Enbridge Not Positioned to Pay for Gateway Oil Spill: Report
BC taxpayers could be on hook for massive clean-up costs says economist Allan.
Enbridge has under-estimated the risk of a bitumen spill along its technically challenging Northern Gateway Project and ignored the company's spill history in the United States in its risk studies, concludes a prominent economist.
In a new report directly requested by the Joint Panel Review studying the controversial project, Robyn Allan, former CEO of the Insurance Corporation of British Columbia, also concludes that Enbridge doesn't have adequate insurance coverage or the corporate structure to cover a multi-billion dollar spill either.
"There is no reason to believe Enbridge would be directly responsible for the cost of any spill based on the limited partnership structure. This structure allows profits to flow to Enbridge, but from what I have seen in the documents, not spill liabilities." explains Allan.
In the event of a catastrophic event Northern Gateway exists as a stand-alone company that might have to shut down due to multi-billion clean-up costs, a scenario that puts the public of British Columbia at severe risk, adds Allan.
"The provincial government should be asking hard questions about pipeline insurance risks and clean-up costs but they aren't."
The Kalamazoo calamity
On May 18, 2010 Enbridge's Line 6B, which supplies refineries in the Great Lakes with Alberta bitumen, ruptured and spilled 20,000 barrels of diluted bitumen, a poorly studied mix of hydrocarbons, into Michigan's Kalamazoo River. Clean-up and remediation costs now total $765-million but only three of 39 miles of river contaminated have been reopened.
Yet Enbridge's current insurance policy only covers $575-million worth of damages or nearly $200 million less than the Kalamazoo spill. The Northern Gateway project alone would cross nearly 700 fish-bearing watercourses in some of the nation's most mountainous terrain.
In its public submission to the NEB the Enbridge offers "no assurance that the insurance coverage we maintain will be available" due to the risks of spills and leaks on other pipelines owned by the Calgary-based company throughout North America.
Another issue not properly addressed by the company concerns the poorly studied behavior of diluted bitumen in waterways. Although condensate rapidly evaporates, the heavy crude actually sinks to the bottom of a river making it harder, more damaging and costly to clean-up overtime.
As a result the difficult hydrocarbon creates a variety of unusual risks "that the insurance industry is only beginning to come to terms with," notes Allan.
ENBRIDGE'S SAFETY ASSURANCES
An Enbridge web page boasts of the company's safety record in 2010, the same year its pipeline burst pouring at least 877,000 barrels of Alberta diluted bitumen into a tributary of Michigan's Kalamazoo River. The accident so far has cost more than $765 million to clean-up and 36 miles of the river remain closed to the public.
Enbridge's website doesn't reference the Kalamazoo disaster as it makes its case mathematically: "In 2010 Enbridge safely transported 950 million barrels of hydrocarbons with a safety record better than 99.99 per cent. That's a powerful demonstration of our commitment to safety."
The same page promises safety measures along the Northern Gateway pipeline route stretching from Alberta to Kitimat on B.C.'s northern coast, including use of high quality materials and high tech leak detectors. "Response" measures include:
"Installing safety control valves on either side of major water crossings to ensure the pipeline can be quickly shut down;
"Monitoring the system 24/7 and responding immediately to any changes in pressure;
"Individually engineering water crossings to allow for substantial extra depth of cover and increased pipe wall thickness in these areas;
"Pipeline Emergency Response equipment and personnel will be stationed at numerous locations along the pipeline system;
"Local emergency responders will be trained to assist with any potential spill scenario and full scale response exercises will be held annually with these organizations;
"Plans will be prepared in advance to identify potential control points along every watercourse...
"If an incident should occur, Northern Gateway will be there quickly to control, contain and clean up."
A graphic at the bottom of the web page urges "Support Northern Gateway."
Response and safety concerns
Pipeline response and safety also aren't properly addressed by Enbridge in its submissions says Allan.
After the Kalamazoo spill the US Environmental Protection Agency found "Enbridge did not have adequate resources on site to deal with the magnitude of the spill" during the initial hours of response.
Recent testimony by Enbridge officials before the U.S. National Transportation Safety Board also reveal that the "company suffers from a corporate culture that places growth as priority above of operational safety," adds Allan.
Company managers recently told the U.S. regulator that their staff took 17 hours to respond to the leak and spillage due to poor technical support, lack of training, inadequate knowledge of pipeline procedures as well as worrisome overall employee retention rate.
Leon Zupan, senior vice president of operations, admitted during testimony that the spill caught the Calgary-based company totally unprepared: "we had people that were really trying hard to do what they thought was the right thing but they needed more technical support, they needed more management support, they needed more technical training and they needed to be clear about what our expectations were in terms of the people directly under my control and pipeline control."
As a consequence, a major accident that should have taken a total of 13 minutes to identify and contain according to Enbridge's own manuals, actually took more than three quarters of a day to locate. None of these revelations appear in Enbridge's application to build the Northern Gateway Project.
Given the exhaustive examination and documentation on the Kalamazoo spill compiled by the US National Transportation Safety Board, Canada's National Energy Board, the agency responsible for pipeline safety here, should "initiate its own analysis and detailed review on Enbridge pipeline integrity as a matter of urgent priority," Allan writes.
'Greater capacity means greater risk'
On its Northern Gateway website Enbridge calls its pipeline safety standards "world class" (see sidebar).
In documents tabled for the federal pipeline inquiry Enbridge argues that it is not possible to predict the financial cost of a spill and therefore the company does not have to quantify the risk.
Allan calls this attitude irresponsible and untenable. "If Enbridge is unable or unwilling to undertake a financial quantification of the risk it poses to the Canadian public, First Nations and the environment, then by extension the company should not be able to offer an estimate of the economic impact of this project on the Canadian public and First Nations."
Northern Gateway, a set of pipelines designed to export bitumen and import Middle Eastern light oil, has a designed capacity to carry 60 per cent more crude than currently being assessed as well as 40 per cent condensate. "Greater capacity means greater risk," adds Allan.
Allan recommends that Northern Gateway "obtain stand alone pollution liability insurance for all perils assessed and priced by the insurance market" worth at least $1 billion. "That should be the floor."
Allan also recommends that Northern Gateway be required to meet the pollution claim of third parities in preference to equity investors and lenders.
Under current arrangements the company's Limited Partnership limits the exposure to the multi-billion project. "Should a pollution claim exceed the ability of Northern Gateway to pay, the partners could elect to shut the project down, particularly if the pipeline capacity is not being utilized fully, and if oil transportation capacity has been overbuilt."
The Joint Review Panel asked Allan for answers to several questions about safety and risk after her January 30 submission raised substantial questions about the pipeline's economics, insurance coverage and corporate structure. That report, "An Economic Assessment of Northern Gateway," made national headlines.
Enbridge has just launched a multi-million dollar campaign to convince British Columbians to support a Chinese funded pipeline that would deliver raw Alberta bitumen to the port of Kitimat where it would be loaded on supertankers bound for refineries largely owned by the Communist Party of China for sale in heavily price subsidized gasoline markets.