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Alaskan Pipeline Leak Points to Major Network Problem

by | published January 10th, 2011

I don’t know much about automobiles. So when there is an unfamiliar sound coming from under the hood of my car, or exotic lights start going off on my dashboard, I think it best to regard them as urgent signals that my car requires immediate attention.

So I just bring it over to the same fellow who has been fixing my rides for years.

It seems like those repairs must have sent his kids to the best schools available. There is a tradeoff here – money for peace of mind – but whatever the cost, those signals cannot be ignored.

In the energy world, a similar thing is happening – but on a much bigger scale, and with far more ominous implications.

A rupture over the weekend on the Trans-Alaska Pipeline System (TAPS) has effectively cut off more than 12% of the domestic U.S. crude supply, as virtually all of the Northern Slope production is affected.

This one seems to be a pumping station problem, but the effect is the same as if somebody blew a hole in the pipeline itself.

It also points – once again – to an increasing concern in an aging transport network.

I talked about this accelerating crisis last summer, in response to a Michigan rupture on another pipeline coming from Canada (“The Next Oil Disaster Is Even Worse…” July 30, 2010). Despite the laying of additional pipes each year, and an ongoing schedule of repairs and replacements, the system is showing its age more and more.

And this is one extensive system.

There are more than 55,000 miles of major (or “trunk”) oil pipelines connecting regions throughout the country, and upwards of 40,000 miles of collector and feeder lines. All told, when you factor in the smaller delivery lines to refineries (for storage, and acting as secondary transmission), the total approaches 200,000 miles. An episode on any of these lines can impact the availability (and price) of oil. TAPS just happens to be the most visible and important.

And this failure was hardly unexpected.

A 30-Year-Old Network With A $550 Billion Price Tag

In 2006, two separate TAPS leaks shut down the transport of crude and subjected BP (NYSE:BP), the principal in both the North Slope production project and the pipeline, to a period of intense Congressional scrutiny. BP subsequently paid a $20 million fine, plus restitution, and replaced a 16-mile stretch of the pipeline.

In the nearly five years since then, TAPS concerns have hardly declined.

A study released in November 2010, completed by the independent, non-profit investigator ProPublica, gave TAPS an “F” rating. The investigation cited an 80% corrosion factor in more than 150 locations on the line, including serious concerns over high-pressure connectors. ProPublica based its study on an internal BP evaluation of TAPS issued in October that had expressed the company’s own misgivings about the rising number of episodes on the pipeline.

BP has not denied the conclusions of the report, but said that the specific problems would allow for a prioritized repair schedule. Yet the rumored price tag of what it will take to upgrade TAPS limits an effective or short-term solution…

The cost factor has emerged as the center of the problem – not just for TAPS, but for aging pipeline systems throughout North America and abroad.

The total repair price tag worldwide is now approaching $550 billion and growing at more than a billion dollars a week.

This latest event is merely the most recent signal of an expanding problem

Put simply, the pipeline system is aging quicker than it can be repaired or replaced. Improper patch jobs and either nonexistent or defective gas-leak warning systems are becoming more commonplace. Many of the prophylactic mechanisms are simply obsolete.

As we rely more heavily on a system with an average age in excess of 30 years, we run the almost-certain risk of major leaks and failures becoming commonplace.

TAPS is hardly the only example.

Within just the last month, recurring oil pipeline leaks in Salt Lake City (“Utah Pipeline’s Oil Spill Could Be the Next of Many,” December 10) and the Chicago area (Romeoville and Lockport, Illinois, December 14) brought a renewed concern over the integrity of drinking water for major municipalities.

By this morning, the news is looking better. This latest TAPS event seems limited to a rather small leak (about 10 barrels), and it has been contained. It occurred in an underground section of pipeline encased in concrete at Pumping Station #1.

That means we may have dodged a bullet this time.

But the signals keep coming, loud and clear…

The oil pipeline system is becoming compromised. Temporary fixes are no longer the answer.

And until we do something about it, these episodes will result in more damaging and more protracted ripples affecting the entire economy.

Sincerely,

Kent

Please Note: Kent cannot respond to your comments and questions directly. But he can address them in future alerts... so keep an eye on your inbox. If you have a question about your subscription, please email us directly at customerservice@oilandenergyinvestor.com

  1. Bob
    January 10th, 2011 at 13:48 | #1

    So Kent, How about a recommendation for a company that builds pipe, valves and such not only for petroleum products but water also. Are there any outstanding opportunities you would recommend?

  2. Don MacArthur
    January 10th, 2011 at 13:50 | #2

    Bad news for the oil industry but great info for your subscribers who benefit greatly from your completeness.

  3. Lloyd Olson
    January 10th, 2011 at 13:57 | #3

    A pump failed on the pipeline and this is a disaster ? Any thing man builds can break down. When a plane crashes do we stop flying ?
    The replacement time for any equipment is a standard. Here is your problem, not the fact there always will be equipment that can fail from
    out of the box new motors to ones with a million miles.

  4. chienshim chang
    January 10th, 2011 at 14:12 | #4

    Hi Dr. Moors,

    Understand that these leaks will occur more frequently. But, what are the implications ? Any stock we should avoid? purchase?

    Regards,
    Chienshim

  5. jose reboredo
    January 10th, 2011 at 14:12 | #5

    Kent. We are not repair pipe line peopel. What it ineterest us? . Give us a good stock to make some money and we will be happy. Thanks

  6. Michael Susko
    January 10th, 2011 at 15:39 | #6

    very good. Please spell out the stock that is affected. Thanks Mike Susko

  7. Lance Buhl
    January 10th, 2011 at 19:13 | #7

    Given this troubling development, do you still hold to your recommendation for the BP oil trust, which relates entirely to Alaskan crude. As a employee, then executive, at BP America (SOHIO originally) from 1982-93, I know that the owners of the Pipeline were worried some then about leaks and the pipeline’ already aging status. Sounds like they’ve done very little since to ensure its reliability and safety.

  8. Hans
    January 10th, 2011 at 20:57 | #8

    We all know nothing will last forever, so plan ahead, perhaps start making new pipe and plan replacement sections.

  9. Patricia
    January 10th, 2011 at 21:38 | #9

    Hi Kent, My question is ‘just how do they manage to shut a pipeline down, everybody would be screaming because of a shortage. I can just imagine how much work it will take to replace these lines, maybe they should just build new lines and junk the old ones; maybe cheaper ;in the long run.

  10. Basil Wright
    January 10th, 2011 at 23:00 | #10

    The money map press,
    I just read your report on the Alaskan pipeline leak and I, must
    say I’m very suprised on the lack of monitoring system not in place
    to check these valuable resource that our very lively hood depends on.
    The Congressional scrutiny of “BP” over the two seperate TAP leaks an
    the 20 million dollar fine five years ago does nothing to rectify the detrimental catastrophe that would follow such a disaster. There is a
    solution to all this. To sum it up in one word “FOX”. Never heard of it? It’s listed on the Canadian stock exchange. They develops non-
    intrusive monitoring sensor systems for the oil an gas market to help track the thinning of pipelines and refinery vessels due to corrosion/erosion, strain due to bending /buckling,and process pressure and temperature. Foxe’s pinpoint system allow cost-effective
    24/7 remote monitoring capabilities to improve scheduled maintenance
    operations, avoid unnecessary shutdowns,and prevent accidents an leaks. http://www.fox-tek.com.

  11. Just_give_me_a_Name
    January 11th, 2011 at 00:29 | #11

    So, re A 30-Year-Old Network With A $550 Billion Price Tag
    what companies make oil pipelines, who does it best, who cheapest, who most profitably ? every crisis is an opportunity.. so go do some research and tell us about it .. . .

  12. Sailor Jo
    January 11th, 2011 at 00:54 | #12

    Always like your articles, thanks you!

    May I point to a report on the History Channel: The crumbling of “America”? It shows how the whole infrastructure is in bad shape.

    Coming from a country where quality matters I always admired the US for coming up with cheap solutions for problems that do not require full quality. But the downside is that problems that need full quality are not always getting it in order to temporarily save money. I do not like US products much though I like Chinese even less.

    It takes a rethinking of the education system. Good craftsmen with top morals are needed all over, not just in the oil industry.

  13. peter
    January 11th, 2011 at 04:06 | #13

    hi there we need a better system in place. i have worked oil gas 35 years
    peter from australia and still raining in queensland

  14. Marcus Meadows
    January 11th, 2011 at 11:10 | #14

    Is it the body of the pipe lines? Due to weakness of materials! or rust and corrosion on pipe connections made of metal! Technology masters are reformers of nearly all things that exist, such as semi-flexible pipe, any size, exterior connections not subject to corrosion. For the future of oil and gas can we afford to hesitate on replacement cost, considering the magnitude of value that puts the U.S.A. back in front? Before it is too late!

  15. jj
    January 11th, 2011 at 12:02 | #15

    Thanks for that report.I didn’t have enough negative news.

  16. Duane
    January 14th, 2011 at 17:42 | #16

    Kent,
    Your updates and newsletters are interesting. However, as reflected in several other comments, how about some specific recommendations?

  17. Daryl Kuemerle
    January 18th, 2011 at 13:13 | #17

    Kent,

    I would like to point out a few items I disagreed with in your article.
    Fact 1: It was not the mainline 48” TAPS that had the leak, it was a 16” line from the storage tanks to the booster pumps that feed the main line pumps.
    Fact 2: In 2006, it was not TAPS that had a large leak due to corrosion; it was a pipeline from one of its production facilities to TAPS that suffered the failure. Again, due to the amount of oil flowing through the line and relative size of the leak, it did not register on any instrumentation designed to detect catastrophic leaks because the leak was too slow.
    Fact 3: TAPS is not wholly owned or operated by BP. TAPS is owned and operated by a company called Alyeska comprised of five companies for the sole purpose of the transportation of crude oil from the North Slope oils fields to the port of Valdez for tanker shipment.
    I would also like to point out that even though ProPublica is an independent, non-profit organization, it does not mean that they do not slant their stories to further their anti-development agenda. It is similar to Greenpeace writing a favorable article on whaling.
    Cheers.

  18. john d
    January 21st, 2011 at 18:37 | #18

    As any system ages it requires more maintenance, due to our needs it is prudent to build a new system adjacent to the old to transport or the cost of maintaining will be intolerable.

  19. Richard Stanley
    January 31st, 2011 at 16:15 | #19

    Sir,

    Are you an Obama man?? Socialization or public control of the oil business should not be a concern to you!!! It should be the concern of the companies that own it! You have some nice reading material but what will you do with it besides publish it. Leave the companies alone. They know what they are doing! And, if they don’t they will obviously fail! Then they will be targets for takeover!

  20. Mike Boileau
    February 9th, 2011 at 12:35 | #20

    I would advise the Pipeline Company to institute a program of “Twinning” the Pipeline. This would be done in stages, the worst sections first. As you progress, the pipeline becomes two pipelines, parallel to each other. This will enable the Operators to switch between #1 and #2 Pipeline as required for maintenance and production. Thsis would also oncrease capacity enabling the increase of the other oil fields currently idled because there is no capacity to transport the increased volume. I recall President Ronald Reagan had to approve expenditures in order to repair the faulty welding performed on the original pipeline. It seems, the X-Ray Contractor responsible for the quality control of the Pipeline was on the take and was using the same, qualified X-Ray for numerous welded joints that were never X-Rayed. It was a mini-scandal at the time. The reason I recall this is because I was a Canadian High-Pressure Welder and I tried to get hired on the original project. The Americans responsible for the construction, Aleyska Pipelines, would only hire American Welders, thus resulting in “Garbage Welding”.

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