy making, has grown in attention and political importance in recent years as the boom in North Dakota and Texas oil production and the hydraulic fracturing revolution for natural gas means the U.S. pipeline network is both expanding and increasingly active.

“As the U.S. produces more oil and gas, we have to remain vigilant,” said Brigham McCown, the former head of the U.S. Pipeline and Hazardous Materials Safety Administrators. “If production is going to go up, inspections will have to go up as well.”

McCown, who’s now a lawyer in Texas, and industry representatives say it’s not new rules that are needed, but attention from regulators and industry to adhere to the rules now in place.

Hazardous Liquids

The PHMSA said it’s still working on plans to reconfigure rules for the 185,000 miles of pipes carrying hazardous liquids that it oversees. The number of serious pipeline incidents and the amount of gasoline or crude spilled has fallen since the late 1990s. Even so, over the past three years, there were 96 incidents that caused 41 fatalities, 200 injuries and $400 million in property damage, according to government data.

“We continue to try to make enhancements to safety, and we’re moving forward with the rulemaking,” Damon Hill, an agency spokesman, said. “It does take time and effort and a lot goes into getting this done.”
After the Michigan spill in 2010, the agency issued notice that it intended to rewrite rules for leak detection and cut-off valves. It hasn’t, and the 20,000-barrel spill at a Tesoro Corp. (TSO) pipeline in North Dakota went undetected until a farmer came across it in his field last month.

“We remain focused on cleanup, repair and remediation,” Tina Barbee, a Tesoro spokeswoman, said in an e-mail. “To date, we have reported more than 4,300 barrels recovered at the site.”

Keystone Proposal

The PHMSA proposal is now awaiting approval by the office of Transportation Secretary Anthony Foxx so that it can be sent to the White House Office of Management and Budget for its review, Hill said.
“It’s sitting there somewhere in the bowels of the federal government,” said Lois Epstein, a pipeline specialist at the Wilderness Society in Alaska. “This is how government gets a bad name.”

The issue has entered the contentious debate over TransCanada’s proposal to build the Keystone pipeline from Alberta to the Gulf of Mexico. Supporters say pipelines are safer than shipping oil by train, truck or barge, and point to the July explosion of a runaway oil train in Quebec that killed 47 people. Critics point to leaks or ruptures in Michigan, Arkansas and now North Dakota to say they aren’t nearly as safe as proponents argue.

Leak Detection

In its 2010 announcement, PHMSA said it was considering expanding requirements for use of leak detection and remote-controlled shut-off valves, which are now required only on some pipelines near population centers, large water crossings or other environmentally sensitive areas. The regulator also said it was considering broadening its reach over more pipelines and expanding the number of areas considered heavily populated or near protected waterways.
“Pipeline leak-detection system technology hasn’t advanced in the United States in quite some time,” Anthony Swift, an attorney with the Natural Resources Defense Council, said in an interview. “The U.S. doesn’t have a performance metric for how soon a leak detection system needs to detect a leak. Canada does.”

The push for PHMSA to tighten its rules followed the break in an Enbridge Inc. (ENB) pipeline near Marshall, Michigan, in June 2010. Enbridge, the largest transporter of Canadian crude to the U.S., knew of cracks in its pipeline and didn’t react to the rupture for 17 hours after it was discovered, leading to the nation’s most expensive onshore oil spill, the National Transportation Safety Board said in its report on the incident.

Tesoro Comments

Oil from the spill was carried 35 miles downstream on the Kalamazoo River. Enbridge said the incident has cost it more than $1 billion, excluding insurance payouts.

In its report on that spill, the independent National Transportation Safety Board said PHMSA needed to take a series of actions that included: setting specific rules for pipeline operators about detecting and repairing cracks; issuing a notice to all operators about the causes of the Enbridge spill and how to “eliminate similar deficiencies”; and extending rules governing qualifications for control-room operators.
So far, PHMSA hasn’t fully implemented any of the eight items on the NTSB’s recommendation list, which was published on July 25, 2012. The agency said it’s working on it.

“The areas that require regulation are the ones that are going to take longer,” NTSB Vice Chairman Christopher Hart said. “We know there is movement” by PHMSA, he said.

‘Sleepy’ Agency

Critics aren’t so sanguine.

“When there is a major incident like the Kalamazoo River spill, you would think they would get right on it,” said Jeff Ruch, the head of Public Employees for Environmental Responsibility, which is seeking public records from the agency. “Employees have come to us and said, ‘We are a sleepy, industry-dominated organization.’”

Congress passed legislation in 2011 that mandated the agency study leak detection and then formulate new rules to improve it. The resulting report, prepared by engineering consultants Kiefner & Associates Inc., found that of 766 pipeline releases between Jan. 1 2010 and July 7, 2012, only 23 were identified by leak detection systems.

Operator ground crews, emergency responders and members of the public were more likely to find leaks.
The costs of a leak detection system, “are minor compared with other systems on the pipeline,” according to the report. “The difficulty lies in convincing operators of their value.”

Bi-Weekly Checks

U.S. operators must check for leaks by walking, driving or overflying their pipeline right-of-way every two weeks, according to John Stoody, a spokesman for the Washington-based Association of Oil Pipe Lines. In densely populated or environmentally sensitive areas, operators must file plans on the impact of a spill and the leak detection systems that may be required.

The operators rely on equipment already in place that monitors the flow of oil to detect leaks, according to the Kiefner & Associates report. Advanced systems use filament along the length of a pipeline or special cameras to detect petroleum vapors.
“They’re expensive,” Stoody said. “Are they worth the money?”

– BLOOMBERG