Unpaid fines, leaks and spills at volumes beyond worst case scenarios for Enbridge Inc.

Published in The Vancouver Observer | February 18, 2013 | Circulation: 125,000 unique monthly visitors

A withering report by the U.S. National Transportation Safety Board was not Enbridge’s only oil spill challenge in the summer of 2012.

On June 19, a flange gasket joining two sections of an Enbridge pipeline broke, spewing 230,000 litres of oil sands bitumen from a 12-year old pumping station near Elk Point, Alberta – just two hours due east of Bruderheim.

In fact, Enbridge has had more than 600 recorded leaks and breaks over the last decade.

One of those occurred in January 2010, in the rustic 437-person town of Neche, North Dakota. Located less than two kilometres south of the Manitoba border, the farming community saw 47,000 litres of oil leak into their farmland when Enbridge’s pipeline cracked.

But this accident paled in comparison to the company’s Cheecham, Alberta spill – one year earlier. After a small-diametre Enbridge pipe broke, oil began spurting skyward into the surrounding area. The accident, Enbridge claimed, was too small to have registered in its pipeline monitoring system.

But what seemed a minor leak blanketed the company’s facility and the surrounding forest with thick oil. 908,000 litres of the stuff.

Enbridge’s Elk Point oil spill had occurred scarcely two years after the Kalamazoo disaster of July 2010. That accident dumped more than 3.2 million litres of bitumen in and around the Kalamazoo River, Michigan.

Worse yet, more than two-thirds of the spill was, it turned out, oil pumped into the pipeline after the system ruptured. This failure to mitigate the spill resulted in a volume beyond Enbridge’s worst-case discharge scenario for that location. Simply put, the disaster was beyond Enbridge’s abilities to control.

Even today, the spill has still not been entirely cleaned up. Enbridge faces $3.7 million in fines, in addition to its $700 million in clean-up costs. The National Trade Safety Board ruled that Enbridge had failed to heed warnings that its aging pipes were corroding and cracked, and had violated the safety regulations going back as far as 2004.

By the time emergency responders arrived at the Kalamazoo River, the raw bitumen from Alberta’s oil sands – which only flows when diluted with toxic chemicals known as “condensate” – had begun to separate. As the condensate turned to gas, the bitumen sank to the river bottom, contaminating the sediment along a 50 km stretch of the river.

In the aftermath of the Kalamazoo spill, the now-gaseous condensate drifted through the countryside and people began to get sick. Sixty per cent of locals developed respiratory, gastrointestinal and neurological symptoms – consistent with exposure to benzene and other petroleum-related toxins.

The cost of cleaning up the bitumen is proving to be more than ten times the cost of cleaning up oil and exceeded Enbridge’s policy limits. More bitumen has been recovered than was reported as spilled, which puts the trustworthiness of Enbridge’s reports in question.

Following the Kalamazoo spill, Enbridge spokesman Todd Nogier said, “That incident was a very humbling incident for us, and it is one that we want to ensure never happens again.”

Who’s guarding the hen house?

Regarding the Kalamazoo spill, Enbridge stated, “Enbridge believes that at the time of the accident it met or exceeded all applicable regulatory and industry standards in its operations, a statement that suggests that government regulations are insufficient to prevent major oil spills. After over a million litres of oil spilled in Alberta within one month in the spring of 2012, Alberta’s premier Alison Redford gave lukewarm support for greater oversight, stating that she is “not opposed to the idea.”

As of publication, the Canadian Department of Fisheries and Oceans has not conducted a complete review of all the places where the proposed Northern Gateway pipeline would cross rivers. In response to the JRP’s request for a list of watercourse crossings with important anadromous fish habitat, the DFO was able to present a risk assessment for only two of the 600-1,000 streams that the proposed pipeline would cross.

Mark Hume of the Globe and Mail wonders, “With so many river crossings out there to be looked at, one has to wonder how DFO is going to find the time to do the job, if the pipeline is approved. Will fisheries technicians be running ahead of the pipe-laying machines, assessing on the fly?”

It seems more likely that the federal government solved the problem with the omnibus budget bill, Bill C-38. The new Fisheries Act covers only fish licensed in commercial, recreational and aboriginal fisheries, limits only permanent alteration or destruction of fish habitat, and allows Ministers to exempt certain activities or entire geographic areas from the Act by passing regulations. In fact, the new Act authorizes DFO to delegate responsibility for fish habitat protection to “any person or entity.” Under the new Act, there seems little call for fisheries technicians to do much of anything to protect Canada’s salmon bearing streams let alone its other watercourses.

Following its Kalamazoo spill, the NTSB rejected Enbridge’s initial plan to restart the pipeline because the company had not conducted the required investigative excavations or a hydrostatic pressure test.

When Enbridge performed the required investigations, it found repairs were necessary. When Enbridge reapplied for permission to restart the pipeline, the agency found its safety conclusions were not supported by specific information and required additional reporting. When approval for the restart was finally given, the agency required an independent third party to be present in Edmonton, where Enbridge monitors its pipelines, suggesting that Enbridge had not proven itself trustworthy. The agency also noted the 154 “specific known anomalies” in the pipeline, and gave Enbridge 180 days in which to complete its repairs.

At the Elk Point spill, Enbridge reopened the pipeline the day after the spill – until it was ordered to shut it down by the Energy Resources Conservation Board (ERCB). The firm stated that it had dilligently notified civic authorities and agencies as soon it detected the leak. But local officials reported they only learned of the oil spill from media reports.

Bridge over troubled water

The province of British Columbia is dotted with a vast web of pristine rivers and streams. Tens of thousands of waterways flow from the glacial heights of the Rocky Mountains to the ocean, offering a habitat for millions of wild salmon, bears, eagles and even the smallest rare newts and bugs.

It’s a land that hundreds of Aboriginal nations have called home for millenia, developing rich cultures rooted in harvesting wild salmon and celebrating the Creator’s gifts to humankind.

Generally buried a metre underground, the Enbridge Northern Gateway pipeline would traverse the mountainous border between Alberta and British Columbia, wind its way through lush farmland, and conclude its journey through the rugged west-central region’s remote mountains, valleys, and raging wild rivers.

For each of the 600-1,000 waterways it would cross, however, pipeline would emerge into open air across bridges over the province’s vital salmon streams.

Enbridge has also proposed two 6.5 km tunnels for the pipeline between the Clore River and Hoult Creek Valleys in northwestern B.C., where it passes through particularly steep mountainous terrain.

Northern Gateway would also push through the headwaters of three of the continent’s most important watersheds—the Mackenzie, the Fraser, and the Skeena Rivers, following the Morice River up into the Coast Mountains, spanning the headwaters of the Zymoetz River, and then tracing the path of the Kitimat River down to the coastal city sharing its name.

Although many rivers would be at risk if there were an oil spill along the pipeline route, only one such scenario has been studied in depth: the Morice River.

The Northwest Institute analyzed a 34 km stretch of the salmon-rich waterway, which the proposed pipeline would run alongside. That stretch has poor access and important salmon spawning and rearing conditions such as log jams, side channels and shoreline areas.

The salmon of the Morice River feed First Nations in the area, not to mention offering sport and commercial fishers an ample supply of their beloved catch. Part of the section is vulnerable to slope instability and pipeline rupture. The study found that no proven techniques would mitigate the impact of a spill in this area.

Many First Nations and environmentalists believe that no level of risk is acceptable, given the resources, livelihoods and ecosystems at stake. They worry that the question is not whether there will be an oil spill – it’s a question of when.

Others point out that, even without a catastrophic oil spill, the legally allowable levels of leakage that occur as a matter of course with most pipelines would contaminate their food supply and traditional territory.

In response to the concerns, Enbridge announced it would increase its monitoring systems and pipeline safety above its usual standards. But, for critics, the project remains beyond saving.

We’re watching you

In light of the growing public concern with Enbridge’s record – and in spite of the firm’s insistence that regards pipeline safety as paramount – Canada’s National Energy Board (NEB) stepped in to investigate. 

One day after the two-year Kalamazoo anniversary, the NEB announced that it would audit Enbridge’s safety practices – accompanied by a threat $100,000 fines for each day laws were broken.

In an an open letter to Enbridge CEO Patrick Daniel dated July 26, the NEB stated that it will conduct inspections of Enbridge’s Edmonton Control Room as well as a meeting to assess implementation of relevant requirements of the Onshore Pipeline Regulations, 1999 (OPR) on August 8 and 9.

The letter states that the NEB has reviewed the July 10 summary of a US regulatory body’s critical assessment of Enbridge’s handling of its 2010 oil spill in Michigan. The final report was released on July 25, 2010. The Vancouver Observer is awaiting confirmation from the NEB about whether the board members have received and reviewed the final report as of Aug 3.

NEB chairman Gaétan Caron also announced on August 1 that the Board plans to add new regulations for pipeline safety and enforce fines for safety violations. He reiterated the Board’s plan to keep close track of Enbridge’s safety procedures.

“In the next weeks and months, we will be conducting safety audits to review and confirm that improvements, particularly to their control room practices in Edmonton, are satisfactory,” Caron wrote.

He reiterated that the Board plans to review the National Transportation Safety Board’s final report on Enbridge’s Line 6B rupture in Michigan in 2010 “to see what we can learn in the interests of public safety and environmental protection.”

The NTSB’s report found a complete breakdown of safety procedure around the spill in Michigan. The pipeline rupture and oil leak was not detected for 17 hours, and the NTSB said Enbridge employees acted like “Keystone Kops,” a reference to incompetent fictional policemen featured in early 20th century silent film comedies. In its defence, Enbridge said that its employees tried to do the “right thing.”

This also follows a “corrective action order” to Enbridge on Monday from the Pipeline and Hazardous Materials Safety Administration (PHMSA), another US regulatory body, following a ruptured pipeline that spilled about 1,200 barrels (190,000 litres), forcing two home evacuations and affected a drinking-water source four kilometres away in rural Wisconsin.

The PHMSA report stated that Enbridge found “multiple crack anomalies” in the piping since that leak, and said the company’s integrity management system may be “inadaquate.”

NEB plans to write new safety regulations, fine up to $100,000 per day for violations 

Caron added that the Board has the power to levy Administrative Monetary Penalties (AMPs) at companies for safety regulation violations. Companies can be charged up to $100,000 a day per safety violation, and individuals up to $25,000 per day.

There is no limit on AMPs, according to NEB spokesperson Rebecca Taylor.

“The Act stipulates that each day that a violation continues is considered to be a separate violation. This means that separate penalties could be issued per infraction, per day with no maximum total financial penalty,” she wrote in an email to The Vancouver Observer.

The NEB describes itself as “an independent federal agency responsible for regulating pipelines, energy development and trade in the Canadian public interest”.”

It is responsible for an estimated 71,000 kilometers of pipelines across Canada and it promotes safety and security, environmental protection and efficient energy infrastructure markets under the National Energy Board Act (NEB Act) and its regulations. The NEB states that it regulates companies and individuals using a “rigorous compliance monitoring and enforcement program.”

The NEB will also write new safety regulations that will take effect as of July 6, 2013.

Brings on the jobs!

While much public attention has focussed on the safety risks of the Northern Gateway, the political showdown over the project has been largely about jobs and money.

B.C. Premier Christy Clark – responding to plummeting public support for the proposal – famously demanded that Alberta share some of the project’s revenues in order to bring benefit to her province. And while First Nations and environmentalists reacted with dismay that their health and environmental concerns had been ignored, the question of jobs remained high – at least on the government and company’s talking points.

But what jobs, exactly, would the Northern Gateway bring?

“Jobs and growth” is the Northern Gateway mantra. The federal government and media repeat Enbridge’s numbers as fact. But are they? In “Enbridge Pipe Dreams and Nightmares,” Marc Lee of the Canadian Centre for Policy Alternatives finds Enbridge’s promises wildly optimistic.

The company maintains that the project is needed to diversify the export market by opening up access to Asia and elsewhere—places where producers will find the highest demand and best prices for raw crude. Their application estimates that increased prices for Canadian oil would result in a $2.39 billion jump in annual producer revenues in the first year of operations alone. By 2025, they claim those revenues could increase by over $4.47 billion.

Canadians not working in the industry aren’t generally swayed by the prospect of bigger corporate profits. That’s where the “benefits to all Canadians” come in. To help prove that these benefits exist, Enbridge commissioned Wright Mansell Research to conduct an independent assessment of the project from a “Canadian public interest” perspective.

Enbridge claims that that over its 30-year lifetime, the Northern Gateway pipeline would increase the country’s GDP by up to $270 billion., provide additional labour income to the tune of $48 billion and result in 558,000 person years of employment. The federal and provincial governments, they said, could rake in about $81 billion in revenue.

Enbridge’s application states that the project would provide up to 558,000 person-years of employment, 62,700 of which would be generated during project construction (including direct, indirect and induced employment). In BC alone, they claim there will be about 3000 jobs created during the three-year construction phase. The company estimated that about 57 per cent of the construction employment would be in British Columbia, 24 per cent would be in Alberta and the remaining 19 per cent in the rest of Canada

Enbridge says more than 400 workers will be needed to construct the Kitimat marine terminal and related infrastructure, and about 165 permanent jobs would be created for the terminal’s ongoing operations. In total, the company promises approximately 1,150 long-term jobs for Canadians—with about 560 of them based in British Columbia.

According to Lee, the only bankable jobs are the 1,850 construction jobs per year for three years, and a handful of permanent new jobs. The oil and gas industry is one of the most capital intensive in the world, meaning relatively few jobs are created per million dollars of output. Enbridge’s direct job estimates assume a direct relationship between investment and job creation, which means the job numbers can be inflated by overstating the total investment. For example, Enbridge’s job estimates are based on a $5.5 billion investment. This number includes a $500 million contingency reserve which inflates job numbers by 10%. An additional $100 million has already been spent and won’t create “new” jobs.

The remainder of the 63,000 person hours are indirect employment and induced employment. The indirect employment would come in the form of 3000 jobs if the steel pipes are purchased from a plant in Saskatchewan. Those jobs already exist. Nearly half the person hours come from induced employment, jobs created when those with direct and indirect jobs spend their money. Those job numbers s are extremely most speculative. As Lee puts it, “Induced numbers should be heavily discounted, because they are modeled as if (an already overstated) 36,000 previously unemployed workers showed up out of nowhere, each earning $68,000 per year, and paying taxes to governments that were interested in supporting public services.”

Taking Enbridge’s inflated job numbers at face value, they would make a very small relative to the BC and Canadian economies. . Enbridge acknowledges that the “overall effects on the provincial and national economies are considered not significant relative to the overall size of these economies.” In BC alone, there are more than 2.4 million people employed.

There are places in the province where new jobs could make a significant impact on local economies. But Enbridge’s lack of commitment to local training means that locals and Aboriginal people would be more likely to occupy the low skill/low wage jobs. Skilled labour would probably come from outside the region. Since the publication of Lee’s report, Enbridge has publicly stated that PetroChina is interested in investing in the pipeline and using its employees to provide skilled labour, would make the prospects for good BC jobs even dimmer.

According to Lee, the $270 million figure rests on assumptions with flaws. Half the figure speculates that the pipeline will create a large profit margin from higher prices in both Asian and North American markets. The other half assumes that profits will be reinvested with the same rate of return of current investments. This isn’t likely because bitumen deposits are increasingly expensive to access as the most convenient deposits get mined out.

Out of the projected increase in Canadian GDP of $270 billion, total labour income is expected to be $48 billion, or 18%. Canada has traditionally seen a labour share of income in excess of 50% of GDP. But the oil and gas industry is extremely capital-intensive so there are fewer jobs for the investment than would be achieved by investments in other sectors.

At the national level, the financial flow to the oil and gas industry has inflated the Canadian dollar to an extent that harms exports from the manufacturing sector. This situation, known as “Dutch Disease,” is widely debated but it seems that Canada has at least a mild case of it. While GDP may go up overall due to oil and gas profits, contributions from other sectors are heading down. A recent study suggests this has already happened in 30 percent of the manufacturing sectors.

Putting aside environmental problems, Lee points out refining the bitumen in Canada would create 26,000 additional jobs. If pipelines ran east instead of west, eastern Canada could rely on domestic oil sources and the nation would increase its energy security.

But this nation-based strategy is increasingly unlikely due to the growing entrenchment of foreign ownership of Canada’s oil resources. In 2009, foreign corporations received over half of the revenues and more than two fifths of the profits. Since then, there has been a major rise in Chinese ownership. Chinese investment is estimated at $12 to $20 billion and comprises a substantial portion of the up-front costs for the Northern Gateway pipeline. Sinopec, the Chinese state oil company that owns a 9% stake in Syncrude oil consortium, has veto power over new investments to upgrade bitumen in Canada.

If jobs are the objective, green investments would create 3 to 34 times more jobs per million dollars of investment. Applying a climate lens, fossil fuel infrastructure will need to be abandoned as the world moves toward solutions while green investments could create the valuable infrastructure needed to re-build a safe climate for humanity. Green investments could include switching to clean sources of electric power, building alternative transportation options, retrofitting homes and commercial buildings for energy efficiency and developing advanced recycling and waste recovery facilities to displace the need for GhG-intensive virgin materials.

A low national carbon tax of $10/per ton would yield about $5 billion, the equivalent of the Northern Gateway investment, every year to be used toward putting Canada on a path to safe levels of emissions.

Enbridge’s presentation of the Northern Gateway proposal doesn’t include the project’s impacts, such as the potential impact of pipeline and tanker spills on tourism and fishing.

Hard numbers don’t exist for the number of jobs at risk from an oil spill but they are in the hundreds of thousands with revenues near $8 billion (this figure is a very rough estimate of Lee’s estimates). If only one in ten jobs in vulnerable sectors was lost due to an oil spill, that number would exceed the permanent employment claimed by Enbridge. This doesn’t include First Nations subsistence harvest which has a replacement value of many millions of dollars in addition to incalculable cultural significance. For the Gitga’at alone, replacement value of its harvests is $2 million.

Spills happen. Lee describes them as a cost of doing business. Between 1999 and 2010, Enbridge pipelines experienced 804 spills, with the release of 168,645 barrels, or 26.8 million litres, of hydrocarbons into the environment. Jobs are only one aspect of the losses involved.

Enormous market failures are associated with green house gas emissions. It’s hard to measure global impacts with long time lags that come in the form of weather disasters. Current weather related insurance losses are about $130 billion per year compared to $25 billion per year in the 1980s. In Canada, the climate change burden is estimated at $5 billion per year by 2020 and rising to $21-43 billion per year by 2050.

Lee estimates a figure of externalized green house gas costs ranging from $4 billion/year (low estimate of 80 million tons of GHGs at $50/ton) to $200 billion (high estimate of 100 million tons at $200/ton). These numbers assume that the bitumen would stay in the ground without the Northern Gateway pipeline, which may be unrealistic. But the point is made: combustion of the large volumes of fossil fuel that would be transported by the pipeline would impose huge costs on third parties.

Profits from pipeline operations would be concentrated. For Enbridge, they could exceed $300 million/year. More generally, the gain in profits to oil companies from higher market prices in Asia is estimated to average $3.6 billion per year.

The federal government and Enbridge must ignore carbon emissions to promote the pipeline because the concentrated benefits and externalized costs are clearly unfair. If the damages from GHG emissions and the costs associated with likely oil spills were included in the cost of the project, Lee concludes that the Northern Gateway pipeline may well be uneconomical.

Conclusion

Faced with mounting criticism, and tasked with convincing the public that the Northern Gateway should go ahead, Enbridge’s future in B.C. remains, as yet, uncertain.

On one hand, the heightened scrutiny of the firm’s history of spills, and its operational culture, could arguably lead to real changes in how Enbridge works – potentially forcing it to transform from the so-called “Keystone Kops” to the responsible corporation it claims to be.

On the other hand – and with only a few exceptions – the vast majority of First Nations along the proposed pipeline route have maintained their unwavering opposition. No amount of reforms, they say, can save the Northern Gateway. To them, the project is as good as dead, a year before its environmental assessment is even complete.

Now even the country’s churches have got on board, with the largest Protestant denomination, the United Church of Canada, voting to condemn the proposal at its August 2012 national convention, following criticisms from the Anglicans, Presbyterians and the multi-church coalition, Kairos: Canadian Ecumenical Justice Initiatives.

In the 62 years since Tommy Douglas lauded the opening of Interprovincial Pipe Line’s first oil route to his home province, Saskatchewan, as “a modern miracle,” have the tables turned on the continent’s largest pipeline corporation?

One could almost sense an aura of fate and destiny colliding when Douglas’ NDP successor, Thomas Mulcair, decided to pick a fight with Prime Minister Stephen Harper over the oil sands and their accompanying pipelines.

Warning that Canada’s increasing focus on Alberta bitumen could damage its struggling manufacturing sector – a legitimate phenomenon known by economists as “Dutch disease,” after Holland’s industrial woes thanks to over-emphasis on the North Sea oil boom – Mulcair called for the oil sands to be more heavily regulated to make them sustainable. Notably, he opposed the export of raw bitumen, the very basis for the Northern Gateway proposal.

And while the Conservatives fought back, labelling the New Democrats anti-development and poor economists, opinion polls held Mulcair in steady approval and even some fiscal experts went to bat for him. The Official Opposition emerged from its oil sands scrap confident, even bolstered.

Will the Northern Gateway?

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