Pipeline doom and gloom

Nexen spill from new Alberta line predicted to increase scrutiny of proposed oil sands lines; too early to demand sweeping changes

GARY PARK

For Petroleum News

By some estimates, it may have taken two weeks for the escape of 5 million liters of bitumen emulsion from a Nexen pipeline to attract public attention in northern Alberta.

It may now take months to fully understand what happened, said Fang Zhi, chief executive officer of Nexen, which is wholly owned by the China National Offshore Oil Corp.

What is troubling to the Alberta Energy Regulator, the government agency that regulates the province’s oil and gas industry, is that the year-old pipeline had been deemed a low risk because “the leak detection system that had been installed seemed to be effective.”

Even more disturbing is the impact the spill, which covers the size of two football fields and is rated as Alberta’s worst spill in 35 years, will have on the increasingly difficult job of gaining approvals for new pipelines out of the oil sands.

The rupture, which spilled bitumen, waste water and sand into the bog-like muskeg country near Nexen’s Long Lake operation, is ammunition for those demanding a minimum of more stringent regulations and a maximum of an outright ban on the projects, effectively shutting down oil sands expansion.

Greater scrutiny expected

He said every high-profile spill, “especially those that involve operator malfeasance” adds to the clamor for an end to new pipelines.

Alberta Premier Rachel Notley said the leakage will rattle public confidence in the industry.

She wants an investigation that results in “clear, meaningful recommendations to ensure that it doesn’t happen again.”

Zhi, who visited the site, said his company’s focus is on “the safety, the environment and the root causes” of the spill.

“It’s disheartening to see the site and it is very disappointing this has happened. I therefore personally apologize for the consequences this might have caused,” he said.

Too soon for rules change

Steven Paget, an analyst at FirstEnergy Capital, said the incident “reinforces the general negativity that’s playing into the challenge to get pipelines built,” and adds to the opposition to four proposed pipelines out of Alberta - Keystone XL (TransCanada), Energy East (TransCanada), Northern Gateway (Enbridge) and the Trans Mountain expansion (Kinder Morgan).

Nexen Senior Vice President Ron Bailey said the pipeline, which has a built-in leak detection system, had not been inspected since it was laid in 2014.

The double-layered steel pipe - a 16-inch pipe inside a 24-inch line - transports bitumen from the company’s Kinosis steam-assisted oil sands operation, which produces 9,000 barrels per day, to its Long Lake facility.

“Certainly all the work was done to help us believe that we had a very good design,” Bailey said.

He said the cost of cleanup is not an issue for Nexen, adding “this is not a rush job. This is not about cuts or anything like that. We’re going to get to the bottom of this event and we’re going to own it.”

He said tests at the site have shown chloride levels of 2,000 parts per million, compared with 50 ppm for potable water.

Concern over when leak started

“We all want to know that when something like this happens, not only is it contained and cleaned up, but every possible effort is made to find out what went wrong and fix it,” she said.

“This is a new pipeline, but I guess things happen and nothing is 100 percent.”

Even so, McCuaig-Boyd and Environment Minister Shannon Phillips said they remain confident that pipelines are the safest means of transporting all forms of crude.

When the NDP was in opposition it frequently raised concerns about the quality of 240,000 miles of pipeline in Alberta and the adequacy of the provincial government’s regulatory system.

But, now that her party is in power, McCuaig-Boyd said there is “no need at this point” for a sweeping regulatory review.

Auditor General Merwan Saher reported in March that a number of improvements could be made to improve pipeline safety, although he concluded the Alberta Energy Regulator was “adequately performing its function of overseeing pipeline safety.”

Phillips echoed the general view that the lag between when the line began to leak and when it was discovered was troubling.

She said other aspects of the leak were also worrying, but declined to provide further details, saying the AER needed space to do its work.

Costs, timetables mount

Laying the groundwork for Canada’s longest oil pipeline is becoming more uncertain in every respect except cost and timing for TransCanada.

Its proposed Energy East system was originally designed to ship 1.1 million barrels per day from Alberta and Saskatchewan to refineries in Ontario and Quebec and export terminals in Quebec and New Brunswick, starting in late 2017 or early 2018 at a cost of C$12 billion.

TransCanada now warns that the price tag is sure to grow for the 2,800-mile pipeline, while the in-service date has been extended to 2020.

The cost inflation is partly the result of a company decision in April to relocate a proposed marine terminal at Cacouna, Quebec, on the St. Lawrence River, in response to concerns about the impact on a beluga whale population.

Adding to the delays is the hard-line opposition from TransCanada’s gas utility customers in Ontario, who believe their supply source could be threatened, the governments of Ontario and Quebec, landowners along the pipeline right of way, environmentalists and First Nations.

Mindful of how aboriginal communities have effectively sidelined Enbridge’s planned Northern Gateway pipeline across British Columbia, TransCanada has been engaged in negotiations with First Nations leaders to secure their support in return for their confidentiality.

So far, TransCanada has reportedly signed 32 “capacity funding agreements” over the past two years, but insists none of its contributions to pay for projects such as fire stations, youth centers and 43 land use studies are designed to muzzle the aboriginal residents.

Kanesatake Grand Chief Serge Simon told the Montreal Gazette that “once we signed an agreement it was basically a gag order. You could not speak of the processes you were in with Energy East” — a claim that TransCanada would not discuss.

However, one person who has participated in the negotiations said the deals do not prevent First Nations from opposing Energy East, but do put them in an “awkward position if they take money from TransCanada and then speak out against” the company.

—GARY PARK