[Senate Hearing 109-766]
[From the U.S. Government Printing Office]
S. Hrg. 109-766
BP PIPELINE FAILURE
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
RECEIVE TESTIMONY RELATING TO THE EFFECTS OF THE BP PIPELINE FAILURE IN
THE PRUDHOE BAY OIL FIELD ON U.S. OIL SUPPLY AND TO EXAMINE WHAT STEPS
MAY BE TAKEN TO PREVENT A RECURRENCE OF SUCH AN EVENT
SEPTEMBER 12, 2006
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska RON WYDEN, Oregon
RICHARD M. BURR, North Carolina, TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri DIANNE FEINSTEIN, California
CONRAD BURNS, Montana MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia KEN SALAZAR, Colorado
GORDON SMITH, Oregon ROBERT MENENDEZ, New Jersey
JIM BUNNING, Kentucky
Frank Macchiarola, Staff Director
Judith K. Pensabene, Chief Counsel
Bob Simon, Democratic Staff Director
Sam Fowler, Democratic Chief Counsel
Dick Bouts, Professional Staff Member
Deborah Estes, Democratic Counsel
C O N T E N T S
Akaka, Hon. Daniel K., U.S. Senator from Hawaii.................. 4
Barrett, Thomas, Vice Admiral (Retired), U.S. Coast Guard,
Administrator, Pipeline and Hazardous Materials Safety
Administration, Department of Transportation................... 6
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................ 3
Bunning, Hon. Jim, U.S. Senator from Kentucky.................... 62
Davies, Peter, Vice President and Chief Economist, BP, P.L.C.,
London, UK..................................................... 16
Devens, John S., Ph.D., Executive Director, Prince William Sound
Regional Citizens Advisory Council, Anchorage, AK.............. 78
Domenici, Hon. Pete V., U.S. Senator from New Mexico............. 1
Dorgan, Hon. Byron L., U.S. Senator from North Dakota............ 4
Gruenspecht, Howard, Ph.D., Deputy Administrator, Energy
Information Administration, Department of Energy............... 11
Hostler, Kevin, President and CEO, Alyeska Pipeline Service
Company, Anchorage, AK......................................... 26
Landrieu, Hon. Mary L., U.S. Senator from Louisiana.............. 64
Malone, Robert, President and Chairman, BP America, Inc.,
Houston, TX.................................................... 16
Marshall, Steve, President, BP Exploration (Alaska), Anchorage,
Murkowski, Hon. Lisa, U.S. Senator from Alaska................... 55
Talent, Hon. James M., U.S. Senator from Missouri................ 5
Thomas, Hon. Craig, U.S. Senator from Wyoming.................... 5
Van Tuyn, Peter, Partner, Bessenyey & Van Tuyn, Inc., Anchorage,
Responses to additional questions................................ 83
BP PIPELINE FAILURE
SEPTEMBER 12, 2006
Committee on Energy and Natural Resources,
The committee met, pursuant to notice, at 9:37 a.m., in
room SD-106, Dirksen Senate Office Building, Hon. Pete V.
Domenici, chairman, presiding.
OPENING STATEMENT OF HON. PETE V. DOMENICI,
U.S. SENATOR FROM NEW MEXICO
The Chairman. The hearing will please come to order. Can
you hear me in the back of the room? Yes, OK.
Before we begin the opening statements, in accordance with
rule 11 of the committee's rules, I'll ask all the witnesses to
please rise to be sworn in, in connection with the testimony
that they're going to be giving today. I'll ask each of you to
please reply individually to the following, beginning with
Admiral Barrett, and I will start by asking you to raise your
Do you solemnly swear that the testimony you are about to
give to the Senate Committee on Energy and Natural Resources
shall be the truth, the whole truth, and nothing but the truth?
Admiral Barrett. I do.
The Chairman. Mr. Gruenspecht? Is that how you say your
Mr. Gruenspecht. That's fine.
The Chairman. I didn't hear your response.
Mr. Gruenspecht. Yes.
The Chairman. Mr. Malone?
Mr. Malone. Yes, sir.
The Chairman. Mr. Marshall?
Mr. Marshall. Yes, sir.
The Chairman. Mr. Davies?
Mr. Davies. I do.
The Chairman. Mr. Hostler?
Mr. Hostler. I do.
The Chairman. Mr. Van Tuyn?
Mr. Van Tuyn. I do.
The Chairman. Thank you all. Please sit down. We will now
proceed with opening statements.
Good morning, everyone. Five weeks ago, BP, British
Petroleum, announced a suspension of production in the Prudhoe
oil field as a result of a pipeline failure in Alaska.
Initially, reports estimated that this shutdown could mean the
loss of as much as 400,000 barrels of oil per day, about 8
percent of the total U.S. oil production and 2.8 percent of
U.S. supply. As Americans prepared to take to the roads at the
height of the holiday driving season, as the tensions in
Lebanon drive up fears of a larger Middle East unrest, and as
militant attacks and kidnappings have continued to depress oil
production and exportation from Nigeria, the news of disruption
in our domestic supply of oil came at a most inopportune time.
Everyone understands that unfortunate situation.
The effects of this news were felt immediately in the
boardrooms and breakfast tables around the country and at
trading desks in New York and hearing rooms in Washington. On
the day of the announcement, U.S. crude oil futures increased
sharply, by $2.13, to $76.89 a barrel on the NYMEX. Analysts
and energy policymakers took to the airways announcing the
potential for the very worst and Americans demanded answers to
the following questions, very simple ones: First, how could
this happen? Second, what did this mean for the price that they
would now pay at the pump?
Five weeks later, we do not have a sufficient answer to the
first question. I trust that this committee will gain some
adequate insight into this over the course of the morning and,
if not, into the afternoon. For the record, I find this
incident inexcusable. I'm not in the oil business, but this
much I know: The cost of running the appropriate standard
maintenance on energy infrastructure is greatly outweighed by
the cost that this incident has brought to bear in real
dollars, in goodwill, and in business brand name. This is a
black eye on BP and the American people and the committee
demands answers today.
The second question may be refined since many of our
initial fears from 5 weeks ago were thankfully not realized.
Perhaps that question is better phrased today as: What could
happen to prices at the pump if we had lost all the oil that
was initially anticipated for an extended time period?
Finally, a third question faces this committee: What can we
do and what can be done and what is at present being done to
ensure that we do not face this problem again?
By way of background, it is important to note that this
severe pipeline corrosion and resulting oil spill was
discovered only because of inspections ordered by Federal
regulators following a March 2006 spill of approximately 5,000
barrels of oil from other pipelines operated by British
Petroleum. The March and August spills were allegedly the
result of years of failure by British Petroleum to conduct the
most basic of corrosion inspections--techniques, I should say,
the most basic of corrosion inspection techniques.
I find this very distressing and I am sure it is
distressing to you, Mr. Robert Malone, as you sit before us
thinking about it, versus your company's way of doing business
in the past and what you are known for.
This time we were fortunate. The environmental damage was
relatively minimal and no persons were injured as a result of
these spills, and actual production from Alaska never dropped
below 510,000 barrels. But that is still well under the 800,000
barrels to which U.S. markets are accustomed. As of today,
production has returned to approximately 650,000 barrels per
The correlation that we all feared between prices at the
pump and BP's action thankfully did not materialize.
Nevertheless, this state of affairs was a wake-up call to the
fact that improper maintenance of our domestic facilities could
be just as serious a threat to our economy as a foreign
country's turning off the spigot or a gulf hurricane shutting
down producing wells.
It's one thing for this country to be adversely affected by
events over which it has little or no control. It is quite
another to have adverse consequences that could have been
prevented inflicted on it by companies like BP. That is simply
egregious, no doubt about it.
At our hearing today we are primarily addressing four
issues: One, we need to learn more about what happened on BP's
pipelines and the effects that this type of disruption could
have on supply and price. Second, we need to gain assurances
that our Alaska North Slope oil delivery system will remain
secure and reliable. Third, we need to know when full
production will resume. And fourth, we need to know what
actions are being taken to ensure that this does not happen
I look forward to the witnesses' testimony. We have a large
number of witnesses and we want to have time for members'
questions, so I encourage members to open with remarks that are
as brief as possible. Your full statements will of course be
included in the record.
With that, I will turn now to Senator Bingaman for his
opening remarks and whatever he sees fit to do. Senator
STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR
FROM NEW MEXICO
Senator Bingaman. Thank you very much, Mr. Chairman. Thanks
for scheduling the hearing. Obviously it's a subject that this
committee needs to be vitally involved in and to understand
better, to understand what did occur that caused the
interruption or reduction in supply from Prudhoe Bay, but also
understand, as you point out, what actions Congress can take
and what actions the private sector can take to prevent the
recurrence of such an event.
I think we're all clear that this committee does not have
jurisdiction over the issue of pipeline safety, but we do have
jurisdiction over infrastructure reliability. Frankly, it's
hard to sort those two out and separate them. I think clearly
we have a great interest in understanding and dealing with this
As you point out, the poor maintenance and inadequate
inspections that evidently were present there in Prudhoe Bay
are a very real concern to all of us. The U.S. lost something
like, as I understand it, 4 percent of its supply for a period
of time, an indeterminate period of time. I hope we can get a
good explanation from BP as to how this incident could have
happened and what steps they have taken, and are taking, to
prevent it in the future.
I also hope that Admiral Barrett and Mr. Van Tuyn and other
witnesses can give us a full picture of the Federal and State
regulatory regime that applies on the North Slope and, in
particular, why these pipelines were exempt from Federal
regulation and what oversight did State regulators perform on
Finally, I just point out that this does raise questions
that need to be addressed also as to the adequacy of the
infrastructure that we are constructing and maintaining on the
North Slope for additional developments. One particular
development that I have joined with many others in writing to
Secretary Kempthorne about is this planned leasing with regard
to this 200,000 acres near Teshekpuk Lake. This is an area that
some of us have had concerns about. And understanding the
adequacy of the infrastructure, the confidence that we have
with regard to not having spills in that area would be very
important as well.
Thank you again for having the hearing.
The Chairman. Yes, sir, Senator.
[The prepared statements of Senators Akaka, Dorgan, Talent,
and Thomas follow:]
Prepared Statement of Hon. Daniel K. Akaka, U.S. Senator From Hawaii
I would like to begin today by thanking Chairman Domenici
and Ranking Member Bingaman for calling this timely and
important hearing regarding the impact of BP's pipeline failure
in the Prudhoe Bay oil field in Alaska. As the largest oil
field in the United States with daily production of
approximately 400,000 barrels of oil per day, Prudhoe Bay is
critical to this nation's ability to successfully meet its
I am angered that BP failed to conduct the standard tests
for pipeline corrosion. It is my understanding that these
corrosion problems could have been mitigated by thorough and
regular inspection and maintenance of the pipes. I am also
bothered by allegations that BP executives failed to respond to
concerns raised by its employees regarding pipeline safety and
other environmental issues prior to the March 2006 oil spill.
We, as government leaders, need to take a close look at the
ways in which the energy infrastructure is regulated and ask
ourselves if new requirements are necessary to ensure its
overall reliability. Hopefully, this hearing will be a first
step in the process of discovering what is currently being done
and what more needs to be done to prevent future pipeline
failures. While I believe that domestic oil production is an
important part of a larger national strategy to ensure energy
security and independence, it must be done taking precautions
necessary to minimize harm to the environment.
I look forward to hearing your testimony.
Prepared Statement of Hon. Byron L. Dorgan, U.S. Senator
From North Dakota
Mr. Chairman, thank you for holding this hearing today. I
believe it is important to figure out what happened and how we
can ensure that it does not happen again.
BP is a big oil company and it recorded second quarter
profits this year of $7.27B, which was 30 percent higher than
second quarter profits in 2005. According to one news source,
these profits represented $2.5M an hour.
I say that because this was not a small company that cut
corners because of economics. This is a large company that cut
corners because . . . well, I can't give you that answer. Maybe
the witnesses will be able to tell us.
I don't believe it does anyone any good to come here and
only testify about how they will ensure this does not happen
again. This should have never happened in the first place and I
believe the witnesses have an obligation and responsibility to
tell the Committee and others what led to this systematic
After this incident, while I was in North Dakota, I asked
some oil and gas people how do you not pig a line for 15 years?
Everyone I asked had the same look--mostly a scratch of the
head and a response that they were asking themselves the same
Well, we are all scratching our heads up here and wondering
how do you, as a major oil company, not do basic and essential
things to check the integrity of your infrastructure? Whether,
under current law, you are required to or not, it seems that
ensuring the integrity of the infrastructure for your product
is the most fundamental and basic thing that you can do.
And the sad part is this--your company is not the real ones
that suffered here. After the announcement to shut down the
pipeline came out, the price of oil increased over $2.00 a
barrel. So while on the one hand you had a loss, the other hand
showed a win.
I guess that is just the nature of the game when you have 5
oil companies in the U.S. that have such a substantial share of
the oil market.
Again Mr. Chairman, I thank you for holding this hearing
and look forward to knowing why BP did not consistently test
and maintain its infrastructure. I am also looking forward to
knowing when they knew there was a problem and what corrective
measures they, and the industry, are putting in place to ensure
this does not happen again.
Prepared Statement of Hon. Jim Talent, U.S. Senator From Missouri
Mr. Chairman. Thank you for holding this important and
timely hearing. I requested this hearing in August and I'm glad
that we have this opportunity to examine the shutdown, both the
events leading up to the announcement and the impacts on supply
Last month, I was extremely concerned over BP's
announcement to suspend production at its Prudhoe Bay oilfield
due to a spill and corrosion of BP's pipelines. This pipeline
supplies as much as 400,000 barrels of oil per day, which is 8
percent of U.S. oil production and 2.6 percent of U.S. supply,
Missourians, myself included, have been extremely
frustrated with the current high price of both oil and
gasoline. It seems to me that this shutdown could have been
prevented and consumers could have been spared the slight
increase in prices following the announcement. As you know,
August is always high time for family vacations and I am
concerned about the high cost of gasoline on families in
Missouri and across the country.
Additionally, our economy relies on affordable and reliable
energy supplies. Every time the cost of oil and gasoline
increases, it puts pressure on the American economy. BP and
other oil companies should take every possible measure to
ensure that these shutdowns are avoided.
Mr. Chairman, as you know, I strongly support efforts to
expand domestic production of oil and natural gas. However, I
also expect the private sector to sharply step up its
investment in its own critical infrastructure. Earlier this
year, BP announced that its second quarter earnings rose 30
percent to a record $7.32 billion.
Yet at the same time, they did not make the needed
investments into critical infrastructure. Extensive corrosion
to a pipeline of such importance to our economy is unacceptable
and could easily been avoided if BP had taken even minimal
steps to maintain the pipeline.
I understand that the Department of Transportation is
drafting proposed legislation to regulate low stress hazardous
liquid lines--like the BP line in question. I look forward to
reviewing that legislation; it is clear that we can not rely on
industry to self regulate. They were given the opportunity, and
Prepared Statement of Hon. Craig Thomas, U.S. Senator From Wyoming
Good morning. I'd like to thank the Chairman for convening
this important hearing and I appreciate the witnesses appearing
before us today.
What has happened on the North Slope of Alaska is bad,
there is no question about it. British Petroleum is a
successful company with huge profits. They have failed to re-
invest that money into safety and maintenance, however. This
pipeline failure comes on the heels of several black eyes and
tragic events for the company. There were 15 workers killed
last year in an accident at a BP refinery in Texas. Traders
from this company have pleaded guilty to cornering the propane
market and manipulating prices during the 2004 winter; the same
time of year when Americans need cheap energy most. We all know
what BP has done recently. I want to know what's going to be
done to fix it, I want to know what you're doing to ensure that
these things don't happen again, and I want to be sure that
these things will not happen in my state.
My support for energy development in Wyoming is based on
trust. Your industry is a part of the community, economy and
social fabric of Wyoming. When I'm told that you're doing the
right thing, I have trusted you. Your companies behavior in the
last year makes me question that trust.
I'll make one other point. Congress will soon consider the
reauthorization of pipeline safety legislation. That
legislation is outside the purview of this Committee. I do hope
that our conversations today can help inform that debate,
however. We must not over-reach in our effort to craft pipeline
safety legislation. The situation in Prudhoe Bay is unique. The
pipelines there are low-pressure but they're 3 feet in
diameter. Most of these low-pressure pipelines are smaller, and
they're connected to marginal wells.
Prudhoe Bay provides 8% of domestic supply, but marginal
wells provide nearly twice that amount. The economics of these
wells is tenuous. If we go too far in regulating the pipelines
connected to them, those marginal wells become uneconomic.
Producers will shut them in and we'll have two Prudhoe Bay
disasters on our hands. We need to make sure that does not
Again, I thank the Chairman for holding this hearing and I
look forward to hearing from the witnesses.
The Chairman. With that, Senators, you understand we're
going to proceed to the witnesses and then back to us, so that
we can include in our opening remarks our approach to
questions. Unless Senators want to change that approach, I will
proceed on that basis, and time of arrival will be the time in
which you're called upon. That means, from what I have seen
here, that the chairman, Bingaman, Thomas, Wyden, Murkowski,
Feinstein, Bunning is the order of arrival and calling on each
Now we're going to proceed. You've all been sworn in and
we're going to start with Admiral Thomas Barrett.
STATEMENT OF VICE ADMIRAL THOMAS BARRETT, U.S. COAST GUARD
[RETIRED], ADMINISTRATOR, PIPELINE AND HAZARDOUS MATERIALS
SAFETY ADMINISTRATION, DEPARTMENT OF TRANSPORTATION
Admiral Barrett. Chairman Domenici, Ranking Member
Bingaman, members of the committee, thank you for the
opportunity to discuss the actions of the Pipeline and
Hazardous Materials Safety Administration of the Department of
Transportation to oversee safe operations of BP exploration
pipelines at Prudhoe Bay and steps that can be taken to prevent
recurrence of such pipeline failures. Our mission is achieving
and maintaining safe, environmentally sound and reliable
operation of the Nation's pipeline transportation system. In
practice, this requires understanding conditions of pipelines
and ensuring operators take actions to prevent and address
unsafe conditions. Pipelines that are safe provide reliable
Following BP's March 2 crude oil spill from a low-stress
line at Prudhoe Bay, we used our statutory authority to assert
jurisdiction over the failed line and other BP unregulated,
low-stress transit lines at Prudhoe Bay. We subsequently issued
a series of orders to the operator to perform long overdue
inspections and maintenance and implement measures for safe
restoration of operations. We ordered BP to run cleaning pigs
to remove solids from the lines and perform in-line inspections
to understand the condition of the lines from the inside out.
We directed an extensive ultrasound testing and enhanced
corrosion management plan, external surveillance using
infrastructure detectors to detect leaks, and development of
plans to manage solids in ways that prevent risk to the Trans-
Alaska Pipeline. As a result of the pigging we ordered, BP
discovered the wall loss and leaks on a line segment in the
eastern operating area on August 6 and subsequently shut down
We also put an inspection team on the Trans-Alaska Pipeline
System and updated our evaluations of the integrity and
reliability of other regulated transmission lines on the North
Slope to minimize risks from any additional impacts of the BP
We have been on the job overseeing and directing these
actions since March. Along with my western regional director,
Mr. Chris Hoidal, and my chief safety officer, Stacey Gerard, I
visited Anchorage and Prudhoe Bay in July to meet with my field
inspectors, BP and Alyeska executives, State officials, and the
Joint Pipeline Office to assess conditions and actions
firsthand. Acting Transportation Secretary Maria Cino visited
in August and I went back on August 31 to reassess progress and
compliance with our orders.
We do not understand why BP did not more aggressively
address corrosion problems that led to these leaks much
earlier. We have found most pipeline operators demonstrate a
higher standard of care than this, regardless of whether or not
they are federally regulated.
The Chairman. Regardless of what?
Admiral Barrett. Regardless of whether they are federally
regulated or not. Most operators, whether they're under our
regulations or not, exercise more care than we've seen here.
We presently are addressing two separate immediate issues
with BP's major Prudhoe Bay transfer lines: first, the
conditions under which the western area transfer line can
continue to operate; and second, safe restoration of production
on the shut-down eastern line. Each line, as you noted, carries
about 200,000 barrels of crude oil a day, or a total of 400,000
barrels for both lines.
On the western line, we've required continuous ultrasonic
testing and directed an enhanced corrosion management plan and
external surveillance. We continue to monitor these results on
a daily basis. On the eastern line, our focus is restoring the
line so that it can be pigged, as a precursor to allowing it to
return to full service. Flow must be restored to allow the
pigging. We will allow this limited restart when we are assured
it can be done safely, and restoration of normal production
flow will be dependent on the pigging results.
We are working with BP to prepare for a possibility that
the eastern line may not be in good condition. If pigging
reveals serious problems with the remaining segments of the
eastern line, we understand BP is developing options to bypass
segments of the line and reroute production to other existing
transmission lines until the lines can be replaced.
As unfortunate as these incidents are, they are not a
bellwether for the health of the majority of the energy
pipeline infrastructure. As a result of integrity management
programs we have required since the early 2000 series, over
57,000 defects system-wide, which could have grown to failure
and possibly caused energy disruptions, have been found and
fixed. The overall safety record of the U.S. industry is
getting progressively better.
On August 31 the administration proposed new safety
requirements for rural low-stress pipelines, including the BP
lines at Prudhoe Bay. The proposal was under development since
2004, well in advance of these spills, and will protect
unusually sensitive environmental locations. Lines of this type
in populated areas and impacting navigable waters are already
regulated. As this is a proposal, we are seeking public input,
including the scope of coverage and requirements proposed.
The Secretary of Transportation also submitted to Congress
the administration's legislative proposal to reauthorize the
2002 Pipeline Safety Improvement Act. This proposal would
strengthen State programs to prevent external damage to gas
distribution lines, a serious life safety risk and the only
area where accidents are trending upward. The proposal also
includes a provision that would enhance both safety and energy
supply by implementing a risk-based approach for retesting
intervals on natural gas pipelines rather than a mandatory 7-
year interval regardless of risk. A recent GAO report endorsed
the system risk-based approach.
The natural gas transmission industry warned that supply
shortages could occur, depending on gas demand, if operators
are required to shut down one-seventh of their systems for
assessments in the same years in which they are conducting
mandatory baseline testing.
Mr. Chairman, I want to assure you and members of the
committee that the administration, the Acting Secretary, and
the dedicated men and women of PHMSA share your strong
commitment to improving the safety, reliability, and public
confidence in our pipeline transportation system. Like you, we
understand the importance of our safety mission to our citizens
and the energy security and continued economic growth of our
With your permission, I'll submit my written statement for
the record and be pleased to answer any questions that you may
[The prepared statement of Admiral Barrett follows:]
Prepared Statement of Vice Admiral Thomas J. Barrett, USCG (Retired),
Administrator, Pipeline and Hazardous Materials Safety Administration,
Department of Transportation
Chairman Domenici, Ranking Member Bingaman, members of the
Committee: Thank you for the opportunity to discuss recent actions of
the Pipeline and Hazardous Material Safety Administration to oversee
safe and reliable operations of BP Exploration (BPXA) pipelines at
Prudhoe Bay, Alaska, and steps that can be taken to prevent recurrence
of such pipeline failures.
Our agency mission is achieving and maintaining safe,
environmentally sound, and reliable operation of the nation's pipeline
transportation system. In practice, this requires understanding the
condition of pipelines and ensuring that operators take actions to
prevent and address any unsafe conditions. As you know the first
responsibility for safe and reliable operation rests with the pipeline
Since the spill of approximately x,000 barrels of crude oil from a
BPXA-operated low stress line at Prudhoe Bay on March 2, PHMSA has been
on the job aggressively to ensure safe and reliable operations. Because
the BPXA line where the spill occurred was a low stress line, operating
at less than 20 percent of its maximum strength, it had not been
federally regulated. In mid-March, using our statutory authority, we
asserted federal jurisdiction over the failed line and other BPXA
unregulated low stress lines at Prudhoe Bay, a total of 22 miles of
transit pipeline. We subsequently issued a serves of orders to the
operator to perform long overdue inspections and maintenance on its low
stress lines and implement measures for the safe restoration of
operations. These included measures to understand the conditions of the
lines and take all necessary measures to assure safety and reliability.
In addition, PHMSA recently proposed regulations for these types of
pipelines, which have been under development since 2004.
We ordered BPXA to run cleaning pigs to remove solids from the
lines and perform in line inspections (smart pigging) to understand the
condition of the lines from the inside out. We directed extensive ultra
sound testing and an enhanced corrosion management plan. We directed
external surveillance using infra-red detectors to detect leaks and the
development of plans to manage solids in a way that prevented risks to
the Trans-Alaska pipeline. It was as a result of pigging we ordered
that BPXA discovered the wall loss and leaks on a line segment in the
Eastern Operating Area that led to the production shutdown on August
Our personnel have been on the job tirelessly since March
overseeing and directing these actions. We brought on additional
technical resources from Oak Ridge National Laboratories. Along with my
western region director, Mr. Chris Hoidal and my chief safety officer,
Ms Stacey Gerard I visited Anchorage and Prudhoe Bay in early July to
assess the situation first hand and meet with my field inspectors, BP
and Alyeska executives, state officials and the Joint Pipeline Office.
The Acting Secretary of Transportation, Maria Cino visited in August
and I went back on August 31st to reassess progress and compliance with
While this was progressing we put an inspection team on the Trans-
Alaska Pipeline System and updated our evaluation of the integrity and
reliability of all the regulated transmission lines on the North Slope
to minimize the risks to transportation from any additional impacts of
the BP pipeline failures.
We do not understand why BPXA did not more aggressively address the
corrosion problems that led to these leaks much earlier. Given the
multiple risk factors for corrosion in the Prudhoe Bay environment and
the low velocities on these lines, it is mystifying that BPXA did not
run cleaning pigs regularly on these transit lines. We have found most
pipeline operators demonstrate a higher standard of care than this,
regardless of whether they are federally regulated or not.
While the operator's management of the lines in the years leading
up to the March incident is a disappointment, BPXA is finally making
progress in addressing our concerns and we are actively working with
them to safely increase pipeline throughput back to previous levels.
Our first concern was whether we could allow the Western area transfer
line, which carries about 190,000 barrels of daily throughput to
continue to operate. To do so, we required continuous ultrasonic
testing. This requirement will continue until BPXA complies with our
order to internally inspect the line with a smart pig. Further, we
directed ultrasonic testing in all elevation changes and low spots to
identify any other potential failure locations, and this testing is
almost complete. We are allowing this ling to continue to operate based
on BPXA completion of about 25 percent of exterior, ultrasonic testing.
We continue to monitor these results on a daily basis. Operator records
show that BPXA inspected this line with a smart pigged in 1998. The
line has twice the flow velocity of the Eastern Operating Area, making
it less susceptible to corrosion.
Our other primary focus has been on getting the Eastern operating
line ready for pigging as a precursor to allowing it to return to full
service. The line had been carrying about 200,000 barrels of daily
throughput. To pig this line, flow must be restored to allow the pig to
travel the line. We recognize the importance of these pipelines to the
Nation's oil supply and are working to help ensure that action is taken
expeditiously, but at the same time we must be assured that even a
temporary, limited restart can be operated safely, before it can
proceed. We have asked BPXA to provide a credible corrosion hypothesis,
validated by testing, so that we know they understand the potential
corrosion on the line and can manage corrosion going forward. We will
require a risk mitigation plan for pigging and restart, and a dry run
of the restart, pigging and bypass operation needed to carry the solids
to a safe storage tank to permanent handling. Finally, we have required
additional personnel and equipment for rapid response in case of a
spill. These requirements are additional to those identified in our
Corrective Action Order and Amendments. Once pigged, PBXA must identify
and remediate any defects prior to full production. This line could
then operate until it is replaced entirely in 2007.
We are also working with BP to prepare for the possibility that the
Eastern line may not be in good condition and may not be able to be
restarted. If smart pigging reveals serious problems with remaining
segments of the Eastern line, BPXA is developing an option to bypass
large segments of the Eastern transit line and re-route product to
existing transmission lines. ``Jumper'' lines to accomplish this will
also require our approval.
The BPXA transit lines failures are not indicative of the state of
the rest of the U.S. energy infrastructure. Based on our observations,
other major companies are investing more consistently in the integrity
of their pipeline systems and generally have much greater system
reliability as a result. Integrity management procedures, required by
our oversight regulations, require regular assessment and repair of
identified risks. As a result of integrity management programs we have
required, over 57,000 defects system wide, which could have grown to
failure and possibly caused energy disruptions, have been found and
fixed, at the earliest possible stage. The overall safety record of the
U.S. pipeline industry is good and getting progressively fetter. The
liquid pipeline industry is nearing completion of their baseline
testing programs. We are seeing a steady decline in the number of
pipeline incidents that cause serious harm to people or the
environment. Pipelines that are safe also provide reliable
Comparing the five year periods before and after integrity
management programs were implemented on hazardous liquid pipelines,
spill frequency dropped 18 percent and volumes spilled dropped 35
On August 31st the Administration proposed robust new safety
requirements for rural low stress pipelines including the BP lines at
Prudhoe Bay. The proposal has been in development since 2004, well in
advance of these spills. The proposal would protect unusually sensitive
environmental locations in rural areas, covering about 22% of lines of
this type nationwide. Most of the lines the proposed rule addresses are
far smaller than the BP Prudhoe Bay low stress lines, but still provide
critical transportation of energy products. Low stress lines in
populated areas and near navigable waterways are already overseen by
PHMSA. As this is a proposal we are seeking public and stakeholder
input, including comments addressing the scope of coverage and the
As you may know, the pipeline safety program is due for
reauthorization and the Committees with oversight have been actively
considering a range of provisions this spring and summer to build on
the success of the 2002 Pipeline Safety Improvement Act. Of greatest
interest to most stakeholders are provisions designed to address the
leading cause of serious pipeline accidents, construction-related
damage. The Administration's proposal would address this problem by
authorizing civil enforcement authority of one call notification laws
and financial incentives for states to improve damage prevention
The Administration's proposal also includes a provision to use a
risk-based approach for the management of natural gas transmission
lines, which should minimize energy supply interruptions. The current
statute requires operators of natural has transmission lines to perform
baseline integrity tests of their pipelines over a ten-year period and
retest those lines every seven years regardless of the line's condition
and risk profile. Repairs following testing may require shutdown of the
gas transmission lines. The Administration has proposed removing this
provision and replacing it with a risk based approach to determine
appropriate retest intervals. This will improve risk management and
safety. Just recently, the General Accountability Office (GAO) issued a
report supporting repeal of seven-year retest requirements.
Like the GAO, we believe that safety testing should be performed as
often as necessary to detect problems and prevent accidents, not on a
fixed, one-size-fits-all schedule. This is not simply a question of
operating costs. Because these tests can be performed only when the
line is shut down, testing necessarily will have direct impacts on
natural gas supply. A risk-based approach, implemented through
rulemaking, will have less of an impact on gas flow and, at the same
time, not sacrifice safety.
The Administration's proposal also would prevent supply shortages
that could result from overlapping testing requirements in the last
three years of the ten-year baseline testing. The natural gas
transmission industry has warned that supply shortages could occur,
depending on gas demand, if operators are required to shut down one-
seventh of their systems for mandatory retesting in the same years in
which they are conducting mandatory baseline testing on other lines. We
want to bring this issue to your attention.
Mr. Chairman, I want to assure you and members of the Committee
that the Administration, the Acting Secretary, and the dedicated men
and women of PHMSA, whose work at Prudhoe Bay by the way I am
enormously proud of, share your strong commitment to improving the
safety, reliability, and public confidence in our pipeline
Like you, we understand the importance of our mission to the
citizens, communities and the energy security and continued economic
growth of America. Thank you.
The Chairman. Thank you very much, Admiral. Your written
statement will be made a part of the record as if read and we
will ask you questions as we see fit in due course.
What is the committee's pleasure? I assume that we should
now go to the next witness, as we had planned.
All right, the next witness will proceed. Would you
introduce yourself to the committee and tell us what you do and
then proceed to give your testimony.
STATEMENT OF HOWARD GRUENSPECHT, DEPUTY ADMINISTRATOR, ENERGY
INFORMATION ADMINISTRATION, DEPARTMENT OF ENERGY
Mr. Gruenspecht. Yes, my name is Howard Gruenspecht and I'm
the Deputy Administrator of the Energy Information
Administration. Thank you, Mr. Chairman, and members of the
committee. I appreciate the opportunity to appear before you
today to discuss the role of Alaska North Slope oil in U.S.
energy markets. EIA is the independent statistical and
analytical agency in the Department of Energy. We do not
promote, formulate, or take positions on policy issues and our
views should not be construed as representing those of the
Department or the administration.
In 2005, Alaskan crude oil represented about 17 percent of
total U.S. crude oil production and about 6 percent of all
crude oil processed in the United States. While still an
important part of U.S. supply, Alaskan oil production, of which
Prudhoe Bay is the most important source, has declined from its
1988 peak of just over 2 million barrels a day to 864,000
barrels per day in 2005.
On August 6--the reason we're here--BP Exploration Alaska,
which operates the Prudhoe Bay field, announced that it would
suspend its production pending acquisition of further
information on the integrity of the transit pipelines that
carry produced oil to the Trans-Alaska Pipeline System. It was
subsequently determined that only part of production would need
to be taken offline for an extended period. According to the
State of Alaska, Prudhoe Bay production for the month of August
averaged 189,000 barrels per day, about half its August 2005
West coast refineries have been the primary market for
Alaskan crude oil since the inception of North Slope
production. However, as production in Alaska has declined since
1988, the share of crude input to West Coast refineries that is
supplied by Alaskan oil has fallen, as shown by figure 2 in my
written testimony. In 2005, oil refineries in California and
Washington received 32 percent of their total crude oil input
from Alaska, while imports provided 38 percent. A decade
earlier, in 1996, refineries in these two States received an
average of 1.16 million barrels a day of crude from Alaska,
accounting for half of their total crude supply, while imports
provided only 13 percent.
Although the loss of any crude supply has a ripple effect
throughout the world oil market, as supplies are shifted to
fill gaps affecting a specific region, the current disposition
of Alaskan oil suggests that West Coast refineries would be
most immediately impacted by a cutback in the flow of oil from
Alaska. However, as discussed in my written testimony, the
cushion provided by relatively high crude oil inventories in
advance of the recent production loss and the modest size of
the reduction in flow that's actually occurred here precluded
any major problems to date. EIA weekly refinery data through
the week ending September 1 do not show any detectable impact
on crude runs along the West Coast since the production
The response to an extended disruption in supply from
Alaska would likely involve some increase in crude oil imports,
especially since West Coast refineries are among the world's
most sophisticated, with the capability to process different
types of crude oil from many sources. Current major import
sources for the West Coast are Saudi Arabia, Ecuador, Iraq, and
Canada. Figure 3 in my written testimony provides additional
Timing considerations might favor an initial surge in
imports from nearby suppliers, such as Ecuador, Canada, and
Colombia, with more distant make-up volumes arriving later as a
result of companies taking precautions to cover their supply
needs. Complete import data are not yet available for August,
but there is some preliminary evidence of increased imports.
I was asked to consider the possible impacts of a
hypothetical supply disruption involving more or even all of
Alaska's crude oil supply. This is really very difficult to
assess in general terms because the extent of those impacts
would depend on many factors, such as the level of West Coast
crude and product stocks, world surplus capacity, seasonal
factors, and the perceived duration of the hypothetical
Looking just at the global upstream balance in the world
oil market, EIA estimates that current excess production
capacity worldwide is only about 1 million to 1.5 million
barrels per day, with all of this residing in Saudi Arabia. The
loss of over 800,000 barrels per day--that would be the
complete Alaska supply--for an extended period, given the
current low level of surplus capacity, could trigger a
noticeable rise in the world oil price.
To conclude my testimony, I'd like to briefly summarize our
latest short-term outlook for petroleum markets, which we are
releasing this morning. While August, as we all know, began
with a price surge, prices for both crude oil and gasoline have
been falling steadily over the last 5 weeks. The average retail
price of regular motor gasoline fell from $3.04 a gallon on
August 7 to $2.62 per gallon yesterday, and we expect it to
continue falling, with the monthly average of about $2.55 per
gallon in January of next year, before rising again into next
Total motor gasoline stocks, which during the month of
August in the last 5 years fell by an average of 10 million
barrels, fell by only 2 million barrels this August. This
modest decline in stocks, the expected seasonal drop in
gasoline demand, and the changeover from summer to winter
gasoline--the winter gasoline being less expensive to produce--
are all contributing to lower gasoline prices. At the present
time the spread in price between a barrel of conventional
gasoline and a barrel of WTI crude oil has shrunk to between $1
and $2 per barrel. That's welcome news for consumers, but it's
a gap that's unlikely to remain that small for a long period.
In terms of distillate stocks, they were almost 10 million
barrels above the previous 5-year average at the end of August,
but diesel fuel prices have not fallen as much as gasoline
prices. Global demand for distillate fuels, particularly in
Europe and Asia, is keeping this market tight. While diesel
fuel prices are expected to decline over the next few months,
prices are projected to increase again as winter demand for
heating fuel grows.
Mr. Chairman and members of the committee, this completes
my testimony. I'd be happy to answer any questions that you
[The prepared statement of Mr. Gruenspecht follows:]
Prepared Statement of Howard Gruenspecht, Deputy Administrator, Energy
Information Administration, Department of Energy
Mr. Chairman and Members of the Committee: I appreciate the
opportunity to appear before you today. The Energy Information
Administration (EIA) is the independent statistical and analytical
agency within the Department of Energy. We are charged with providing
objective, timely, and relevant data, analysis, and projections for the
use of the Congress, the Administration, and the public. While we do
not take positions on policy issues, our work can assist energy
policymakers in their energy policy deliberations. Because we have an
element of statutory independence with respect to our activities, our
views are strictly those of EIA and should not be construed as
representing those of the Department of Energy or the Administration.
My testimony today focuses on the role of Alaska North Slope oil in
U.S. energy markets. The recent reduction in crude oil production from
Alaska's Prudhoe Bay Field due to concerns over pipeline integrity and
the reductions in Gulf of Mexico production as a result of Hurricanes
Ivan, Katrina, and Rita in 2004 and 2005 provide reminders that
domestic supplies of crude oil, not just foreign supplies, are subject
to unexpected interruptions.
ALASKAN CRUDE OIL
In 2005, Alaskan crude oil represented about 17 percent of total
U.S. crude production and about 6 percent of all crude oil processed in
the United States. While still an important part of U.S. supply,
Alaskan oil production has declined from its 1988 peak of just over 2
million barrels per day to 864 thousand barrels per day in 2005, with
all but 20 thousand barrels per day produced on the North Slope. The
Prudhoe Bay Field, which has provided the bulk of North Slope
production, averaged about 370 thousand barrels per day in 2005, down
from a peak of almost 1.6 million barrels per day in 1988.
The Trans-Alaska Pipeline System (TAPS) conveys North Slope
production 800 miles south to the ice-free port at Valdez, on the
Prince William Sound. (Figure 1*) TAPS is owned and operated by a
consortium called the Alyeska Pipeline Service Company, the current
shareholders of which are BP, ConocoPhillips, ExxonMobil, Koch, and
Unocal, with ownership shares of 46.93, 28.29, 20.34, 3.08 and 1.36
percent respectively. While TAPS shipped as much as 2.1 million barrels
per day at peak flow in 1988, the average 2006 flow has been about 780
thousand barrels per day. Alyeska has stated that the pipeline can
operate at rates as low as 400 thousand barrels per day.
* All figures have been retained in committee files.
On August 6, BP Exploration Alaska, Inc., which operates the
Prudhoe Bay Field on behalf of itself and the other interest owners,
announced that it would have to cut production from the field, pending
acquisition of further information on the integrity of the transit
pipelines that carry the produced oil to TAPS. (BP has a 26.3 percent
ownership interest in the Prudhoe Bay Field, and its share of
production in the field represented about one-third of BP's total
Alaskan production in 2005.) Initially, concerns were raised that
Prudhoe Bay production might be stopped altogether, but it was soon
determined that only a part of production would have to be taken
offline for an extended period. According to the State of Alaska,
Prudhoe Bay production for the month of August averaged 189 thousand
barrels per day, which is about half of its August 2005 level.
MARKETS FOR ALASKAN CRUDE AND POTENTIAL DISRUPTION IMPACTS
West Coast refineries in California and Washington have been the
primary market for Alaskan crude since the inception of North Slope
production. Before 1995, when the prohibition on the export of Alaskan
crude was lifted by Congress, any Alaskan crude that was not used in
Alaska, Hawaii, or the U.S. West Coast was shipped to other U.S.
markets, mainly the U.S. Gulf Coast. Following the lifting of the
export ban, the West Coast remained by far the dominant market for
Alaskan crude, although some Alaska oil was exported through April
2000. Since 2000, with the exception of a single export shipment made
in 2004, all Alaska crude not consumed within the state has been
shipped to U.S. refiners on the West Coast and in Hawaii.
As production in Alaska has declined, the share of crude input to
West Coast refineries that is supplied by Alaska oil has also fallen
(Figure 2). In 2005, oil refineries in California and Washington
received an average of 748 thousand barrels per day from Alaska, 32
percent of their total crude oil receipts of 2.368 million barrels per
day. Other domestic production, primarily from California, provided 30
percent of crude receipts, and imports provided 38 percent. This
reflects a substantial reduction in the role of Alaska crude compared
to 1996, when refineries in these two states received an average of
1.164 million barrels per day of crude from Alaska, accounting for 50
percent of their total crude supply. A decade ago, imports provided
only 13 percent of crude supply to California and Washington
Given the current disposition of Alaskan oil, West Coast refineries
are the most immediately impacted by a cutback in the flow of oil from
Alaska, although loss of any crude supply has a ripple effect
throughout the world market as supplies are shifted to fill gaps
affecting a specific region. However, the cushion provided by
relatively high crude oil inventories in advance of the recent
production loss and the modest size of the reduction in flows has kept
the present Alaskan supply shortfall from creating any major problems.
Since the cutbacks of Alaskan crude oil production began in early
August, we have not seen any significant impact on crude runs in
California or Washington refineries.
West Coast (Petroleum Administration for Defense District V (PADD
V)) crude oil inventories were at the high end of the typical range at
the beginning of the month before the announcement, and would be
expected to drop by 2.4 million barrels during August. In actuality,
they fell 3.8 million barrels between July 28 and August 18, but
remained within the typical range for that time of year. Because
Alaskan crude oil produced prior to August would still have been
arriving on the West Coast during part of this time, it is not clear
that the inventory reduction was associated with the August Alaskan
production reduction. From August 18 through September 1, West Coast
inventories have increased slightly to a level in the middle of the
The response to an extended disruption in supply from Alaska will
likely involve some increase in crude oil imports. One factor that
would tend to mitigate the impacts of a disruption in supply from
Alaska on West Coast petroleum product markets is that West Coast
refineries are among the world's most sophisticated, in part due to the
very stringent clean fuel requirements in the California market. These
refineries have the capability to process different types of crude oil
from many sources, providing them with more flexibility than so-called
simple refineries, which require a relatively narrow range of crude oil
types in order to produce their preferred product mix.
Current major import sources for California and Washington
refineries are Saudi Arabia, Ecuador, Iraq, and Canada. (Figure 3)
While increased imports could ultimately flow from a variety of
sources, timing considerations might favor an initial surge in imports
from nearby suppliers, such as Ecuador, Canada, and Colombia, with more
distant makeup volumes arriving later as a result of companies taking
precautions to cover their supply needs. Complete import data are not
yet available for August, but there is some preliminary evidence of
Although EIA has been asked to provide some insights into the
possible impacts of a hypothetical disruption affecting more, or even
all, of Alaska's crude oil supply, it is very difficult to generalize,
because the extent of any impacts would depend on myriad factors, such
as the level of PADD V crude and product stocks, world surplus
capacity, seasonal factors, and the perceived duration of the
hypothetical disruption. Looking just at the global upstream balance,
EIA estimates the current excess production capacity worldwide is only
about 1.0 to 1.5 million barrels per day, with all of this residing in
Saudi Arabia. At the current low level of worldwide surplus production
capacity, the loss of around 800 thousand barrels per day of supply
from Alaska for an extended period could trigger a noticeable rise in
the world oil price. Initial responses by West Coast refiners would
likely include both some drawdown of crude oil stocks and efforts to
increase crude imports, as described above.
SHORT-TERM ENERGY OUTLOOK
To conclude my testimony, I would like to summarize the short-term
outlook for petroleum markets, which we released today as part of our
September Short-Term Energy Outlook (STEO).
While August began with a surge in petroleum prices, prices for
both crude oil and gasoline have been falling steadily over the last
five weeks. The U.S. average retail price of regular motor gasoline
fell from $3.04 per gallon on August 7, 2006, to $2.73 per gallon on
September 4, 2006, and prices are expected to fall to an average of
$2.55 per gallon in January 2007 before rising again into next summer.
In 2006 and 2007, we expect the West Texas Intermediate (WTI) crude oil
spot price to average around $70 per barrel and we expect retail
regular gasoline prices to average about $2.66 per gallon in both 2006
Projected world petroleum consumption growth is 1.2 million barrels
per day in 2006 and 1.7 million barrels per day in 2007,
notwithstanding recent price levels. However, EIA has reduced expected
oil demand for 2006 and 2007 downwards for the second consecutive
monthly STEO in response to slower demand growth in the Organization
for Economic Cooperation and Development (OECD) countries.
Surplus world crude oil production capacity is expected to increase
slightly in 2007, but will remain low enough that existing and
potential supply problems in Alaska, Iran, Iraq, Nigeria, and Venezuela
may continue to raise concern. Because of these factors, as well as the
continued tight supply-demand balance, EIA expects little relief from
current pricing patterns.
First-half 2006 production data show non-OPEC production growth of
around 0.3 million barrels per day compared to the same period last
year, and annual growth for 2006 will likely total around 0.6 million
barrels per day, reflecting both new projects and the recovery from
hurricane impacts that affected production during the last four months
of 2005. Non-OPEC production is projected to increase by 1.4 million
barrels per day in 2007, with new projects in the Caspian Region,
Africa, and Brazil expected to add more than 0.9 million barrels per
day of new production.
OECD inventories began the second quarter 2006 at the upper end of
their past 5-year range for this time of year. However, when measured
on the basis of how many days of demand the current supply could meet,
OECD inventories were only in the middle of their observed 5-year
range. By the end of 2007, EIA projects days of supply of OECD
inventories to finish at the bottom of their 5-year range for that time
of year, which is expected to make the market even tighter.
Average domestic crude oil production is expected to decrease by 23
thousand barrels per day, or 0.4 percent in 2006, to a level slightly
under 5.1 million barrels per day. For 2007, a 7.6 percent increase is
expected, resulting in an average production rate of about 5.5 million
barrels per day for the year.
Total U.S. petroleum consumption is projected to be unchanged in
2006 compared with 2005. In 2007, total consumption is expected to
increase by 2.0 percent. While motor gasoline consumption exhibited
almost no growth in 2005, it is projected to grow 1.0 percent in 2006
and 1.2 percent in 2007, reflecting anticipated continued U.S. economic
growth. Distillate (diesel fuel and heating oil) consumption, having
increased 1.3 percent in 2005, is projected to increase 1.8 percent in
2006 and 2.2 percent in 2007.
Total U.S. primary motor gasoline stocks at the end of August were
8 million barrels above the previous 5-year average. Total motor
gasoline stocks, which fell by an average of 10 million barrels in
August in the last 5-year period, fell by only 2 million barrels this
August. The moderate decline in stocks, the expected seasonal decline
in gasoline demand, and the changeover from summer-grade to winter-
grade gasoline this month--which is less expensive to produce--all
combined to lower gasoline prices in August. Although distillate stocks
were 10 million barrels above the previous 5-year average at the end of
August, diesel fuel prices have not fallen as much as gasoline prices
have. Global demand for distillate fuels, particularly in Europe and
Asia, are expected to keep this market tight. While diesel fuel prices
are expected to decline over the next few months, heating oil prices
are projected to increase as winter demand for this heating fuel grows.
Mr. Chairman and members of the Committee, this completes my
testimony. I would be happy to answer any questions that you might
The Chairman. Before we go to the next witness, I just
wanted to ask, for the record, would you give us, if you recall
it, the highest price per barrel for oil in the past 6 months
and the low?
Mr. Gruenspecht. I think around $77, $78 a barrel for West
Texas Intermediate was the peak. Now we're I think at $65 and a
little bit. And this is the low point in recent history,
although far above, obviously, prices that we were used to for
quite a long time.
The Chairman. Yes, but that's a big drop.
Mr. Gruenspecht. That's a big drop.
The Chairman. What percent?
Mr. Gruenspecht. Well, let's say 15, 16 percent is about
right. And gasoline has dropped over 40 cents a gallon in the
past 5 weeks.
The Chairman. Your record reflected it, but let's emphasize
it here. It appears that the OPEC cartel has fed that situation
by increasing production, not decreasing it; right?
Mr. Gruenspecht. My understanding of the OPEC statements is
that they have no plans to cut back production.
The Chairman. All right, very well. Thank you.
Now we're going to go to the BP side of the ledger here,
Mr. Robert Malone, president and chairman of BP America. He is
accompanied by two people. We're going to have their presence
noted. Mr. Steve Marshall is the president of BP Exploration
(Alaska) Inc., Anchorage, AK; is that correct?
Mr. Marshall. That's correct, yes.
The Chairman. And you have with you, Mr. Malone, and your
vice president and chief economist, Mr. Peter Davies--or is it
Mr. Davies. It's ``Dae-viss,'' yes indeed, sir.
The Chairman. Thank you.
Now, you have asked me, if there's an economic question
that we ask and you need an answer, if you can ask your
economist, and I agreed to that. And if you want to in some way
question Mr. Steve Marshall, who has more longevity in some of
these areas and would know an answer, rather than leave it open
and vague, we will agree to that too at this point.
So would you now proceed to give us your background with
the company and your record statement, please.
STATEMENT OF ROBERT A. MALONE, PRESIDENT AND CHAIRMAN, BP
AMERICA, INC., HOUSTON, TX; ACCOMPANIED BY STEVE MARSHALL,
PRESIDENT, BP EXPLORATION (ALASKA) INC., ANCHORAGE, AK; AND
PETER DAVIES, VICE PRESIDENT AND CHIEF ECONOMIST, BP, P.L.C.,
Mr. Malone. Thank you. Mr. Chairman and members of the
committee, good morning. My name is Bob Malone and I'm the
chairman and president of BP America.
BP America's recent operating failures are unacceptable.
They have fallen short of what you and the American people
expect from BP and they have fallen short of what we expect of
ourselves. We know we will be measured by what we do, not what
we say, and we are in action to fix the problems, and in doing
so, regain the trust of you and the American people.
On August 6 I received word of severe corrosion in one of
our eastern operating area transit lines in Alaska. The
decision was made to shut down these transit lines to avert any
possibility of an oil spill and to protect the environment. We
fully recognize this decision was not without consequences, but
it was the right thing to do.
We immediately initiated extensive testing of the transit
lines on the western side of the field, assured ourselves that
they were fit for continued service, and thus retained the
production of about 200,000 barrels a day. Many were concerned
about the impact on crude supply and gasoline prices. BP
brought in cargoes of crude oil from around the world, some 3.5
million barrels. Other suppliers did the same. There have been
no crude shortages and both crude oil and gasoline prices have
steadily declined since the incident. BP continues to acquire
stocks to replace the production that remains shut down.
BP is committed to fully restoring production as soon as we
are confident that it can be done in a safe and environmentally
responsible way. Continued inspections of the eastern operating
area lines have shown little corrosion. We plan to submit a
request to DOT to resume operations very soon.
Across BP, we have taken a number of actions to ensure that
our businesses are run in a manner that meets our expectations
and yours. Many of these were announced by John Browne on July
1 and they included my appointment. I'd like to highlight the
I've retained three of the foremost experts in the world on
corrosion and infrastructure management to evaluate and make
recommendations for improving the corrosion management program
in Alaska. We will apply these learnings to the rest of our
pipeline operations in America and around the world. We have
added an additional $1 billion to the $6 billion already
earmarked to upgrade all aspects of safety at our U.S.
refineries and for integrity management in Alaska. Over $550
million, and that's net to us, will be spent on integrity
management improvements in Alaska over the next 2 years.
We have initiated a review of our U.S. trading business by
independent external auditors. They will examine the design of
the trading organization, delegations of authority, standards
and guidelines, resources, and the effectiveness of our
controls and our compliance.
I've appointed former U.S. district judge Stanley Sporkin
as an independent ombudsman reporting directly to me and I've
asked him to conduct a review of all worker allegations that
have been raised on the North Slope since 2000. I've
established an operational advisory board that's composed of 15
business leaders in BP America to advise me on safety,
operational integrity, and compliance. I'm in the process of
recruiting an external advisory board to assist and advise me
in monitoring BP's U.S. businesses, with particular focus again
on safety, operational integrity, compliance, and ethics. I'm
also building an internal team of experts that will work in the
area of process safety, personnel safety, integrity, and
compliance and ethics.
I continue to meet with employees to reinforce our
expectations to them to ensure that BP's operations are safe,
that they have the right and the responsibility to shut down
any process they feel is unsafe or lacks appropriate integrity,
and to raise any concern on any issue.
I am personally committed to rebuilding the public's
confidence in BP America. I have the full support of our chief
executive, John Browne, our executive leadership, and the
entire BP Group, and I have been given all the authority
necessary to accomplish this task. Bringing our operations to
the level of excellence that you expect and we will demand is
going to take time, and I would offer to this committee that
I'd be happy to come back and report on our progress in 6
months and regularly thereafter.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Malone follows:]
Prepared Statement of Robert A. Malone, Chairman and President,
BP America Inc.
My name is Bob Malone and I am Chairman and President of BP America
Inc. BP America is the U.S. holding company for all subsidiary
companies operating in the United States. BP America, through its
subsidiaries employs more than 36,000 people and produces 666,000
barrels of crude oil and 2.7 billion cubic feet of natural gas per day.
We operate five refineries that process nearly 1.5 million barrels a
day of crude oil, and a system of pipelines and terminals throughout
the United States that supply over 70 million gallons per day of
gasoline and distillate fuels to customers in 35 states.
BP Exploration Alaska (BPXA) is the operator of the largest oil
field in North America--Prudhoe Bay on Alaska's North Slope. Our charge
is to operate this field in a safe, efficient and environmentally
responsible way for the benefit of the State of Alaska, our business
partners, our customers, our employees and our shareholders. The
public's faith in BP has been tested recently by corrosion discovered
in the pipeline oil transit system that conveys processed crude oil
from the North Slope gathering centers to Alaska's Trans Alaska
Pipeline System (TAPS).
BP has fallen short of the high standards we hold for ourselves,
and the expectations that others have for us. I commit that BP America
will work closely with the State of Alaska, our employees, our
regulators and Congress to take the necessary steps to restore your
confidence in BP.
I will outline what I know of the operational incident at Prudhoe
Bay and discuss several other operational challenges BP has experienced
over the last 18 months and address many of the questions members of
the Committee, regulators and others have raised. Most importantly, I
will outline the steps that BP has taken or is committed to undertaking
to address these challenges and enhance the public's confidence in our
The Prudhoe Bay field is located 650 miles north of Anchorage and
400 miles north of Fairbanks. It is 1200 miles from the North Pole and
250 miles north of the Arctic Circle. Pump Station 1 , the beginning of
the Trans Alaska Pipeline System (TAPS), is located within the
perimeter of the Prudhoe Bay field. For additional detail on Prudhoe
Bay operations please refer to Exhibit 1 in the appendix.*
* All exhibits have been retained in committee files.
Prior to 2000 the Prudhoe Bay field comprised the East Operating
Area, operated by Atlantic Richfield Company (ARCO), and the West
Operating Area, operated by BPXA. Upon acquisition of ARCO by BP, BPXA
became the sole operator of Greater Prudhoe Bay. Although BPXA operates
the field, a total of nine companies have a so-called ``working
interest'' in the field leases. The costs and production are shared
amongst the working interest owners, according to their ownership.
In March of 2006, BPXA discovered a leak along the GC-21 line in
the Western Operating Area (Exhibit 2). This is a 34" line that carries
processed sales quality crude oil to a central gathering center for
ultimate delivery into TAPS at pump station 1. The leak was
approximately 5,000 barrels, the largest spill ever on the Alaskan
North Slope. Shortly thereafter, the U.S. Department of Transportation
(DOT) issued a Corrective Action Order (CAO) to BPXA ordering it to
perform ``smart pig'' in-line inspection (ILI) tests along with other
inspection methods along both the Western and Eastern Oil Transit Lines
(OTLs). There were a number of complex technical issues to resolve
before the tests could be conducted, including developing a solution
for managing the solids generated during the pigging operation.
BPXA began pigging operations along the Lisburne OTL in June. ILI
testing of the Lisburne OTL showed good results and affirmed our
confidence that the lines were fit for service. BPXA began pigging
operations along the Eastern OTL in early July. Analyses of these
``smart pig'' inspections were received on Friday, August 4 and
indicated 16 significant anomalies at 12 different locations along the
upstream segment of the Eastern OTL. BPXA began immediate physical and
ultrasonic testing of these anomalies and verified the presence of
additional corrosion. BPXA's inspections also revealed insulation
staining along a segment of the Eastern OTL. With the knowledge of
these results, BPXA immediately shut down production at Flow Station 2
as a precautionary measure and BPXA technicians subsequently discovered
a small leak after close visual inspection along the FS-2 to FS-1
The smart pig results along the Eastern OTL were unexpected.
Because the exact cause of the corrosion mechanism was unknown, BPXA
was concerned over the condition of the Western OTL. Thus, BPXA took
the prudent step on the morning of August 6 of announcing our intent to
systematically shut-down both sides of the Prudhoe Bay field until
existing inspection data could be further assessed and verified with
follow up inspections.
Some have questioned whether BPXA made a rash decision to shut down
the field over a small leak. To me, the decision to shut-down was a
reaffirmation of BP's values and was the responsible thing to do. We
took this step to prevent a potential release from occurring.
BP CORROSION PREVENTION PROGRAM FOR THE NORTH SLOPE
Corrosion is the natural degradation of a material, like steel
pipe, that results from a reaction with its environment. While
corrosion cannot be eliminated, it can be effectively managed through a
combination of monitoring and mitigation treatments. The goal of
corrosion mitigation programs is to control corrosion rates to
Corrosion rates are not static, however, and they can increase or
decrease depending on fluid properties or changes in conditions that
affect the efficacy of corrosion inhibitors. For that reason, locations
that are prone to corrosion damage, or where damage has been
identified, are inspected as often as every three to six months.
BPXA uses pigging, ultrasonic testing (UT), visual inspections,
corrosion inhibitors and other techniques as appropriate for each
individual oil field's characteristics. We employ a risk-based
management program whereby resources and activities are concentrated in
areas where corrosion is expected to occur. Exhibits 3 and 4 describe
the operations of a gathering center in producing, separating and
pumping oil and show a graphical representation of a producing field.
BPXA's program was designed to control corrosion, extending the
useful life of valuable North Slope infrastructure. The 2006 annual
budget for BPXA's corrosion monitoring and mitigation program is $74
million, an increase of 15 percent from 2005, and 80% from 2001. As
Exhibit 5 demonstrates, corrosion management ``spend'' has increased
significantly over the last 5 years despite the reduction in Prudhoe
Bay oil production volumes.
A key element of the program is widespread continuous chemical
corrosion inhibitor injection. In short, the best way to address
corrosion is to prevent it from happening in the first place. Our
commitment to effectively managing corrosion on the North Slope is
reflected in our corrosion inhibitor injection rates. Exhibit 6 is a
diagram of the inhibitor concentrations and the corresponding corrosion
rates achieved as measured by corrosion coupons.
We continuously monitor the effectiveness of the inhibition
programs with corrosion coupons and electrical resistance (ER) probes.
The ER probes take readings every 4 hours of the corrosion potential of
the fluids and allow us to make adjustments to corrosion inhibitor
injection rates on a weekly basis. Exhibit 7 is a typical configuration
of a corrosion coupon and ER probe.
MONITORING AND INSPECTIONS
BPXA's North Slope pipeline monitoring and inspection program
incorporates combinations of ultrasonic, radiographic, magnetic flux,
guided wave and electromagnetic inspection techniques. Ultrasonic and
radiographic testing are used as an indicator to trigger further action
and is sound for pipelines that are accessible above-ground.
BPXA's overall annual inspection program includes inspections at
about 100,000 locations on pipelines in Prudhoe Bay. Of these
inspections, approximately 60,000 are for internal corrosion inspection
and approximately 40,000 are for external corrosion inspection.
BPXA runs approximately 370 maintenance pigs per year on the North
Slope. In addition, we utilize coupon monitoring, smart pigging, leak
detection systems and surveillance by personnel to provide integrity
assurance and maintain safe operations (See Exhibit 8 for detail
regarding pigging operations).
Lines are pigged in Prudhoe Bay either because of mechanical issues
or because corrosion monitoring suggests it. The frequency of pigging
is specific to each pipeline and varies significantly across the North
Slope and the industry. For example, the Northstar oil pipeline is
pigged every two weeks to prevent paraffin buildup.
Another technology is ultrasonic testing (UT) which involves the
use of a high frequency sound wave to produce a precise measurement of
the thickness of a material. Our UT inspections are not simply one
reading at one location on the pipe. Rather, they are an inspection of
the full circumference of the pipe over a one foot length. So when we
count one UT inspection, it is really hundreds of individual readings
over a one foot length of pipe. The technology is a proven diagnostic
tool routinely used for corrosion monitoring.
We also use corrosion coupons (see Exhibit 7) throughout our
operations in order to obtain additional information about any
corrosive conditions that might exist in our systems that escaped other
inhibition and monitoring programs. The majority of our coupons are
read on a three to four month basis.
Important components of pipeline inspections also include regular
visual inspections and the use of Forward Looking Infrared (FLIR)
devices. FLIR technology is used to spot heat signatures of crude oil
and is especially useful during winter months.
MITIGATION OF CORROSION
In the design of pipelines, many corrosion mitigation methods are
considered. The selection of material from which to manufacture pipe,
such as corrosion resistant alloys like stainless steel, is one
consideration. Another option is the use of various coatings and
linings that provide pipelines protection against corrosive agents.
Technology used to protect metal structures from corrosion includes
cathodic protection, a technique that is usually used in buried
pipelines and takes advantage of electrochemical properties to reduce a
metal structure's corrosion potential.
Mitigation also involves the application of corrosion inhibitors
and biocides in conjunction with preventative maintenance such as
pigging and physical repair of external damage.
External corrosion is mitigated by removal of the source for the
water, drying, cleaning and buffing of the damage area and application
of new insulation and/or coatings. If external corrosion limits the
integrity of the pipeline, then repair techniques are used such as
sleeves, clock springs, clamps and or composite wraps.
IF THE PROGRAM WAS COMPREHENSIVE, WHAT HAPPENED?
The recent leaks were on the oil transit lines, which are the last
pipelines before the sales quality processed crude oil flows into TAPS.
By this point, the major corrosion battles have already been fought.
General corrosion and pitting in the OTLs were monitored by corrosion
coupons on a quarterly basis, and consistently showed very low
corrosive conditions, always below the BP targeted wall thickness loss
of less than .002 inches per year. Exhibit 9 shows coupon results in
the OTLs. Similarly, UT monitoring results have consistently revealed
corrosion to be under control.
The first indication of a growth in corrosion came from our
corrosion monitoring program in the facilities upstream of the WOA
OTLs. An increase in facility corrosion upstream of the WOA OTLs,
detected during the 2005 UT inspection cycle, while not alarming,
caused BPXA to perform additional UT inspections of the OTLs. The
results of these inspections led us to schedule another ILI of the WOA
OTL for mid-2006. The March release occurred before that pig run was
Based on the available test data, no evidence of general corrosion
(i.e. wall loss throughout the pipe) along the OTLs has been found.
Instead, the OTLs have widely spaced, mostly isolated dime-sized pits
about 5 to 10 feet apart. The corrosion is more serious on the upstream
segments of these lines, which have the lowest flow velocities.
Why wasn't the pitting corrosion detected by BP's monitoring
program? While BP had an active inspection program for these lines, the
isolated pits were too widely spaced to be detected by that program.
For example, there was an inspection site adjacent to the point where a
leak occurred. The inspection did not detect any corrosion--just a few
feet away from a pit.
We initially believed that the corrosion along the WOA had
developed due to certain operational changes in the WOA, and that the
EOA was not similarly affected. However, these conclusions were
premature and made before the latest inspections were completed. The
inspection of the EOA OTL revealed that the pattern of corrosion damage
is similar in both the EOA and WOA, although the precise corrosion
mechanism remains under study.
Mention has been made recently of the annual reports that have been
submitted by Coffman Engineers, which reviewed BPXA's inspection and
maintenance program on behalf of the State of Alaska. Drafts of these
reports suggested several deficiencies in BPXA's program. The
implication is that if these deficiencies had been addressed, then the
recent pipeline incidents would have been prevented.
Previous Coffman reports have noted there were isolated pockets of
accelerated corrosion in BPXA's North Slope infrastructure. Notably,
Coffman also stated those problem areas were discovered during the
regular course of inspection. When discussing internal corrosion on oil
lines, the Coffman reports focus attention on the ``production system''
of well lines and flow lines, the ``three-phase'' lines that carry a
mix of oil, water and gas. These are the lines where corrosion is more
of a known threat than in the transit lines that carry ``processed
oil''. Coffman did not specifically discuss the oil transit lines in
any of its reports.
Thus, while there were areas in Coffman's reports recommending
additional inspection and maintenance activities, on balance they
offered support for the efficacy of BPXA's corrosion management
Excerpts from recent Coffman reports are shown below:
The 2003 report states: ``From a global perspective of oil
and gas production, Greater Prudhoe Bay (GPB) and related
facilities have an aggressively managed corrosion control
program. This suggests an adequate long-term commitment to
preserving facilities for future production and sensitivity to
The 2004 report credits BP with transparency and candor, and
for maintaining a corrosion program in which there is no
``acceptable'' risk. It said BP's program ``is effective and
exceeds common industry practice,'' and that ``Corrosion in
most of the pipeline system has been reduced to a negligible
BPXA's incident analysis is underway, but we have already taken
steps to characterize the problem and assess the integrity of all the
OTL lines. This information has been submitted to the Office of
Pipeline Safety (OPS), whose staff is currently reviewing it. We also
have outside experts who are reviewing the data and who will provide
independent opinions about its adequacy.
We have been working in cooperation with OPS and the State of
Alaska to ensure the safety and integrity of these systems. We pledge
to continue working in cooperation with DOT and other interested
stakeholders to ensure that these lines, and all our pipeline
operations on the North Slope, are operated to a high standard of
Now we must focus our attention on the future--and what we will do
to mitigate the risk of future leaks occurring in these oil transit
lines. We have committed to undertake seven key actions:
1. Run an in-line inspection tool in each of the Prudhoe Bay
Oil Transit Lines that are returned to service.
2. Confirm through testing the exact corrosion mechanism that
caused this problem and modify our mitigation programs
3. Implement maintenance pigging in all Oil Transit Lines.
4. Include all BP operated Oil Transit Lines on the North
Slope into DOT's Pipeline Integrity Management Program. This
will cover all 122 miles of BP Oil Transit Lines in Alaska, not
just those in the Prudhoe Bay field.
5. Replace 16 miles of WOA / EOA oil transit lines with
smaller diameter lines to increase their flow velocity and help
prevent this problem in the future. The estimated cost of this
is in excess of $150 million.
6. Change the BPXA organizational structure has been changed
with the addition of a Technical Director to provide
independent assurance of our integrity management efforts.
7. Increase spending on Prudhoe Bay major maintenance will
increase to $195 million in 2007, a nearly four fold increase
from 2004 spending levels. This increase is in addition to the
investment in replacement pipe.
In addition to these physical changes we remain committed to work
collaboratively and proactively with the DOT and State regulators.
BUSINESS RESUMPTION PLAN
Western Operating Area
BPXA has conducted more than 4,876 UT tests of the Western
Operating Area OTLs subsequent to the August 6th announcement. These
subsequent inspection results have not indicated any wall thickness
loss greater than 39%. In addition, BPXA has begun a surveillance
effort that includes daily over-flights using infrared cameras, as well
as the use of hand-held infrared cameras on the ground. The cameras can
detect small leaks by sensing changes in pipeline surface temperatures.
Two vehicles with spill response equipment and carrying observers with
infra-red leak detection equipment are patrolling the line 24 hours a
day. They will be teamed with pipeline walkers who will visually
inspect the line 10 times a day.
Production had been reduced by 90,000 barrels/day due to a
maintenance turnaround and a compressor malfunction in GC-2.
Replacement of the compressor was completed on Sunday, August 27 and
production in the WOA has been restored to approximately 220,000
Eastern Operating Area
Work continues on removal of insulation from pipe; line inspections
and testing are underway. We are averaging 200 to 300 inspections per
day. About 160 workers are dedicated to this inspection effort.
We are currently focusing inspections on the 34" segment that runs
from FS-1 to Skid 50 (see Exhibit 2). If the inspection results show
that the line has integrity, we will request permission to re-start
that line from the DOT. We are currently working through a process with
DOT to make that request once we can provide assurance that the line
can be safely re-started and pigged. We expect to make that request
this week. Restart will allow us to quickly conduct both maintenance
and smart pigging of these lines, in line with the DOT CAO.
This will allow resumption of partial production from Flow stations
1 and 3. After re-start, these line segments will need to be inspected
with a smart pig to meet requirements imposed by the DOT. If inspection
results indicate that these EOA OTLs are not fit for service, then by-
pass options will be completed as soon as practicable.
Regarding the leak along the FS-2 transit line, the estimated 23
barrels of oil spilled has been cleaned up. The line currently holds
about 13,000 barrels of crude. Metal sleeves have been installed on
those sections of the transit line with severe corrosion. BPXA has
submitted a plan to the U.S. Department of Transportation for de-oiling
this segment of line.
Concurrent with our inspection activities and in case these
activities indicate that the lines are not fit for service, by-pass
options are being pursued to restore as much production as possible in
an environmentally safe manner. The focus is largely on the EOA and
includes new options to divert production from each of the existing
Flow Stations to Skid 50 (see Exhibit 2).
The production from FS-2 is being engineered to route to the
Endicott production line through new piping.
The production from FS-1 is being engineered to route to the
Endicott production line through new piping.
The production from FS-3 is being engineered to route
through Drill Site 15 and then to a jumper into the Lisburne
Work on these options is expected to be completed by the end of
All of this work is taking place as BPXA prepares for ultimate
replacement of the 16 miles of WOA/EOA oil transit lines. Sixteen miles
of pipe has been ordered from U.S. mills and is expected on the slope
during the fourth quarter. We are hopeful that work can be completed
during the winter construction season.
At this point, we do not have a schedule for restoring all or a
portion of EOA production and can't speculate on how long it's going to
While many of the circumstances surrounding the incidents at
Prudhoe Bay are known there is much more that needs to be done to fully
understand the corrosion mechanism we experienced. These results will
be known in due course and will be shared in a fully transparent way.
In the meantime, BPXA is committed to restoring full production to the
EOA as soon as we are confident it can be done in a safe and
environmentally responsible way.
New Pipeline Safety Regulations
Historically, certain pipelines that operate at low stress were
exempt from U.S. DOT oversight. This exemption applied to onshore
pipelines such as oil transit lines on the Alaskan North Slope.
However, since the March 2, 2006 spill from BP's Western OTL (a
low-stress system); DOT has accelerated its on-going rulemaking
activity and recently proposed a rule to revise the low-stress
exemption. Upon completion of its rulemaking process, it is likely that
any low-stress pipeline that is in an ``unusually sensitive area'' as
defined by DOT rules will become a regulated pipeline under DOT
jurisdiction. The proposed rulemaking would encompass all of the OTL's
on the North Slope. These proposed regulatory changes are strongly
supported by BP.
As soon as I was named head of BP America in July 2006, I took a
tour of as many of our facilities as I could reasonably visit--to find
out what our people were saying. I visited plants and offices across
America from Alaska to Texas with many stops in between. I can tell you
that the solution to many issues that BP America faces rests right at
home--with those who are our BP employees.
I made it clear that they had three obligations----
Workers must feel that operations are safe and the integrity
of our infrastructure is sound at our facilities
If they don't feel safe or if process integrity is in
question--they have the authority to shut operations down
Workers must feel comfortable raising concerns
I know that BP has processes in place to address employee concerns.
People can raise concerns through line management, they can raise
concerns through our safety committees, and they can call in to a world
wide anonymous hot line. Alaska has had its own hotline for worker
concerns. We believe, in fact, that most of the concerns have been
raised through one or more of these systems. The problem has not been
in workers raising concerns--sometimes it's been our responsiveness.
In recognizing that the current situation may not provide complete
assurance--I have created a new position of ombudsman, reporting
directly to me. Former U.S. District Court Judge Stanley Sporkin has
agreed to fill this role and provide an independent team to assess and
to bring to resolution any safety-related operational concerns raised
to his office. I expect Judge Sporkin will call them as he sees them.
This is critical, as workers are going to speak out. We encourage it.
I have also asked Judge Sporkin to initiate a full review of all
the worker allegations that have been raised on the North Slope since
the acquisition of ARCO in 2000. I want to determine if the problems
have been addressed and rectified to BP's standard, with appropriate
feedback to the worker.
BP America is committed to finding out about and acting on
operational and other issues. This is why we have created the new
ombudsman role to help facilitate this information gathering and
Supply/Price and Consumer Impacts
Upon the August 6, 2006 announcement that BPXA intended to shut
down the Prudhoe Bay field, concerns were expressed about the impact
this decision would have on crude supplies and gasoline prices to the
West Coast. Early estimates that the entire production from Prudhoe Bay
of approximately 400,000 barrels/day would be shut-in proved wrong.
Extensive ultrasonic testing of the western oil transit lines provided
BPXA with sufficient data to determine that production in the Western
Operating Area could continue in a safe and environmentally responsible
The loss of crude shipments to the Trans Alaska Pipeline was thus
limited to roughly 200,000 barrels per day.
In light of this supply gap, many policymakers voiced concerns that
West Coast refiners would be unable to find alternative sources of
crude to keep their refineries operating and the gasoline market
supplied. At the time of the incident, West Coast inventory levels for
both crude and products were seasonally high, near record levels in
On news of the curtailment in production, BP and others in the
Industry made moves to source incremental barrels from alternative
sources including West Africa (WAF), the Middle East and South America
(see Exhibit 10). BP's activity was focused largely on meeting the
crude oil and refined product demands of our refineries and customers.
To this end, BP has secured an incremental 3.5 million barrels of crude
oil for delivery to the West Coast in September and October.
The company has also agreed to take steps that will ensure the
continued flow of oil to both Flint Hills Resources and Petro Star
refineries in Alaska which depend on North Slope oil for their
How have these incremental supplies impacted the price structure of
the West Coast markets? As shown in Exhibits 11 and 12 the market
reaction was relatively benign over the period due to the availability
of alternative crude and product supplies. The few impacts that have
been seen in the product markets were largely the result of local
refinery issues rather than disruption in Alaska crude deliveries
(Exhibit 13). Nevertheless, in the two weeks after the incident both
crude and product prices were lower than the levels of August 6.
A few people have alleged that BP engineered the shutdown of
Prudhoe Bay as a way to manipulate prices. I am here to assure you that
nothing could be further from the truth. BPXA took the extraordinary
step to shut down production because we saw unexpectedly severe
corrosion that couldn't be explained and which caused us to question
the condition of other transit lines serving the oil field. We were
simply not willing to risk worker safety or the potential for a further
oil spill. Further, BP has gone to great lengths to not only guarantee
supplies to Alaska refiners but also secure incremental crude for
delivery to the West Coast.
BP's commitment to ensuring product supply to the market and its
customers is not a new phenomenon. Immediately following Hurricanes
Katrina and Rita, BP also took extraordinary steps to ensure product
supplies to the United States. Some of these activities are listed
Importing more than 29.5 million barrels of gasoline, diesel
and jet fuel for delivery into markets in the Northeast,
Florida and Gulf Coast through October of 2005.
Transporting additional supplies to Florida, where this fuel
can then be used in supply-short areas typically served by the
Reversing the pipeline on the Texas City marine dock to
accept vessel shipments and deliver product into Colonial
Extending supplies by utilizing the adjustments in
environmental regulations (RVP and sulfur) that will help
increase the overall supply of gasoline and aid distribution
flexibility. This brought millions of extra barrels into the
Midwest, Northeast and Southeast markets.
Reaching an agreement with DoE to draw, on an exchange
basis, up to 2 million barrels of sweet crude from the
Strategic Petroleum Reserve for use in its Midwestern
refineries. BP has drawn down 200,000 barrels of this loan
amount. Additionally in an SPR auction held the week of
September 12, we bid for and won 2.7 million barrels of sweet
Obtaining a Jones Act Waiver to enable a foreign flag vessel
to shuttle crude oil from a platform to onshore facilities.
This action enables an additional 50k BOPD and 200 MSCF of gas
per day to be delivered to our U.S. system.
BP America will continue to play an active role in securing the
crude and product supplies necessary to meet our refinery and customer
demands. The market has shown great resiliency in its ability to
quickly respond to supply disruptions and thus minimize impacts to the
consumer. BP America is confident that market dynamics will
successfully meet West Coast needs until full production is restored in
Over the last 18 months, BP America has also experienced a major
tragedy, followed by a string of other incidents that cause some to
question our U.S. operations. I have been brought in to help address
these and other issues. I would like to briefly comment on the
incidents and explain our plan moving forward.
In Texas City, a March 2005 explosion at one of our facilities was
the greatest tragedy ever experienced by the BP family. The harm it
caused and the lessons learned from it will never be forgotten. In the
aftermath of this tragedy we made and continue to make significant
changes in our approach to process safety and in the way we operate and
monitor operations at Texas City and our other U.S. refining
facilities. We are committed to attaining the highest levels of safety,
reliability and environmental performance.
BP has publicly accepted responsibility for the March 23rd
explosion and for the management system failures and employee mistakes
which contributed to or caused it. Immediately following the incident,
BP Products North America (BPPNA), the subsidiary that owns the U.S.
refining assets, promised to fully investigate the explosion, make
public the findings of its investigation and take action to prevent a
recurrence. The company also promised its full cooperation to
government agencies investigating the incident and said it would assist
workers and families harmed by the company's mistakes.
BP has fully cooperated with the U.S. Chemical Safety and Hazard
Investigation Board (CSB), the U.S. Environmental Protection Agency and
the Texas Commission on Environmental Quality regarding their
investigations of the Texas City explosion.
On the recommendation of the CSB, BP has voluntarily appointed an
independent panel to assess and make recommendations for improvement of
process safety management and safety culture at the company's five U.S.
refineries. Former U.S. Secretary of State James A. Baker, III is
chairman of the panel. The panel has visited each of BPPNA's five U.S.
refineries in Texas City, TX; Carson, CA and Whiting, IN, Oregon
(Toledo), OH and Cherry Point, WA. BPPNA looks forward to receiving the
Panel's final report and improvement recommendations later this year.
BP has put a new management team in place at Texas City, simplified
the organization, improved communication, clarified roles and
responsibilities and taken steps to update and verify compliance with
BP expects to invest an estimated additional $1 billion to improve
and maintain the Texas City site over the next five years.
BP operations and maintenance personnel have reviewed and updated
operating and maintenance procedures and received training on process
safety management, hazard recognition, process control, process trouble
shooting and control of work. Site employees have completed over
300,000 man hours of operational and process safety related training
since March 23, 2005.
The company has set aside $1.2 billion to compensate victims of the
explosion and has worked to resolve claims arising from the incident
without the need for lengthy litigation.
Settlements have been achieved with nearly all family members of
every worker who died. The company has also agreed to compensation with
more than 500 injured workers.
The Thunder Horse platform is the largest semi-submersible oil
production platform in the world, at 130,000 tons displacement, and is
designed to process 250,000 barrels of oil and 200 million cubic feet
of natural gas per day. The Thunder Horse field is located in 6000 ft.
of water and involves extremely challenging high pressure and high
temperature hydrocarbon reservoirs. Much of the technology being
utilized on the project is industry-first involving new metallurgy, new
engineering designs and `serial number one' equipment. Thunder Horse is
operated by BP, with a 75 percent working interest. ExxonMobil owns the
remaining 25 percent interest.
In April 2005, the platform was towed to its location in
Mississippi Canyon Block 778 in the deepwater Gulf of Mexico, 150 miles
southeast of New Orleans.
Upon the approach of Hurricane Dennis in July 2005, all personnel
evacuated the Thunder Horse platform in conformance with standard BP
safety procedures. Following passage of the storm, the Coast Guard
Marine Safety Unit Morgan City was notified that the Thunder Horse
platform was listing.
A BP investigation was begun to determine the cause of the
stability imbalance that saw the Thunder Horse platform list to port at
an estimated 20 degrees. The U.S. Coast Guard and the Department of the
Interior's Minerals Management Service also opened a joint
investigation to determine the cause of the listing and their
investigation is continuing. BP is cooperating fully with this
On August 1, 2006, the Thunder Horse platform completed major
repairs and was declared ready for the introduction of hydrocarbons.
This massive undertaking was completed on schedule and safely, with
zero days away from work cases.
Some of BP's U.S. Trading operations have come under scrutiny by
federal regulators. BP is cooperating with the Commodity Futures
Trading Commission and the Department of Justice in their
investigations by providing responsive documents, data and witness
BP has initiated a review by independent external auditors of the
compliance systems in its U.S. trading business. The auditors will
examine the design of the trading organization, delegations of
authority, standards and guidelines, resources and the effectiveness of
control and compliance. The results of the review will be shared with
relevant U.S. regulatory authorities and the auditors' recommendations
will be acted upon by BP.
Some policymakers and regulators have begun to question whether
these operational problems at BP are symptoms of a systemic problem.
Clearly, BP has had its share of issues from which we've taken
important learnings. I believe BP is, overall, a well-managed company
with a solid long-term record. We recognize that there has been a
series of troubling problems that are unacceptable to us and contrary
to our values. We want to understand why they have occurred and do
whatever it takes to set them right.
I don't believe in bad luck. We need to understand these issues and
then translate the lessons we learn across all of our operations.
For many, the shine has come off of BP over the last year as we
have stumbled operationally. Some have questioned our environmental
credentials while others have accused BP of profiteering at the expense
of employee safety. BP holds itself to a higher standard and
consequently expects the scrutiny that comes when we fall. Part of my
job as Chairman and President of BP America is to ensure that the
standards we have set are met. My commitment is to make it happen.
In response to the specific challenges that we have faced in the
U.S., BP has announced several specific actions that it will be taking.
U.S. refining--a major increase in expenditure on refining
maintenance, turnarounds, inspections and staff training and
the upgrade of our process safety management system.
Alaska--major additional investment in pipeline integrity.
Trading--a detailed review by independent external auditors
of the compliance system in the U.S. trading business.
Organization--the creation of a new outside advisory board
to assist and advise BP America Inc.
As this critical work unfolds, BP won't lose sight of the
opportunities to create a different kind of company. We will continue
to invest in emerging technologies like hydrogen, wind, solar and
biofuels. Because it is only in doing so that BP can aspire to be an
energy company for the 21st century. We will also continue our work on
important policy issues of the day such as climate change and offer our
expertise and ideas as options are formulated.
I was sent to the U.S. by our Group CEO, John Browne, with some
advice and a set of principles that will guide me and our work in the
U.S. He says the real measure of a great company is not the absence of
challenges but how they are dealt with.
I commit to members of Congress that I have been given the
authority, the resources and the people to assure you that BP America
will overcome and ultimately be strengthened by this challenge.
The Chairman. Thank you very much.
We will now go to our next witness. Would you please
introduce yourself once again and tell us what you do and
explain what the name of the pipeline service company means
with reference to this operation up there, please.
STATEMENT OF KEVIN HOSTLER, PRESIDENT AND CEO, ALYESKA PIPELINE
Mr. Hostler. Yes, sir. Mr. Chairman, distinguished members,
I am Kevin Hostler. I am president and CEO of Alyeska Pipeline
Service Company. I represent the 1,600 employees and
contractors who operate and maintain the Trans-Alaska Pipeline
System, the delivery system from the North Slope to Valdez.
Today I am prepared to discuss corrosion control on TAPS, the
thoroughness of our integrity management program, and the
impact of reduced throughput on our operation.
We have a team of high-quality people who operate and
maintain the Trans-Alaska Pipeline System, a system that has
delivered 15 billion barrels of crude oil to the American
people. We understand the critical importance of the safe,
reliable operation of TAPS to the State of Alaska and to the
Nation. I am confident our employees are capable of dealing
with the challenges before us and will bring to our attention
any issue or concern that impacts the integrity of TAPS.
Mr. Chairman, I am happy to answer any questions the
committee may have about the Trans-Alaska Pipeline System. I
have submitted written testimony and I thank the committee for
this opportunity today.
[The prepared statement of Mr. Hostler follows:]
Prepared Statement of Kevin Hostler, President & CEO,
Alyeska Pipeline Service Company
My name is Kevin Hostler and I am the President & CEO of Alyeska
Pipeline Service Company. I represent the 1600 people who operate and
maintain the Trans Alaska Pipeline System--or TAPS. Our company was
founded in 1970 to design, construct, and operate TAPS to safely and
efficiently move oil from the North Slope of Alaska through the Valdez
Marine Terminal 800 miles to the south. Alyeska Pipeline Service
Company is owned by five pipeline companies: BP Pipelines (Alaska)
Inc., ConocoPhillips Transportation Alaska, Inc., ExxonMobil Pipeline
Company, Koch Alaska Pipeline Company, and Unocal Pipeline Company.
I know that many have questions about the security of the supply of
oil through Alaska to the rest of the United States. We understand the
importance of this energy asset. It is the economic pipeline for Alaska
and a critical transportation link for the nation. We have an integrity
management program that gives us assurance that our system integrity is
sound. I am here to provide you with the assurance that the integrity
of our system is intact and to share the confidence I have in our
employees in maintaining this asset.
TAPS was originally designed to move two million barrels of oil per
day. Prior to the events on the North Slope in August, we were
operating at 800,000 barrels per day and as we entered September our
daily throughput has averaged about 625,000 barrels per day. As a
result of the announcement of possible shutdown. at Prudhoe Bay on
August 6th, we did investigate the impacts of lower throughputs to TAPS
and how we would manage them to maintain operations. I will discuss our
short and long term approach to managing throughput fluctuations.
CORROSION CONTROL AND INTEGRITY MANAGEMENT ON TAPS
Since the March 2006 Prudhoe Bay spill--and continuing through the
August spill and production shutdown, we evaluated many aspects of our
system to ensure ourselves and our stakeholders that our approach to
corrosion control was appropriately rigorous. Alyeska's operations and
engineering personnel reviewed the corrosion control program and have
been implementing the following steps to ensure that accelerated
corrosion is not adversely impacting TAPS:
We have rescheduled our 2007 inline investigation tool
(smart pig) run and are running it this year. These tools
provide a comprehensive insight into the integrity of the line
and indicate any anomalies. Alyeska normally runs a smart pig
every three years. Our last run was in 2004. The pig run for
this year is nearly complete and I have requested an expedited
review of this data. TAPS has run 60 instrumentation pigs since
the start up of operations in 1977. This pig run will be our
We completed a thorough investigation of the piping at Pump
Station 1. As the entry point into the TAPS mainline this was
where we believed we may see accelerated corrosion if it was
present in TAPS. While the work is ongoing, reports to date
indicate no accelerated corrosion in the station piping. We
have also reviewed piping at other pump stations and the Valdez
We increased corrosion inhibitor injection throughout the
system by 25%. It is added to our pump station and Valdez
Marine Terminal piping.
We are conducting an integrity investigation of the inlet
line from Prudhoe Bay to Pump Station 1.
Corrosion control is a key component of our Integrity Management
Program. Alyeska's Integrity Management Program meets the expectations
of the U.S. Department of Transportation Office of Pipeline Safety
regulations and is subject to periodic review by the DOT. The DOT has
reviewed or audited Alyeska's execution of the program in 2002, 2003,
2005 and will do so again this October. Additionally, the Grant and
Lease Right of Way agreements require Alyeska to have a comprehensive
corrosion control program which is monitored by the Joint Pipeline
Alyeska's Integrity Management Program has the following
Prevent leaks to protect public safety and the environment
Comply with State and Federal regulations
Manage risks--assess, prevent, or mitigate
Preserve our assets thus providing reliable oil
Provide stakeholder assurance
Security remains the biggest risk to TAPS. We work closely with
Federal and State Agencies to ensure the safety and security of our
pipeline. Mechanical Damage, environmental impacts and corrosion are
Our integrity management program is focused on preventing any
accidental release to the environment. Should we encounter a pipeline
discharge however, we have also worked diligently to be prepared to
respond to an incident. We have an approved oil discharge prevention
and contingency plan (C-Plan) that guides our response efforts. The
plan is reviewed and approved by four regulatory agencies: the
Environmental Protection Agency; the Alaska Department of Environmental
Conservation; the U.S. Department of Transportation; and the Bureau of
We also have contingency repair plain through which we maintain a
large inventory of contingency repair equipment and materials that
includes a wide range of replacement piping, stopples, and leak clamps.
We exercise our personnel and equipment on a regular basis. It remains
our goal through our Integrity Management program to avoid an oil
discharge. However, I want the committee to know that we are prepared
for an incident and can respond in a timely manner.
OPERATING TAPS AT REDUCED THROUGHPUT
We are confident we can operate normally down to 500,000 barrels
per day. We will face challenges as throughput drops below this rate.
Among the more significant challenges we are currently evaluating are:
Managing issues associated with cooler temperatures of the
oil, particularly in the winter, and the potential for water
and paraffin (i.e., wax) drop out from the oil;
Managing the efficiency of the biological treatment process
of our ballast water plant because of lower ballast water flows
due to reduced tanker traffic to the Valdez Marine Terminal;
Managing the potential for increased vibration due to slack
line conditions at the three mountain passes the pipeline must
Alyeska technical experts are evaluating all of these issues to
determine the full extent of the potential impacts upon TAPS. They are
establishing appropriate mitigating plans for my management team to
It is worth noting that our $500 million dollar pipeline upgrade
project will introduce significantly more flexibility into our ability
to manage through a situation like the one we are facing today. It is
designed to allow us to more efficiently handle throughputs as low as
300,000 barrels per day and higher than one million barrels per day,
with the flexibility to operate at even higher throughputs. We can
increase throughput by adding more pumping power to the pump stations.
In conclusion, I wish to restate that we have a comprehensive
integrity management system and have considered the corrosion
information from the Prudhoe Bay spill into that system. I recognize
that we have challenges in front of us due to the Prudhoe Bay shutdown.
We are looking at all of the potential impacts this will have on our
system and will develop responsible plans to mitigate these impacts. I
also know that I have some of the best technical resources available
for this situation. Our decisions will be based upon the safe operation
of TAPS and with no adverse impacts to the integrity of TAPS. Our daily
goal is the safe and environmentally responsible management of the
I thank you for this opportunity to discuss Alyeska and TAPS
operations and welcome any questions you may have about our operations.
The Chairman. Would one of you go to these maps and tell us
what they show us? Mr. Malone, who would be the one to do that?
Would you do that, Mr. Marshall? Start on this right-hand side
and pull these out and show the Senators what it is we're
Mr. Hostler. Would you like me to hold this up?
The Chairman. Can we all see or not from there? We'll have
the map interpreted for us.
Mr. Marshall. This is a picture of the supply to the West
Coast of the United States, showing crude oil----
The Chairman. Everybody has a packet that has that with
them, in front of them.
OK, would you please proceed.
Mr. Marshall. This shot is a representation of BP's view of
Alaska production over the next 50 years. It shows the history
starting in 1977 of production on this scale, running out this
way. The red line there is the introduction of major gas sales
for Alaska gas pipeline, which really opens up the potential
for another 50 years of oil production from Alaska.
The two charts here, one shows the March spill. This shows
the approximately 1.9 acres of tundra that was affected by the
March spill. This has since been cleaned up and we expect no
lasting damage to the environment from this particular case.
The Chairman. The spill there was 1.9 acres?
Mr. Marshall. That's correct, yes.
The Chairman. All right.
Mr. Marshall. This is the leak from the Flow Station 2 line
from August 6. It was about 23 barrels and that has all been
cleaned up also.
The Chairman. All right, thank you.
Mr. Marshall. Would you like me to go to these as well?
The Chairman. Yes, please.
Mr. Marshall. This is a detailed chart showing the Prudhoe
Bay field and the distribution pipelines, approximately 1,500
miles of pipeline systems across here. And in red is shown the
transit lines, which are the subject of discussion here today.
Finally, this is a chart showing the major producing
facilities, the separation facilities here. These are the
pipelines. The two blue lines represent the lines that
experienced failures, and these are the lines here which remain
in operation or we're bringing back into service as soon as we
possibly can. The dotted red lines here show the bypasses that
we are currently working on, that we hope to complete by the
end of October and return Prudhoe Bay to full production no
later than that point.
The Chairman. All right, then. Now we will proceed with the
final witness. Peter, would you please proceed with your
testimony. Tell us who you are, why you're here, and give us
STATEMENT OF PETER VAN TUYN, PARTNER, BESSENYEY & VAN TUYN,
INC., ANCHORAGE, AK
Mr. Van Tuyn. Chairman Domenici, Ranking Member Bingaman,
members of the committee, thank you for inviting me to testify.
My name is Peter Van Tuyn. I'm an environmental lawyer from
Anchorage, AK, and for the last 15 years I've worked with the
conservation community, Alaska Native tribes, and others on
energy issues in Alaska.
My oral comments will focus on the steps that we can take
to prevent oil spills and energy supply disruptions. As I
begin, I would like to note that the Gwich'in Steering
Committee joins the Alaska-based and national conservation
groups in supporting my testimony.
The troubles at Prudhoe Bay are just the most recent
example of what is wrong in the oilfields. Warning flags have
been flying high above the North Slope for many years, there to
see for anyone who is looking. Problems first arose, and have
been compounded over the years, because those with the power to
heed the warnings symbolized by those flags, the oil industry
and State and Federal land managers and regulators, simply
refused to look.
By way of example, the State of Alaska has no full-time
prevention engineer on the North Slope. By way of another
example, in 1988, the States had asked the Federal Department
of Transportation to regulate just those lines that failed at
BP's spilled oil and oilfield shutdown were far from
accidents. Just as we learned from the Exxon Valdez oil spill
that a series of events over a long period of time led to that
tragedy, so too did a long pattern of neglect, complacency, and
outright ignorance lead to the events at Prudhoe Bay. To ensure
that this sad history does not repeat itself, we must use all
the human faculties at our disposal.
The first challenge before us requires plenty of muscle,
for we must find the strength to honestly and openly change the
course of how the oil industry is run. While we know that no
oil production activity can be rendered completely safe and
pollution-free, we must move mountains in order to minimize the
chance that oilspills and supply disruptions occur in the
The second challenge before us requires heart, for it is in
our hearts that we must find the courage finally to stand tall
and put action to our belief that America is the greatest
country on Earth. We must have the heart to protect our special
and environmentally sensitive public lands from the
industrialization and pollution that inevitably flow from oil
activities. Rather than demonstrating weakness, such a bold
act, done with bipartisan support, would signal to the world
that we, in America, will not sacrifice our public lands' soul
as we struggle with our addiction to oil.
The final challenge before us requires vision, for we must
use our eyes to navigate a path to the future. Our vision can
guide us on the path, guide us to the path on which our quality
of life remains high as we transition to new renewable sources
of energy. We must do this now--right now--just to help us
avoid obstacles like the recent events at Prudhoe Bay, though
it can do that as well, but also because we still have the
ability to focus far down the road. The longer we wait, the
more immediate crises will wrest our attention away from the
challenging but necessary journey ahead.
With that preface, let us now put our muscles to work.
Congress should authorize an independent audit of maintenance
and operation practices of oil facilities in Alaska and ensure
that its findings are followed up with action. Congress should
create a citizens oversight group modeled after the post-Exxon
Valdez Prince William Sound Regional Citizens Advisory Council.
This group would use dedicated oil industry funds to serve as
an independent watchdog over North Slope and TAPS operations.
Congress should direct PHMSA, either through legislation or
persuasion, to improve Federal pipeline regulation to ensure
that pipelines like those at Prudhoe Bay are actively regulated
by the United States.
Let us also put our hearts to work by declaring off-limits
to oil activities special or especially sensitive public lands
and waters in the Arctic. For example, Congress should protect
in perpetuity the coastal plain of the Arctic National Wildlife
Refuge. We should preserve this last intact ecosystem in
America's Arctic for its own sake, for the sake of the Gwich'in
people who rely upon its resources as the very basis for their
lives, and for the sake of future generations to whom we should
leave at least one Arctic environment much the same as we found
Let us leave well enough alone in the National Petroleum
Reserve. The spill at Prudhoe Bay, which we have been told time
and again is one of the least environmentally impacting
oilfields in the entire world, sinks Interior's baseline
assumption that locating oil facilities in sensitive areas like
the Teshekpuk Lake region is an environmentally sound course of
action. Eleven million acres of the NPRA have been offered for
lease in recent years and 2.8 million acres are successfully
leased. Congress should heed the lesson of Prudhoe Bay, the
voices of scientists, local residents, and the general public,
and take this area off the leasing block.
Finally, let us use our vision to chart a path on which we
can harness clean, renewable, and home-grown energy sources
like properly-sited wind and solar arrays and farm-based
biofuels. Let's reduce our dependence on oil by setting
specific and meaningful targets for that reduction using
improved gas mileage, better transportation choices, and more
efficient homes, buildings, and appliances. Let's invest
significant money and provide valuable long-term tax credits
for the research, development, and implementation of energy-
saving and renewable energy technologies.
It is through actions such as these that we can best
overcome the challenge that Prudhoe Bay has presented to our
environment and our way of life.
Thank you for the opportunity to testify. I will ask that
my written comments be submitted for the record.
[The prepared statement of Mr. Van Tuyn follows:]
Prepared Statement of Peter Van Tuyn, Partner, Bessenyey & Van Tuyn,
L.L.C., on behalf of Alaska Wilderness League, Alaska Coalition, Alaska
Forum for Environmental Responsibility, National Audubon Society,
Natural Resources Defense Council, Northern Alaska Environmental
Center, Republicans for Environmental Protection, Sierra Club, The
Wilderness Society, U.S. Public Interest Research Group
Chairman Domenici, Ranking Member Bingaman, Members of the Senate
Energy and Natural Resources Committee, thank you for inviting me to
testify on the effects of the BP pipeline failures in the Prudhoe Bay
Oil Field and what steps may be taken to prevent a recurrence of such
Unfortunately, warning flags have been flying above Prudhoe Bay and
Alaska's North Slope for many years, heralding the possibility that an
event like the BP pipeline failure and field shutdown could occur. The
facts demonstrate that BP has had significant management and operation
failures which BP must fix before its oil fields can have true
operational integrity. The facts also demonstrate that the type of
failures that haunt BP could be experienced by other North Slope
operators as well, both because of deficiencies in their management and
operation systems and because there has been, in essence, a
programmatic failure of state and federal governments to effectively
plan for and regulate against impacts from oil and gas-related
Understanding why the oil industry, and state and federal
regulators, did not, and regularly do not, heed the warning flags is
important to understanding what can be done to prevent a recurrence of
such events. In my testimony I explore those warnings, and make
recommendations to: minimize the likelihood that a major oil field
spill and closure would recur; to protect special and especially
sensitive areas such as the Arctic National Wildlife Refuge and the
Teshekpuk Lake region of the National Petroleum Reserve--Alaska; and to
limit the impact of such events on energy supplies, should it recur.
I provide this testimony as an attorney with nearly 15 years of
experience working on energy issues, including those related to oil and
gas, in Alaska.\1\ During this period, I have counseled and represented
numerous Alaska-based and national conservation organizations, Native
tribes and villages, and other entities on energy issues. I have
litigated numerous lawsuits against oil company and federal and state
agency concerning energy production activities in Alaska. I have
reviewed, counseled and represented clients on innumerable state and
federal administrative proposals to authorize and regulate energy
activities in Alaska. I am also familiar with federal and state
proposed and enacted legislation concerning energy issues in Alaska and
elsewhere, and have counseled clients on the intent and legal effect of
\1\ Mr. Van Tuyn would like to thank the following people for their
assistance in preparing this testimony: Lois Epstein, Richard Fineberg,
Mike Frank, Dan Lawn, Pamela A. Miller, Chris Rose, Stan Stephens, Stan
Senner, Mike Steeves, Justin Tatham, Deborah Williams and others too
sensitive or numerous to name. Any mistakes or omissions are, of
course, the sole responsibility of the author.
Although it is impossible to totally eliminate the risks of major
spills taking place from the oil fields, the first category of
recommendations provided here includes proposals aimed at minimizing
the likelihood that a significant polluting and supply disruption event
would recur on Alaska's North Slope. These include:
Authorizing, performing, and implementing the
recommendations of an independent audit of maintenance and
operation practices of oil facilities in Alaska;
Creation of a Citizen's Oversight Group, modeled after the
post Exxon Valdez Oil Spill Prince William Sound Regional
Citizen's Advisory Council, that uses dedicated funds to serve
as an independent watchdog over North Slope and TAPS
Improved Federal pipeline regulation;
The second category of recommendations includes a call to place
off-limits to oil activities particularly special or sensitive Arctic
environments. BP's Prudhoe Bay spill exposes the fallacy that oil
drilling and a pristine environment can co-exist, and Congress should
heed this reality by:
Closing in perpetuity the Coastal Plain of the Arctic
National Wildlife Refuge to oil and gas leasing, exploration,
development, production or transportation-related activities
and permanently designating it as Wilderness;
Placing off-limits to oil and gas activities particularly
sensitive places such as the Teshekpuk Lake region in the
Northeast Planning Area of the National Petroleum Reserve--
Alaska (NPRA or the ``Reserve'').
The final category of recommendations is a request that Congress
begin the important and inevitable process of:
Harnessing clean, renewable, and homegrown, energy sources
like properly-sited wind, solar and farm-based bio-fuels;
Reducing our dependence on oil by setting specific and
meaningful targets for that reduction, using improved gas
mileage, better transportation choices, and more efficient
homes, buildings ands appliances;
Investing significant money and providing valuable tax
credits over a substantial period of time for the research,
development and implementation of energy-saving and renewable
``PAST IS PROLOGUE''
In March 2003 the National Research Council of the National Academy
of Sciences released a congressionally-requested report on the
cumulative impact of oil development on Alaska's North Slope.\2\ The
National Research Council found that there had been little assessment
of the cumulative impact of such activities, and that information about
cumulative impacts is ``critical to support informed, long-term
decision-making about resource management.'' \3\
\2\ National Research Council, Cumulative Environmental Effects of
Oil and Gas Activities on Alaska's North Slope, National Academies
Press (2003) (NRC Report).
\3\ NRC Report at 1.
Just five days ago, a federal district court judge released a
preliminary ruling indicating that he is likely to halt a federal lease
sale in the sensitive Teshekpuk Lake region of the Northeast area of
the Reserve because the U.S. Department of the Interior had ``failed to
fully consider the cumulative effects of the proposed development . . .
.'' \4\ The court stated that the Interior Department had represented
to it in a previous case concerning an oil and gas lease sale in the
Northwest portion of the Reserve that Interior would analyze the
cumulative impacts of simultaneous oil development in both of the
Reserve planning areas as part of its decision to lease the Teshekpuk
Lake region in Northeast portion of the Reserve.\5\ When Interior yet
again put off the analysis--this time saying it would do so when
development actually occurs--the court, at least preliminarily,
concluded that Interior had violated the law.
\4\ National Audubon Society vs. Kempthorne, Memorandum Decision
(Preliminary) at 15, September 6, 2006, No. 1:05-cv-00008-JKS (D. Ak.)
(Audubon Memorandum Decision).
\5\ Audubon Memorandum Decision at 14.
Consequently, despite the ``critical'' importance of information
about cumulative impacts to informed agency decision-making,\6\
specific and formal agency promises to do so were broken.
\6\ NRC Report at 1.
BP's failures at Prudhoe Bay are perfectly analogous to this
situation. As this quote from 2001 demonstrates, BP has long promised
that Prudhoe Bay is safe and in good shape:
We believe Prudhoe Bay is safe and that BP has always had as
its number one priority the safety of our employees and
contractors and the integrity of the North Slope system.\7\
\7\ Statement of Bob Malone, then-regional president of BP U.S., as
reported in The Wall Street Journal. Jim Carlton, Oil and Ice, In
Alaskan Wilderness, Questions About Bush's `Friendlier Technology', The
Wall Street Journal (April 13, 2001) (emphasis added).
BP's March 2006 oil spill--the largest in North Slope oil field
history--and its early August announcement that it was going to shut
down the largest oil field in the United States due to pipeline
integrity problems demonstrate the hollow nature of this promise.
Avid drilling advocate Senator Ted Stevens also bemoaned the broken
I am disturbed not only by the fact that over the years, when
I've taken members of Congress up there--particularly senators
and people from the administration--we've been briefed that
this is the safest area in the world, and how it's been
maintained, and how they've got special procedures to check for
corrosion and erosion and any sludge inside the pipeline.
As a matter of fact, it just wasn't done . . . .
They sold us the fact their processes would perform. And they
\8\ Richard Mauer, BP Failure ``shocked'' Stevens, Anchorage Daily
News (August 18, 2006).
This section of the testimony reviews the broken promises of safe,
responsible, informed and vigilant oversight of the industrial
activities of Alaska's oil patch. As the example at the beginning of
this section portends, this promise is broken not just by BP, but by
others involved in the oil patch; other oil companies and governments
alike. This history is recounted here because understanding it is
critical to crafting and implementing any plan to remedy the problems;
unless Congress takes the time--right now--to fully analyze and remedy
the problems that led to the Prudhoe Bay debacle, we will be destined
to repeat history, and in the process further risk worker safety, the
environment, and a portion of our nation's energy supply.
BP has a long history of inadequate management and operations
That BP has been a troubled actor in the oil fields has been
apparent for some time. For example, in the late 1990's, BP pled guilty
to felony illegal waste disposal charges. Despite laws prohibiting
injecting below the tundra anything classified as hazardous, a BP
contractor had for years been doing just that with barrels of hazardous
foreign substances, such as glycol and paint thinners. When a worker
questioned this practice in 1995, BP characterized the re-injection as
two isolated incidents. But in reality, the illegal disposal was
ongoing for years and took place under the cover of darkness. After an
extended investigation, BP, its drilling contractor Doyon Drilling, and
three workers paid $1.55 million in criminal fines and were placed on
criminal probation for five years. BP paid an additional $6.5 million
in civil penalties, while BP and Doyon Drilling agreed to spend an
additional $17 million to improve their environmental compliance
\9\ See Eric Nelson, Poisoning the Well: Whistleblower Disclosures
of Illegal Hazardous Waste Disposal on Alaska's North Slope, The Alaska
Forum for Environmental Responsibility, January 1997. (http://
www.alaskaforum.org/reports.html). BP's ``isolated incidents'' claim
was made by Richard C. Campbell (President, BP Exploration [Alaska],
Inc.), ``URGENT--Response to Alaska Forum Release'' (e-mail communique
to all BP employees), Jan. 29, 1997. See U.S. Dept. of Justice, Press
Release ``North Slope Driller Admits Illegal Disposal of Hazardous
Waste; $3 Million Plea Agreement Announced'' (April 30, 1998)
(detailing fines and penalties); see also Maureen Clark, Associated
Press, ``BP to pay $22 million for dumping on slope,'' Fairbanks Daily
News-Miner ( Sept. 24, 1999).
In 2001, after North Slope workers complained that budget cuts
forced them to work with worn-out and dangerous equipment, BP insisted
that its North Slope operations were safer than ever.\10\ In early
2002, Bill Burkett, a veteran BP Prudhoe Bay worker, warned, ``if they
continue to cut corners the way they do now I fear a catastrophic event
is imminent.'' \11\ His warning proved prophetic. In August of that
year, an explosion and fire at a Prudhoe Bay well house put a veteran
worker in the hospital with serious bums. BP immediately claimed that
well inspections prior to the blast had been properly conducted. Later
admitting that this claim was false, BP again promised to improve its
field monitoring and safety programs. Four months later, a welder
repairing a high-pressure line at Prudhoe Bay was tragically killed
when a plug blew out of the line.\12\
\10\ See Kim Clark, ``Danger in the oil patch: Workers say BP is
violating probation,'' U.S. News & World Report, Aug. 6, 2001, p. 21.
\11\ Jonathan Rugman, Oilfield Revelations, Channel 4 News,
Anchorage, AK, March 11, 2002.
\12\ The Alaska Oil and Gas Conservation Commission eventually
fined BP $1.3 million for safety violations in this incident, then
added another $100,000 penalty for failures to execute the new
procedures. See: Sheila McNulty, ``Well testing is cold comfort for
Alaskan staff,'' Financial Times, Aug 27, 2002 and ``BP admits test
lapse at Alaskan well,'' Financial Times, Sept. 11, 2002; and Wesley
Loy, ``BP to pay $ 1.4 mm for safety violation cases,'' Anchorage Daily
News, Jan. 8, 2005; Ben Spiess, ``Welder struck by plug, killed--
Prudhoe Bay: Victim, 2 others were working on water pipeline,''
Anchorage Daily News, December 22, 2002.
Another BP worker told Congress in 2002 of this telling experience
on the North Slope:
[l]ast year . . . Senator [Frank] Murkowski came to Prudhoe
with [Interior Secretary] Gail Norton and publicly dared anyone
to find oil or contamination in the well house that they were
standing in. Before his arrival, we put fresh gravel in the
well house, and cleaned the well and manifold buildings on the
pad. All the good Senator needed to do was, scrape off the 4
inches of clean gravel with his shoe and he would have found
\13\ Robert Brian, Instrument Technician for BP Exploration
(Alaska) Statement before Senators Lieberman and Graham, March 11,
2002; see also Tony Hopfinger, Second BP Vet Blows the Whistle,
Anchorage Daily News, March 13, 2002 at A1 (Robert Brian stating that
``Working for BP is like working for a drunk driver [who] insists on
driving you home.'')
With that larger context, independent analyst Richard Fineberg
provides this compelling summary of BP's corrosion-related history:
For years, BP workers had risked their jobs to send word to
the company's top executives that, due to cost-cutting
pressures, the nation's largest oil field was in danger of a
catastrophic event that could injure or kill workers, harm
Alaska's environment and cut off a major portion of the West
Coast oil supply and state revenues. These warnings frequently
mentioned BP's problems with corrosion . . . .
In 1999, the dangers of corrosion on non-regulated
pipelines were so significant that BP entered into an
agreement with the Alaska Department of Environmental
Conservation (ADEC) to develop a work plan, hold semiannual
work sessions with ADEC and file an annual progress report
with the agency . . . .
In January 2001, corrosion problems again were among the
items listed by concerned BP North Slope technicians
relayed to BP Chairman Lord John Browne by Charles Hamel of
Alexandria, Virginia, who frequently serves as a conduit
for the health, safety and environmental concerns of
beleaguered North Slope workers. According to that letter,
``(w)e are way behind on our corrosion inspection and
In March 2002, BP North Slope worker and health and safety
officer Bill Burkett listed his numerous efforts to contact
monitoring agencies about his concerns--including
corrosion--in a letter to . . . Democratic Senators Joseph
Lieberman and Bob Graham. Burkett, then due to retire
shortly, also gave a lengthy broadcast interview in which
he discussed his numerous concerns.
In a 2004 letter, Hamel wrote to BP board environmental
safety subcommittee chair Walter Massey to warn of ``cost
cutting, causing serious corrosion damage'' that
contributed to worker fears of ``a catastrophic event.''
On January 20, 2005, Hamel sent a letter to Senator [Ted]
Stevens discussing BP's  other safety problems on the
North Slope. That letter concluded with the warning that
``money saving `Russian Roulette' risks taken are
jeopardizing the vital North Slope crude deliveries to the
lower 48.'' \14\
\14\ See Richard Fineberg, ``Shocking?'' Evidence Mounts from
Alaska and Elsewhere that BP's Inadequate North Slope Performance
Should Have Been No Surprise to Public Officials or Monitors (September
3, 2006) www.finebergresearch.com (footnotes omitted).
As reported in the media, throughout this time, ``BP ha[d] issued
rosy annual reports to the Alaska Department of Environmental
Conservation about how its corrosion monitoring on the North Slope is
getting better all the time.'' \15\ And, as it turned out, at least the
first such report, if not the later ones, was doctored to make it
appear that BP's corrosion control program, including its refusal to
run maintenance or smart pigs down the lines to clean and assess the
integrity of the line (respectively), was more substantial and
comprehensive than was actually the case:
\15\ Dermot Cole, For six years, BP reported progress on corrosion
inspections, Fairbanks Daily News Miner (August 11, 2006).
[T]he original version . . . said BP's corrosion-monitoring
program ``makes it difficult to develop a qualitative
understanding of the basis for their corrosion strategy.'' That
reference was replaced by this: ``BP has demonstrated a clear
commitment to corrosion control.''\16\
\16\ Jim Carlton, U.S. Officials Are Investigating Changes Made to
Report on BP, Wall Street Journal (August 24, 2006); see also Dow Jones
Newswires, BP Sought Lenient Assessment Of Alaska Oil Ops (August 24,
2006) (``BP complained that the Coffman assessment was ``biased and
unduly negative'' and should be rewritten. In January 2002, Coffman
released a toned-down report, which included only one of the original
criticisms . . .''); Matthew Dalton And John M. Biers, Consultant
Warned BP Of Pipe-Network Corrosion, Wall Street Journal at A-3 (August
24, 2006) (BP ``pipeline system vulnerable to localized corrosion, with
large blind spots where problems would be difficult to detect.''). The
original Coffman documents, as well as an analysis of them prepared by
former BP worker Glenn Plumlee, are available at http://www.pogo.org/p/
And then, in March of 2006, BP caused the largest oil spill in
North Slope oil field history, during which one of its pipelines at
Prudhoe Bay corroded and spilled over 200,000--260,000 gallons of crude
oil onto the tundra.\17\ Fast forward to early August, after BP had
received orders from the federal Department of Transportation, Pipeline
And Hazardous Materials Safety Administration (PHMSA) to conduct pig
tests on its Prudhoe lines, BP ``discovered'' that its pipeline system
at Prudhoe Bay was at serious risk of failure due to corrosion, and
literally shut down significant portions of the largest oil field in
\17\ See http://www.dec.state.ak.us/spar/perp/response/sum_fy06/
060302301/060302301_index.htm (State of Alaska information on spill);
analyst's report on March spill); http://www.alaskaforum.org/
news_stories.html (media regarding the spill).
\18\ See http://www.nytimes.com/aponline/business/AP-Oil-Field-
And even with that, and all the attention it brought on (including
the scheduling of this hearing), BP's risk-taking continued:
As the week [of August 10] has progressed, BP has shifted its
stance and now says it may be able to keep the western half of
the field open, a move that would send a reassuring signal to
global energy markets and Californian drivers alike. But,
company officials here acknowledge that if it decides to keep
pumping, it would do so without using the smart pig tests, a
move that critics say leaves the company vulnerable to more
problems in the western field.\19\
\19\ John Biers, BP Pumping West Prudhoe Bay Would Be Without `Pig'
Test, Dow Jones Newswires (August 14, 2006); see also Jessica Resnick-
Ault, Wall Street Journal, BP to Keep Some Prudhoe Oil Flowing (August
12, 2006) (``Over the last five days we have doubled spot inspections
over a key five-mile segment of the oil transit pipeline serving the
western side of the field,'' BP America President Bob Malone said in a
press release. ``The results have been encouraging and have increased
our confidence in the operational integrity of this pipeline. With
greatly enhanced surveillance and response capability, I am confident
we can continue to safely operate the line.'')
Other Oil Companies Are Also Risk Takers
Although BP's North Slope problems have made headlines recently, BP
is by no means the sole actor in Alaska's oil patch whose substandard
performance has raised serious health and safety issues while
jeopardizing a major portion of the west Coast's oil supply. To learn
and address the lessons from the BP failures, it is therefore necessary
to consider the patterned behavior of other oil and gas companies and
partnerships operating in Alaska.
As an initial matter, BP operates some of the oil fields on behalf
of ExxonMobil, ConocoPhillips and other more minor company
leaseholders. Just because these companies are ``absentee landlords''
does not absolve them of their legal obligation to ensure that their
oil fields are being managed with management and operational integrity;
they too are responsible for the problems at Prudhoe Bay.
Industry-wide problems were revealed in a series of detailed
reports by the conservation community in the late 1980's (Oil in the
Arctic), early 1990's (Tracking Arctic Oil) and late 1990's (Under the
Influence: Oil and the Industrialization of America's Arctic).\20\ And
of course the Exxon Valdez oil spill in 1989 revealed to the nation and
the world that promises to respond to and clean up oil on Alaska's
coasts were empty. Indeed, oil from that tragedy still soils beaches in
Prince William Sound; so much so that the state and federal governments
are pursuing more money from Exxon to continue the clean up. And 17
years after the spill, Exxon still refuses to pay the civil judgment
for the lives and livelihoods it soiled.
\20\ See Oil in the Arctic, Trustees for Alaska, NRDC, NWF (1988);
Tracking Arctic Oil, Trustees for Alaska et al. (1991), http://
Oil and the Industrialization of America's Arctic, Trustees for Alaska
In August 2004, EPA imposed a $485,000 civil penalty on
ConocoPhillips for Clean Water Act violations at its drilling platforms
in Cook Inlet, Alaska. There had been 470 violations of the rig's
National Pollution Discharge Elimination System Permit over a five-year
period, and six unauthorized discharges of pollutants. Earlier that
year the Alaska Department of Environmental Conservation imposed an
$80,000 civil penalty on ConocoPhillips for Clean Air Act violations at
the supposedly ``hallmark'' Alpine oil field. High carbon monoxide
emissions from turbines at the Central Processing Facility used to re-
inject natural gas exceeded the air quality permit over a year-long
\21\ See Recent Oil Company Fines and Penalties in the North Slope
Oilfields, and cites therein. http://www.northern.org/artman/uploads/
This followed a history of Clean Air Act violations at Alpine even
prior to production. During development drilling in 1999, DEC fined
ConocoPhillips a total of $24,000 for penalties and damages ($19,500
suspended) in three cases of permit violations for excess emissions
sources from the drilling mud plant, and other drilling operations.\22\
The Alpine oil field began producing in 2000.\23\ By January 2001, ADEC
found that the secondary power turbines were not operating as permitted
and produced high emissions of Nitrogen Oxides (NOX) for
which ConocoPhillips was fined $16,875 in damages ($11,875
\22\ DEC Compliance Order by Consent No. 99-267-50-1332 to ARCO
Alaska Inc. (Nov. 7,1999); DEC Compliance Order by Consent No. 99-267-
50-1372 to ARCO Alaska Inc. (Nov. 22, 1999); DEC Compliance Order by
Consent No. 99-370-50-1381 to ARCO Alaska Inc. (for Doyon Drilling
Units) (Dec. 20, 1999).
\23\ Alaska Department of Natural Resources, Alaska Oil and Gas
Report at pages 3-35 (December 2004), www.dog.dnr.stat.ak.us.
\24\ DEC Compliance Order by Consent (COBC) No. 00-586-50-1712 to
Phillips (Jan. 10, 2001).
Further, the Environmental Protection Agency is conducting what is
apparently still an on-going criminal investigation into intentional
dumping of drilling wastes contaminated with hazardous material from an
ice pad into the Beaufort Sea by Pioneer Natural Resources Company.
Supervisors ordered that thousands of gallons of toxic drilling mud at
the Oooguruk exploratory well be dumped into the sensitive coastal
waters near Prudhoe Bay to save costs of proper disposal in March 2003,
according to workers.\25\
\25\ Jim Carlton, EPA Pursues Report that oil crew dumped polluted
mud in Alaska, Wall Street Journal (October 19, 2005).
Pursuant to its master plan for oil spill response, Alyeska
Pipeline Services Company, the operator of the 800-mile Trans-Alaska
Pipeline System (TAPS) between the North Slope and Valdez, is legally
required to maintain a variety of spill response equipment that is
readily available for rapid response to any emergency.\26\ One of the
listed items is a bullet hole clamp. But when a miscreant shot a hole
in the pipeline with a high-powered rifle in October 2001, it was
revealed that the existing bullet hole clamp could not be used. Alyeska
tardily set about inventing a new bullet hole clamp. As a result, a
thick stream of crude oil poured into the nearby trees for 36 hours,
destroying nearly 2\1/2\ acres of trees.\27\
\26\ The major owners of Alyeska are BP (46%), ConocoPhillips (28%)
and ExxonMobil (20%).
\27\ Alaska Department of Environmental Conservation, et al., Joint
After-Action Report for the TAPS Bullet Hole Response (October 2001),
Feb. 8, 2002, http://www.state.ak.us/dec/dspar/perp/home.htm. For the
TAPS oil spill contingency plan reference to the bullet hole clamp, see
Trans Alaska Pipeline System, Pipeline Oil Discharge Prevention and
Contingency Plan--General Provisions, Dec, 31, 2003 (Ed. 4, Rev. 1),
pp. 1-375-376. (The version of the TAPS C-plan approved three months
after the Oct. 4, 2001 spill [Rev. 0, Dec. 31, 2001] contains identical
language at pp. 179-180.)
Early in 2005, two veteran maintenance engineers left Alyeska after
30 years of service. Prior to their separate departures, both warned
that the management was failing to address environmental concerns.
Later in the year, the company's chief operating officer was removed
from his position nine days after he presented the TAPS owners with a
list of 101 serious risks on TAPS.\28\
\28\ See Richard A. Fineberg, ``Documents Reveal Trans-Alaska
Pipeline In Trouble; Monitors Punt'' (November 2, 2005), http://
www.finebergresearch.com/archives/spilling.html; and Jim Carlton,
``Alaskan Pipeline Faces Safety Risk, Executive Warned,'' Wall Street
Journal (September 17, 2005).
State and Federal Failures
Alaska and the federal government have also made and broken
promises, and undertaken risky behavior, both in the planning and
regulatory arenas. This section provides examples of these failures,
and demonstrates that there has been a programmatic failure to make
informed agency decisions and follow through with stringent
The TAPS right-of-way renewal provides an example applicable to
both the state and federal governments. Despite numerous examples of
other performance failures on TAPS, in late 2002 and early 2003 state
and federal authorities renewed Alyeska's right-of-way agreements,
issued 30 years earlier, without taking steps to address the numerous
problems on TAPS expressed by concerned citizens, environmental and
other public interest groups.\29\
\29\ State renewal of its right-of-way lease agreement was formally
issued on Nov. 26, 2002; the federal grant was renewed six weeks later.
For information concerning the performance failures on the TAPS right-
of-way renewal, see Richard A. Fineberg, ``Background Report: TAPS
Lease Renewal--Opportunity Lost'' (August 2004), http://
State of Alaska
In past decades, Alaska had stringent planning requirements. These
came from two primary sources. First, Alaska law required that any
decision to commit state lands to oil and gas activities would only go
forward if it was in the ``best interest'' of the State, as determined
after a thorough analysis of the costs and benefits of going forward.
Second, the Alaska Coastal Management Program (ACMP) contained
stringent environmental and community protection standards, developed
by local communities as well as state agencies, and was applicable to
development activities in Alaska's ample coastal communities.
A series of lawsuits successfully challenged Alaska's ``best
interest'' finding and ACMP compliance in Alaska decisions to proceed
with, among other things, oil and gas lease sales in the Arctic.\30\ In
response, the Alaska legislature amended the statutory ``best
interest'' requirements to get rid of the requirement that full costs
of a leasing proposal be examined before a lease sale is actually
held.\31\ Furthermore, Governor Frank Murkowski directed the final
evisceration of the ACMP.\32\
\30\ See e.g., Trustees for Alaska v. State of Alaska, Dept. of
Nat. Resources, 865 P.2d 745 (Alaska 1993) (holding that DNR's best
interest finding regarding oil and gas leasing near Demarcation Point
was inadequate because it failed to address the risks of transporting
oil from the sale area to market and it failed to consider impacts on
the Porcupine caribou herd and on the subsistence users of the herd);
Trustees for Alaska v. State of Alaska, Dept. of Nat. Resources, 851
P.2d 1340 (Alaska 1993) (holding that DNR's consistency determination
regarding the sale of oil and gas leases in Camden Bay violated the
ACMP by, among other things, inadequately addressing geophysical
\31\ Compare AS 35.05.035 as it existed in 1990 with AS 35.05.035
as it exists today.
\32\ Governor Issues `Streamlining' Executive Orders, Anchorage
Daily News, B2 (Feb. 13, 2003).
In another controversial move, Governor Murkowski abolished the
habitat division of the State of Alaska Department of Fish and Game,
which was responsible for implementing the waterway-based environmental
protections contained in Title 16 of Alaska's laws. He transferred what
responsibilities were left to implement Title 16 to the Alaska
Department of Natural Resources, the resource development agency that
sits at the top of the state's administrative hierarchy.\33\
\33\ Murkowski issues habitat division order, Fairbanks Daily News-
Miner (February 12, 2003).
On the regulatory front, the State of Alaska cannot claim that it
was not forewarned about the high level of corrosion risk present in
the North Slope oil fields, especially Prudhoe Bay. The state DEC was
the recipient of the above-described original Coffman Report.\34\
Rather than heed its warnings and compel BP to implement a more
thorough corrosion monitoring program, including the routine use of
maintenance and smart pigs, DEC set aside the concerns raised by its
well-respected lead oil spill prevention engineer, whose position it
was that changes should only occur where factual inaccuracies are
proven,\35\ and allowed the report to be altered.
\34\ See infra footnotes 16-17 and accompanying text.
\35\ This situation was exposed at the House Energy and Commerce
Committee, Investigations and Oversight Subcommittee, Hearing on BP's
Pipeline Spills at Prudhoe Bay: What Went Wrong? (September 7, 2006).
Well before the Coffman report controversy, however, the state was
on notice that the corrosion monitoring and leak detection systems on
the North Slope were unnecessarily risky. Administrative comments to
DEC from Trustees for Alaska on the Prudhoe Bay spill plan (C-Plan)
from 2002 are particularly telling given BP's September 7, 2006
testimony in the House Subcommittee on Investigations and Oversight
that costs are not a factor in field maintenance at Prudhoe Bay:
In BPA's case, ADEC has confirmed, and BPXA has acknowledged
that the crude oil transmission lines do not comply with the
leak detection standards for pipelines. See 18 AAC
75.055(a)(1); 18 AAC 75.425(e)(4)(A)(iv). Leak detection
standards have been in place since 1992--ADEC should not allow
any further delay in installing, testing and ensuring that
BPXA's transmission lines meet regulatory standards. Further AS
46.04.030(e) requires that the applicant use the best available
technology at the time the plan was renewed. The technology
exists (for example, the use of turbine meters in conjunction
with other technology was determined to be best available
technology at facilities like Lisburne), yet BPXA has failed to
implement such technology at Prudhoe Bay because of the cost of
additional meters (estimated at around $10 million). Yet cost
is not necessarily an excuse to fail to implement best
available technology--especially in the largest oil field in
\36\ Letter from Trustees for Alaska to DEC re BP Exploration
(Alaska) (BPXA) Greater Prudhoe Bay Unit, Oil Discharge Prevention and
Contingency Plan, ADEC Plan Number 014-CP-5079 at page 7 (February 18,
emphasis in original, bold emphasis added).
BP's position on that spill plan, which DEC ultimately accepted,
appears to directly rebut last week's BP testimony.
Finally, with respect to low stress pipelines such as those that
failed or were in danger of failing during 2006 at Prudhoe Bay,\37\ DEC
regulates BP's faulty pipelines under its ``crude oil transmission
pipeline'' requirements.\38\ Current DEC requirements do not deal
specifically with corrosion; however DEC's general oil pollution
prevention authority\39\ would have allowed inspectors to require
pipeline operators to take steps to prevent corrosion-related oil
discharges. That of course never happened.\40\
\37\ ``Low-stress pipeline means a hazardous liquid pipeline that
is operated in its entirety at a stress level of 20 percent or less of
the specified minimum yield strength of the line pipe.'' (49 CFR 195.2)
\38\ 8 AAC 75.055.
\39\ For example, 18 AAC 75.005, Responsibility states: The owner
or operator of an oil tank vessel, oil barge, pipeline, oil terminal,
railroad tank car, exploration facility, or production facility subject
to the requirements of AS 46.04.030 or AS 46.04.055 (j) is responsible
for meeting the applicable requirements of this chapter and for
preventing the discharge of oil into waters or onto land of the state
\40\ A former DEC air pollution expert identifies problems with the
air pollution regulatory regime on the North Slope: ``The state, with
the acquiescence of the federal Environmental Protection Agency, has
significantly aggravated air pollution by piecemeal permitting of small
parts of each facility. This is a problem since air pollution is
regulated by assigning limits to an entire facility. By substituting
multiple sub-units for a single facility, the allowable emissions have
been increased many times over.''--Letter from Bill McClarence to
Anchorage Daily News, (published September 9, 2006).
DEC remarkably takes the position that its primary oil spill-
related ``obligation is to ensure that an operator takes specific
measures to be prepared to effectively respond to spills from the
operation once a permit to drill has been issued.'' \41\ Moreover, its
recent regulatory revision process was designed to ``improve clarity''
\42\ although in reality it mirrored an oil industry wish list.\43\
\41\ DEC, Oil Discharge Prevention & Contingency Plan, Regulation
Revisions, Public Noticed September 8, 2003--October 13, 2003, Response
To Comments at 5 (May 14, 2004).
\42\ See id. at 1.
\43\ See Alaska Oil and Gas Association (AOGA), ``AOGA Briefing
Paper on Improving the Contingency Plan Process,'' submitted to ADEC on
October 15, 2002. Meanwhile, the North Slope Borough, which had been
asking for new, tougher regulation for years, complained to DEC that
``only one of its proposed regulatory changes was even considered by
DEC.'' Comment Letter from North Slope Borough Planning Department to
DEC at 4 (July 3, 2003).
And even the oil spill response focus of the proposed regulations
was a step back from the existing regulations. As the North Slope
Borough stated in its comments on the proposed regulations, ``none of
the proposed regulatory changes will lead to measurable improvements in
oil spill response capability for the North Slope, a number of these
proposals will weaken the oil spill prevention and response systems
currently in place.'' \44\
\44\ Comment Letter from North Slope Borough Planning Department to
DEC at 2 (July 3, 2003). DEC is also abdicating its responsibility to
review spill planning for offshore well blowouts. See A Fair Warning:
Diminished State Oversight Of Oil Spill Contingency Plans at pages 3-9
(February 2006), http://www.trustees.org/Supporting%2ODocuments/C-Plan/
Some experienced oil field workers have speculated as to the causes
for the lax state oversight of the oil industry. As former BP worker
Bill Burkett explained ``[a]ny attempts by the State to increase
environmental protection would be met with threats from the industry to
take their business elsewhere. So when critics raised any safety or
environmental concerns through the State Agencies charged with
oversight, they went nowhere.'' \45\
\45\ William B. Burkett, Statement before Chairman J. Lieberman and
B. Graham, March 4, 2002.
This dynamic is also recognized by independent energy industry
[T]he sources of BP's apparent neglect of its pipelines may
stem less from the company's own culture than from the
regulatory vacuum surrounding feeder pipelines. Although feeder
lines are subject to state regulations, it would be delusive to
expect Alaska, an oil state heavily dependent on oil and gas
investments, to effectively fill the federal regulatory gap
when it is struggling to attract billions of dollars in gas
pipeline investments from the very companies it is supposed to
regulate. If indeed the root cause of BP's problems is
regulatory rather than company-specific, pipeline problems
might exist undetected at other Alaskan facilities that have
not been subject to the scrutiny brought on BP by its recent
\46\ Antoine Halff, Veronique Lashinski, Beyond Prudhoe, FIMTA
Energy Research (August 7, 2006).
While the BP debacle should serve as a wake up call to Alaska to
overhaul its planning and regulatory programs, statements by Alaska's
leaders do not bode well for such change. Governor Murkowski recently
led a tour of reporters to the North Slope. At Prudhoe Bay, he intoned
``Let me welcome you to the best oil field in the world,'' and then
touted the quality of the field's operation.\47\
\47\ Wesley Loy, Governor visits the Slope, Anchorage Daily News
(August 11, 2006).
The Teshekpuk Lake discussion presented as the introduction to this
section demonstrates that federal land management and planning efforts
also suffer from broken promises and risky behavior. In fact, the
``promise'' of BLM's decision to lease the Teshekpuk Lake region goes
beyond an analysis of cumulative impacts because it allows pipelines to
crisscross even those areas it deigns too sensitive for direct drilling
on the assumption that pipelines are benign elements of the industrial
infrastructure.\48\ Yet it is the risk posed by the inevitable
spills\49\ and intensive human activity (e.g., the need to monitor
pipelines by aircraft) such as that seen at Prudhoe Bay that the
scientists and local residents tell us will so gravely threaten that
region's remarkable natural resources.\50\ Consequently, while other
examples exist, the Teshekpuk Lake situation is sufficiently timely and
on point to act as the sole illustration of this point.
\48\ See Map, Potential Teshekpuk Lake Development Allowed under
BLM ROD (January 2006), Alaska Center for the Environment, Conservation
GIS (map created May 5, 2006) (attached); see also NPRA NE FEIS at 4-17
(January 2005) (``[N]umerous technological advancements have been made
during the decades of operations on the North Slope that have allowed
current development activities to proceed at a lower cost and with less
environmental impact than previous operations.'')
\49\ Even staunch drilling proponents such as Representative Don
Young admit that ``[t]he fact of the matter is that sometimes leaks
will occur.'' Congressman Don Young, Press Release, House
Transportation Committee Hearing on Pipeline Safety (March 16, 2006).
The facts of North Slope oil development, where spills of oil and other
hazardous substances are on the rise and average well over one a day,
support his statement. See Facts, North Slope Oil Development, http://
cites therein; see also http://www.wilderness.org/Library/Documents/
\50\ See e.g., Letter by Terry Crawforth, Chairman, Pacific Flyway
Council to Interior Secretary Gale Norton at page 1 (August 2005)
(BLM's approach ``would allow facilities and infrastructure for oil and
gas production to impinge on sensitive molting geese . . . [a]nd
minimizes the value of contiguous undisturbed habitat that is the
essence of why molting geese have established a strong tradition of
molting in [this] region''); Letter from Kenneth Able et al. (including
about 200 ornithologists, wildlife biologists and environmental
scientists) to BLM's NE NPR-A Amendment Planning Team at page 2 (August
23, 2004) (``Molting geese will run at the sight of a distant person,
and disturbance by aircraft overhead--to which brant apparently do not
habituate--is a major problem''); see also Audubon Alaska, Wildlife and
Oil Development at Teshekpuk Lake, http://www.audubon.org/chapter/ak/
ak/images/Teshekpuk--low.pdf (providing information on the environment
of the Teshekpuk Lake region, the threat posed to it by oil
development, and the opinions of scientific experts; see also Letter
from North Slope Borough to Interior Secretary Kempthorne (August 31,
2006) (expressing continued objection to the scheduled September 27,
2006 oil and gas lease sale for the Northeast Planning Area of the
Reserve based on the incompatibility of industrial development with the
critical subsistence resources and harvests of that region).
Turning to the regulatory world, BP's pipeline problems on the
North Slope amply demonstrate that investing in pipeline safety pays
off in environmental and economic benefits,\51\ though we are also
failing to heed this fact. DOT's Pipeline and Hazardous Materials
Safety Administration (PHMSA) has jurisdiction over BP's pipelines,
however BP's so-called ``transit'' pipelines currently are exempt from
federal regulation. This means that other pipelines like BP's have no
federal corrosion prevention requirements or federal inspectors
checking on operations. Based on information PHMSA presented at the
September 7 House Investigations and Oversight Subcommittee hearing,
there were a very large number, i.e., over 180, locations of
significant wall thinning from corrosion on BP's Eastern Operating Area
pipeline. If this pipeline were regulated, these locations of wall
thinning would require repairs under 49 CFR 195.452(h)(4)(iii).
\51\ For example, among the economic costs of the BP situation was
the fact that the state of Alaska lost $6.4 million in royalties and
taxes for each day the oil field was shut-down. Matt Volz, Murkowski
institutes hiring freeze after shutdown, Anchorage Daily News (August
Yet the history of attempts to place federal regulations on low
stress pipelines is not a pretty one. The following timeline shows
actions the federal government has taken and not taken to address the
low-pressure pipeline exemption:
1969: All low-pressure pipelines exempted from regulation.
1988: National Association of Pipeline Safety
Representatives (state pipeline regulators) sends the U.S. DOT
a resolution asking that the low-pressure exemption be
\52\ Resolution 1988-1-P1, 20 Percent SMYS, sent to U.S. DOT on
August 4, 1988.
1990: U.S. DOT asks for comments on ``whether and to what
extent'' to remove the low-pressure exemption from its
\53\ See 55 Federal Register 45822 (October 31, 1990).
1992: Congress passes the Pipeline Safety Act of 1992 (Pub.
L. 102-508) and directs U.S. DOT not to exempt pipelines from
its regulations ``only because the facility operates at low
internal stress.'' \54\
\54\ See 49 USC 60102(k).
1992: Volpe National Transportation Systems Center issues a
report for U.S. DOT\55\ estimating that there are 20,000 miles
of onshore rural gathering lines and 22,000 miles of
unregulated low-pressure transmission pipelines. The Volpe
study also estimated that 38% of the 22,000 miles (nearly 7,000
miles) were near a populated area or a navigable waterway
(leaving 15,000 miles of low-pressure transmission pipelines
\55\ Economic Evaluation of Regulating Certain Hazardous Liquid
Pipeline Operating at 20% or Less of Specified Minimum Yield Strength,
Deanna Mirsky of EG&G/Dynatrend and The Hazardous Materials
Transportation Special Projects Office, Volpe National Transportation
Special Projects Office, July 21, 1992.
\56\ In its Notice of Proposed Rulemaking (NOPR) published in the
Federal Register on September 6, 2006, however, PHMSA used industry
data--which includes irrelevant offshore gathering line information and
gathering lines too small to be regulated--to estimate that only 5,000
miles of low-pressure transmission pipeline currently are unregulated.
In section 6.1.1 of the Regulatory Evaluation for this NOPR (U.S.
Department of Transportation Docket Number RSPA-2003-15864-36), PHMSA
says it used the Association of Oil Pipe Lines' ``Pipeline 101''
estimate of 35,000 miles of gathering line mileage which includes
onshore and offshore gathering lines and gathering lines as small as
2'' in diameter. Section 6.1.2 of the Regulatory Evaluation describes
how PHMSA subtracted these 35,000 miles from the approximately 40,000
miles of unregulated pipelines and concluded that there are only 5,000
miles of unregulated, low-stress transmission pipelines (i.e.,
disregarding the fact that the 35,000 mile figure contains significant
offshore and small diameter gathering line mileage).
1993: Notice of Proposed Rulemaking applying pipeline
standards to low-pressure transmission pipelines that traverse
a populated area or a navigable waterway. U.S. DOT deferred a
decision on regulation of low-pressure lines in environmentally
sensitive areas awaiting its development of a definition of
environmentally sensitive areas.\57\
\57\ See 58 Federal Register 12213 (March 3, 1993).
1994: Final rule applying pipeline standards to low-pressure
transmission pipelines located in non-rural areas and areas
currently used for commercial navigation.\58\
\58\ See 59 Federal Register 35465 (July 12, 1994).
2006: American Petroleum Institute and the Association of
Oil Pipe Lines submit a proposal in June to PHMSA identifying
which low-pressure pipelines should be regulated.\59\
\59\ U.S. Department of Transportation Docket Number RSPA-2003-
2006: U.S. House of Representatives Committee on
Transportation and Infrastructure marks-up H.R. 5782 in July,
closely tracking industry's proposal identifying which low-
pressure pipelines should be regulated. U.S. House of
Representatives Energy and Commerce Committee holds a July
hearing on a Discussion Draft for the reauthorized pipeline
safety law which does not include details on which low-pressure
pipelines should be regulated.
2006: Notice of Proposed Rulemaking applies limited pipeline
standards to low-pressure transmission pipelines and gathering
lines within \1/4\ mile of ``unusually sensitive areas,'' which
represent only 17% of the unregulated gathering and
transmission pipeline universe according to the NOPR and 14% of
the unregulated transmission pipeline universe.\60\ Using the
figure of 15,000 unregulated miles developed by the Volpe
Center, however, less than 5% (684 miles of 15,000 miles) of
the low-stress transmission pipeline universe would be
regulated under the NOPR.
\60\ See 71 Federal Register 52515 (September 6, 2006).
Today, 18 years after state pipeline regulators asked U.S. DOT to
remove the exemption covering low-pressure pipelines entirely, PHMSA
last week proposed to regulate an incremental sliver of the unregulated
low-stress transmission pipeline universe. This means that many, many
miles of low-stress transmission pipelines remain unregulated and
susceptible to BP-like problems with their corresponding, adverse
environmental and economic consequences--on the North Slope this may be
the vast majority of the 1,600 miles of pipelines existing in the North
Slope oil fields. And PHMSA will never even know about most such
problems because unregulated pipelines need not report their releases
to U.S. DOT--out of sight, out of mind.
The oil industry itself has always enjoyed special treatment in the
form of exemptions from environmental regulations that apply to the
exact same pollution originating from different industrial sources. Oil
industry-specific exemptions exist under the Resource Conservation and
Recovery Act, the Emergency Planning and Community Right-To-Know Act,
and the Clean Water Act, among other laws.\61\ The very existence of
these exemptions belies any assertion that oil industry activities are
held to the highest possible environmental standards.
\61\ See Testimony of Peter Van Tuyn, House Resources Committee,
Hearing on H.R. 39, text accompanying endnotes 37 to 43 (March 12,
THE UNITED STATES CAN CONTROL ITS DESTINY
There is no question that BP needs to clean up its internal
management mess. The origin of the culture of intimidation and
harassment within BP must be found and rooted out--including divorcing
the performance of good faith but potentially costly system integrity
functions from whatever bonuses and stock options are granted to
critical BP employees. Indeed, it would seem prudent that the timely
and complete performance of these functions be a condition of continued
employment for such workers.
That said, the United Sates must stop relying on industry to take
the lead in doing what is best for this nation. Government can and
should take the lead in ensuring the short and long-term viability and
integrity of our energy production and delivery systems. This should be
done to minimize risk to workers, who put their lives at risk in the
energy field, as well as to safeguard the environment. It should also
be done to minimize interruption of our nation's energy supply.
A good start to doing so would include implementation of the
Ensuring the Integrity of Alaska Oil Facilities
A series of actions could begin the arduous but necessary task of
ensuring the integrity of Alaska's critical oil and gas industry
infrastructure including an independent audit of the management and
operations of such infrastructure, the creation of a citizen's
oversight group to watchdog the industry and government regulators, and
the inclusion of low stress pipelines in federal regulation. Each of
these recommendations is discussed, in turn, below.
Congress should commission an independent, functional audit
of Alaska North Slope production facilities and
cross-country delivery systems to Valdez
To ascertain and address the root causes of the circumstances that
have recently come to light, Congress should authorize and fund an
independent panel to conduct a functional audit of the North Slope
delivery system and TAPS.\62\ In order to ensure the operational
integrity of this system, the personnel conducting this investigation
must have intimate, ``boots-on-the-ground'' knowledge of Alaska's
production and transportation system, similar to the expertise and
independence exhibited by participants in the State of Alaska's 1991
Exxon Valdez Oil Spill Commission. The audit, which must include a
follow-up to ensure positive results, should be conducted over a two-
year period, and along the following lines:
\62\ After the 1989 Exxon Valdez oil spill, Congress authorized--
but never funded--an audit of North Slope transportation systems. (See:
Oil Spill Pollution Act of 1990, Sec. 8103. Presidential Task Force.)
An initial report, to be completed in nine months, should examine
both the management structures and systems used in Alaska, including
government oversight, as well as physical hardware. In this regard, the
first task (taking, perhaps, three months) should be to determine
whether the North Slope production and delivery system, and its
operators, provide a reasonable margin of safety in all aspects of its
Detecting problems critical to safe operations in a timely
Providing timely response to critical problems, thereby
minimizing risk to workers, risk to the environment and
interruption of a critical component of this nation's energy
Demonstrating the capability to learn from experience and
adapt to changing conditions.
Based on these findings, the panel should assess root causes and
recommend institutional changes to address the identified problems. The
initial audit final report should be tendered to Congress within nine
As we have seen, an audit without follow-through is not likely to
result in correction of problems identified in that audit review.
Therefore, nine months after completion of the initial audit, the panel
should reconvene to review (1) the status of the management system and
hardware problems identified in the initial report; (2) actions taken
to address the institutional problems identified in the initial report;
and (3) new developments the panel may elect to address. The follow-up
report should be tendered to Congress six months later, or two years
after the initial audit commences.
Congress should establish a Citizens' Oversight Group for
the North Slope oil facilities and TAPS
Shortly after the Exxon Valdez oil spill, Congress established two
citizen oversight groups in Alaska--one for Prince William Sound and
the other for Cook Inlet.\63\ However, no similar group was established
for the northern two-thirds of TAPS, or for the production complex at
Prudhoe Bay. At this time Congress should establish a Citizens'
Oversight Group, with dedicated funding from the North Slope production
and transportation operations that covers the entirety of this vital
domestic transportation system. Its function would be to ensure,
through independent citizen and community involvement, that the
important North Slope and TAPS energy systems are maintained and
operated in a manner that safeguards system integrity, the workers and
the natural resources of Alaska, and ensures the integrity of continued
oil production and shipment.
\63\ Oil Spill Pollution Act of 1990, Sec. 5002(d).
The structure for the group would best be developed in consultation
with the individuals and local communities of the affected regions. To
assure its independence from industry, the new citizens' oversight
groups must, at a minimum, be:
Funded at a guaranteed annual level; and
Made up of individuals appointed (but not employed) by local
governments, federally recognized tribes, indigenous groups,
environmental groups and other concerned citizens. (Industry
and agency regulatory agency personnel could participate
actively but in an ex-officio capacity.)
The creation of a group for the North Slope and all aspects of TAPS
not covered by the current regional citizens advisory councils would
help combat systemic operational and oversight problems such as those
that we are experiencing today. The group would oversee a staff whose
expertise provides regulators, the industry and the general public with
a truly independent evaluation of the efforts and accomplishments of
the North Slope and TAPS oil facility operations. The funding for the
group could come from external trust or escrow accounts set up to
ensure the future dismantling and removal of facilities and
rehabilitation of the land on which these oil facilities rest; thus
ensuring that another promise of the oil patch is fully met.
The owners of the TAPS have collected funds for the future
dismantling, removal and restoration (DR&R) of TAPS from shippers
through pipeline tariffs. That money, collected on an accelerated
basis, is currently passed through to the parent companies of the TAPS
Owners. A 2004 analysis suggested that if TAPS operates through 2034 at
historical inflation and industry earnings rates, the industry's
retention of the pre-collected funds will generate income of
approximately $50 billion after dismantling costs and all taxes are
paid. Moreover, the TAPS owners have collected sufficient funds to
cover dismantling expenses in 2034, even if inflation averages an
historically unprecedented 10% between now and that time.\64\ To
provide funds to ensure the safe and environmentally sound operation of
TAPS and promote the integrity of continued North Slope development,
the TAPS Owners should be required to (a) place funds necessary for
TAPS dismantling in an escrow account and (b) contribute a portion of
the excess income that they will earn from past DR&R collections to a
fund that would generate a minimum of $3 million per year to help
finance the North Slope and TAPS oversight group.
\64\ See Richard A. Fineberg, Trans-Alaska Pipeline System
Dismantling, Removal and Restoration (DR&R): Background Report and
Recommendations, Prince William Sound Regional Citizens' Advisory
Council, 2004, Appendix Tables 6-8.
The TAPS DR&R provisions apply only to the 800-mile TAPS right-of-
way. On the North Slope, six North Slope common carrier ``feeder''
pipelines that carry oil between separate leases also generate DR&R
funds. These pipelines are much shorter than the 800-mile TAPS and
their DR&R collections are much smaller. The producing fields
themselves operate under different leasing terms from the pipeline
right-of-way leases. The field leases typically contain a requirement
to restore the land to original condition or to the conditions
acceptable to the designated agency official but do not specify a
funding mechanism.\65\ Information on how North Slope field operators
charge users and account for this long-term liability is not readily
available.\66\ Congress should investigate this issue and establish
laws, as necessary, to ensure that funds for future North Slope field
dismantling will be available as needed, but will not be over-
collected, and that some portion of the interest on this money can be
directed to the oversight group as well.
\65\ Summarized from documents submitted by the Alaska Departments
of Environmental Conservation, Law and Natural Resources and the Alaska
Oil and Gas Conservation Commission to a joint hearing of the Alaska
State House of Representatives and Senate Resources Committees, Aug.
18, 2006; and by Vice Adm. Thomas G.Barrett, Administrator, Pipeline
And Hazardous Materials Safety Administration, to the U.S. House
Subcommittee on Oversight and Investigations, U.S. House of
Representatives Committee on Energy and Commerce (September 7, 2006).
\66\ In its 2003 report on cumulative environmental effects of
Alaska North Slope oil and gas activities, the National Research
Council noted that, ``there has been no comprehensive estimate of the
costs of dismantlement and removal of infrastructure and subsequent
restoration and rehabilitation (DRR) of affected North Slope areas.''
NRC Report at 150.
Congress should mandate regulation of low stress pipelines
Although this committee does not have in initial jurisdiction over
pipeline operations, this subject is a critical to ensuring the safety
of the nation's energy supply. For this reason, the 2006 PHMSA proposed
rulemaking on low stress pipelines warrants comment here. The proposed
rules follow national attention to BP's North Slope problems. Moreover,
in developing its 2006 pipeline regulation rulemaking, PHMSA ignored
technical and other information provided to it by public interest
organizations and instead moved forward with industry's proposal
substantially intact. This reactive, pro-industry posture must change
to one where federal regulation is proactive in preventing problems
before they happen.
The rulemaking proposal includes a patchwork of requirements taken
from 49 CFR 195 with no credible evidence that the new application of
these requirements will reduce releases significantly. For example, the
proposed standards would reduce six pages in the Code of Federal
Regulations on pipeline integrity management (49 CFR 195.452) to one
unenforceable paragraph stating that pipeline operators ``may'' choose
to use smart pigs (or the equivalent).\67\ Additionally, the proposed
standards for regulated gathering lines do not include any type of
integrity management whatsoever.
\67\ See 71 Federal Register 52519 (September 6, 2006), proposed
Moreover, the ``buffer zone'' methodology--covering pipelines in
unusually sensitive areas plus one-quarter mile--proposed by industry
and now by PHMSA should be rejected. Based on their dubious performance
record, all low-pressure pipelines deserve federal regulation and those
that may affect ``High Consequence Areas'' (as defined in 49 CFR
195.450) should meet federal integrity management requirements (49 CFR
Further, in an unprecedented action, PHMSA's proposal allows
regulated low-pressure transmission pipelines to meet much weaker
standards than other transmission pipelines. These pipelines should be
regulated to the higher standards applicable to other transmission
lines, including the low-pressure transmission pipelines that U.S. DOT
regulated in 1994 (non-rural pipelines and pipelines near commercially
Finally, it should be noted that the costs for compliance with a
more comprehensive regulatory scheme would not be large, particularly
in comparison. to the high costs to society when pipelines fail. PHMSA
predicts that its proposal will cost operators only $17 million,\68\ a
relatively small amount given the likely higher costs when pipelines
like BP's fail, and a ridiculously low cost when compared to the tens
of billions of dollars routinely brought in as profits by oil companies
in recent years.
\68\ See 71 Federal Register 52515 (September 6, 2006).
Protecting Special Places
The North Slope of Alaska is our nation's only arctic ecosystem. A
balanced approach would give wilderness protection to the coastal plain
of the Arctic National Wildlife Refuge and permanent protection for the
most biologically and culturally important areas of NPR-A and the
Arctic Ocean, while maximizing oil and gas potential in the central
arctic around Prudhoe Bay and elsewhere in the NPR-A.
The BP Prudhoe Bay debacle is but the latest example of the
prudence of this approach. The industrial complex necessary to produce
oil from Alaska's North Slope includes Prudhoe Bay as well 26 other
producing oil fields. These oil fields are spread across over 1,000
square miles of Alaska's North Slope--which is equal to the size of
Rhode Island. There are nearly 5,000 wells, over 500 miles of roads,
over 1,800 miles of pipelines on the North Slope, plus the 800 mile-
long Trans Alaska Pipeline, dozens of gravel mines, and multiple
refineries, airports, power plants and other industrial
\69\ See Facts, North Slope Oil Development, http://
cites therein; see also http://www.wilderness.org/Library/Documents/
Oil and gas drilling is a complicated endeavor and even regulations
designed with the best of intentions will not prevent pollution. The
legal and permitted aspects of the oil industry on Alaska's North Slope
allow for simply massive amounts of air pollution.\70\ Spills of oil
and other hazardous substances on Alaska's North Slope average well
over one a day, and are increasing in frequency. As noted above, even
Alaska's congressional representative Don Young, an ardent drilling
advocate if ever there was one, recently stated, ``[t]he fact of the
matter is that sometimes leaks will occur.'' \71\ The facts are
impossible to escape; oil and gas activities are inherently dirty, and
fully industrialize the areas in which they occur.
\70\ See Facts, North Slope Oil Development, http://
cites therein; see also http://www.wilderness.org/Library/Documents/
slope%20oil%22 (same). This huge industrial complex emits air pollution
in such a large volume that it can be detected hundreds of miles away.
The air pollution includes massive amounts of greenhouse gases, as well
as smog and acid rain-producing Nitrogen Oxide in amounts twice that of
the D.C. metropolitan area. See id.
\71\ See infra note 49, citing Congressman Don Young, Press
Release, House Transportation Committee Hearing on Pipeline Safety
(March 16, 2006).
There isn't a single federal or state agency evaluating questions
about which special landscapes and sensitive habitats on the Arctic
coast should be placed off limits to development. That the integrity of
the Arctic National Wildlife Refuge is continually under attack to be
opened to incompatible oil and gas development shows how far the scales
are already tipped away from conservation on the North Slope. It seems
that the governments are only interested in what can be opened and how
fast it can be done.
Indeed, given the present pace and scope of leasing and proposed
oil development, it is quite possible that the entire Arctic coast, on-
and offshore, will be crisscrossed with the infrastructure of
industrial oil development in our life times. This would be a real loss
for the future generations who would never know a wild Arctic. It would
also be a loss for science, as the National Research Council
recommended establishing protected areas--free of the influence of the
oil industry--to serve as scientific controls for the evaluation of the
effects of oil and gas activity and climate change.\72\
\72\ See NRC Report at 151.
The Arctic National Wildlife Refuge
Created by President Dwight Eisenhower in 1960 to protect
wilderness and wildlife and expanded when President Jimmy Carter signed
the 1980 Alaska National Interest Lands Conservation Act (ANILCA),
America's Arctic National Wildlife Refuge has been one of the greatest
conservation legacies of both Republican and Democratic
administrations. The Arctic Refuge was established to conserve fish and
wildlife populations and habitats in their natural diversity; fulfill
the international treaty obligations of the U.S. with respect to fish
and wildlife and their habitats, such as migratory waterfowl agreements
and the Canada-U.S. Porcupine River caribou herd agreement; provide the
opportunity for local residents to continue their subsistence way of
life; and to protect water quality and quantity.
The U.S. Fish and Wildlife Service, which manages the Arctic
National Wildlife Refuge, today calls it ``the only conservation system
unit that protects, in an undisturbed condition, a complete spectrum of
the arctic ecosystems in North America.'' Such a broad spectrum of
diverse habitats occurring within a single protected unit is
unparalleled in North America; no other conservation area in the entire
circumpolar north hosts such abundant and diverse wildlife. Blanketed
with snow for much of the year, the Coastal Plain explodes with life
during the brief spring and summer months, earning the nickname of
The Porcupine River herd of 129,000 caribou gathers annually
on the Coastal Plain to bear and nurse their young;
Polar Bears rely on the Coastal Plain of the Arctic Refuge
as their most important on-land denning habitat on American
Grizzly bears, wolves, wolverines, foxes, golden eagles, and
snowy owls gather here to hunt and den.
In the fall, the Coastal Plain of the Arctic Refuge supports
up to 300,000 snow geese which detour to feed from their
nesting grounds in Canada.
Millions of other birds use the Arctic Refuge to nest and as
a critical staging area before journeying on to every state in
the country, and many countries in the world.
And the Arctic Refuge supports more than just wildlife. For a
thousand generations, the Gwich'in people of Northeast Alaska and
Northwest Canada have depended upon the Porcupine (River) caribou herd
to sustain their culture. The herd is central to their way of life,
providing food, clothing, and a critical link to their traditional
ways. To the Gwich'in people, the Coastal Plain is sacred ground.\73\
\73\ For more background on the Arctic Refuge, see http://
learnmore.html; http://www.savebiogems.org/arctic/; http://
The inevitable industrialization of the Arctic Refuge that would
occur were Congress to open it to oil and gas activities is simply not
compatible with these values of the Refuge. Congress should rebuff any
attempts to drill the Refuge, and permanently protect it through
legislation designating the Coastal Plain of the Refuge as designated
Sensitive Areas Within the NPRA
The National Petroleum Reserve-Alaska is the largest single unit of
public lands in the Nation. It harbors rich and important wildlife and
wildlands and a cultural heritage that sustains Inupiaq communities.
The conservation community recognizes that there will be additional oil
and gas leasing and development in this area. That said, a balanced
approach for development in the NPRA requires permanent protection of
its special places and values and development must adhere to strict
environmental standards, including those related to operations, cleanup
In recent years, the Interior Department has offered 11 million
acres of the NPR-A for oil and gas leasing, and 2.8 million acres are
currently under active leases. Of this, 1.3 million acres is in the
Northeast Planning Area of the Reserve, 87% of which was open to such
leasing in 1998.
Absent congressional action, a final court injunction, or an
administrative retraction, the Interior Department is now scheduled to
offer 100 % of this area to leasing, most at a September 27 lease sale.
This would include the sensitive region around Teshekpuk Lake, which
harbors extremely important waterfowl and caribou habitat. Even James
Watt did not go this far, as he protected the area north and east of
Teshekpuk Lake because of its critical, international importance to
And Interior's decision is based on an extremely faulty foundation.
First, as described above, Interior once again deferred a full analysis
of the impacts of its decision on the environment, leading a federal
judge to preliminarily rule that Interior violated the law and that the
lease sale should not go forward.\74\ Further, an underlying premise of
Interior's decision to open 100% of this area of the Reserve to oil
leasing was that pipelines are low impact and thus their presence in
goose molting habitat (areas where geese go to replenish their flight
feathers, and are thus very sensitive to disturbance of any kind
because they cannot fly away) would not cause any harm. As the experts
tell us (and these are the pre-eminent bird biologists in the country)
the kind of disturbance caused by such intensive human presence in the
pipeline areas could have population-level impacts on these
\74\ See infra notes 3-5 and accompanying text.
\75\ See e.g., Letter by Terry Crawforth, Chairman, Pacific Flyway
Council to Interior Secretary Gale Norton at page 1 (August 2005)
(BLM's approach ``would allow facilities and infrastructure for oil and
gas production to impinge on sensitive molting geese . . . [a]nd
minimizes the value of contiguous undisturbed habitat that is the
essence of why molting geese have established a strong tradition of
molting in [this] region''); Letter from Kenneth Able et al. (including
about 200 ornithologists, wildlife biologists and environmental
scientists) to BLM's NE NPR-A Amendment Planning Team at page 2 (August
23, 2004) (``Molting geese will run at the sight of a distant person,
and disturbance by aircraft overhead--to which brant apparently do not
habituate--is a major problem''); Audubon Alaska, Wildlife and Oil
Development at Teshekpuk Lake, http://www.audubon.org/chapter/ak/ak/
images/Teshekpuk_low.pdf (summarizing expert opinions on development in
the Teshekpuk Lake region).
The decision to lease 100% of the Northeast Planning Area ignores
the voices of leading scientists, sportsmen from across the nation, and
the Alaska Native people who depend on the wildlife and subsistence
resources of the region. As Mayor Edward S. Itta of the North Slope
Borough stated in a recent letter to Interior Secretary Kempthorne:
We understand the pressures in today's world to expand the
lands and waters available for oil and gas leasing,
exploration, and development. We must all recognize as well,
however, that preservation of the special and sensitive surface
values of some discreet areas is simply incompatible with
industrial development. The risks posed to such areas by
industrialization outweigh the benefits.
Expressing similar concerns, and well before the full extent of the
troubles at Prudhoe Bay were known, a bipartisan coalition of senators
wrote to Interior Secretary with a request to put on hold oil and gas
leasing in the sensitive areas around Teshekpuk Lake.
The BP Prudhoe Bay debacle thus provides but the latest in a long
line of reasons why leasing this region of the NPR-A is a bad idea.
Congress should therefore put a stop to it.
Diversifying Our Energy Sources
No amount of domestic drilling will bridge the gap between the oil
we use and the oil we might have under our soil, or lower gasoline
prices. The inescapable fact is that the United States consumes 25
percent of the world's daily oil production, but we sit atop just three
percent of the world's oil supply.
To ensure a reliable source of energy for the United States,
therefore, we simply must diversify our sources of energy. Expert
analyses demonstrate that an immediate and long term commitment to
alternative energy can yield significant energy dividends in short
order. Doing so would also have an insulating effect on our energy
supply, limiting the impact on supply and prices caused by troubles in
the oil fields. Further, these investments in alternative energy would
also help address global warming, providing yet another benefit to
mankind. Finally, having a growing percentage of our energy portfolio
in renewable energy resources means stabilizing electric rates for
consumers. In the world wide energy environment in which we currently
exist, continued reliance on fossil fuels means higher and higher
energy costs for these consumers.
Therefore, developing alternative energy makes sense at every layer
of the energy debate. The recommendations provided here are just
examples of what can be done to promote alternative energy; Congress
should consider all of them and work with due haste to pass an
alternative energy policy.
First, when considering developing alternative energies as a
recommendation in response to BP's Prudhoe Bay debacle, perhaps it is
most appropriate to use Alaska itself as an example of the
possibilities afforded by investing in alternative energy. Alaska has
some of the best renewable energy resources in the world, and has just
begun to develop them. In our relatively small urban grid connected
areas Alaska has several opportunities for large-scale wind development
including the Fire Island proposal (located off of Anchorage in Cook
Inlet) which could generate between 50-100 MW for Anchorage, thus
generating 10 to 20% of Anchorage's peak load requirements.
The utility in the Fairbanks area is also pursuing wind projects
and has an internal goal of producing 20% of its power from renewables
by 2014. At least one large geothermal resource (50-100 MW) is located
near the urban grid near Mt. Spurr, a volcano within sight of
Anchorage. Alaskans have gone to Iceland to see how that small country
has become a world leader in geothermal power, and just last month the
small community of Chena Hot Springs commissioned the first geothermal
power plant in Alaska using cutting edge technology; it produces
electricity with the lowest temperature geothermal water in the world
In over 200 remote, mostly Alaska Native, communities around the
state the high price of oil means that the diesel those communities
rely on to generate electricity is making basic even the basics
unaffordable. Villagers already pay on average 4-5 times what urban
Alaskan pay for power. A $200 or $300 monthly electric bill in the
winter means those communities are just trying to survive, let alone
prosper. Yet, there are an estimated 60-70 villages that could utilize
small wind turbines to displace diesel and stabilize electric rates.
Six villages already have wind-diesel hybrid systems and other villages
are waiting line for systems.\76\
\76\ Alaska summary above taken from email from Chris Rose,
executive director, Renewable Energy Alaska Project (REAP), September
8, 2006 (on file with the author).
As a start to developing these resources, enterprising Alaskans
prepared an alternative energy atlas of the state. (Attached). This
atlas was based on a similarly amazing alternative energy atlas of the
Western United States, which was created by a number of non-
governmental organizations, using private foundation funding. The
Western U.S. Atlas is an 80-page full color presentation of renewable
energy sources such as wind, solar, geothermal and biomass power, and
it is available on-line, thus making for an easy to use reference for
developers, landowners, and policy-makers.\77\ The United States
government should support the development of such atlases across the
\77\ See http://www.energyatlas.org/. The Hewlett Foundation and
The Energy Foundation sponsored the Atlas, and the following
organizations joined together to create it: the Land and Water Fund of
the Rockies, Northwest Sustainable Energy for Economic Development,
Green Info Network and Integral GIS.
At the same time, no longer can we sit back and just study the
potential for alternative energy. So while developing a full
Alternative Energy Atlas of the United States is an important step, we
must also take action. As an initial matter, a common, and common
sense, element to the vision for alternative energy is that the U.S.
Congress pass a law that provides a long-term alternative energy
production tax credit to help fuel our transition away from fossil
fuels. Beyond that, the following proposals outline specific action.
The National Association of State Public Interest Research Groups
endorses the following set of policies:
Reduce our dependence on oil and target a savings of one-
third of the oil we use today by 2025 (7 million barrels per
day) through improved gas mileage, better transportation
choices and clean fuels;
Harness clean, renewable homegrown energy sources like
properly-sited wind, solar and alternative fuels for at least a
quarter of all energy needs by 2025.
Save energy with high-performance homes, buildings and
appliances so that by 2025 we use 10 percent less energy than
we do today.
Invest in the New Energy for America Initiative, which would
commit $30 billion over the next ten years to research and
development funding for energy-saving and renewable
technologies so we can accomplish the goals mentioned
\78\ See http://newenergyfuture.com/newenergy.asp?id2=18565; see
also Rising to the Challenge: Six Steps to Cut Global Warming Pollution
in the United States, http://uspirg.org/uspirg.asp?id2=26147.
The Sierra Club emphasizes that we could save over 3 million
barrels of oil each day if all of the vehicles in the U.S. averaged 40
miles per gallon,\79\ which is far more than the 400,000 barrels
provided by Prudhoe Bay. The Sierra Club proposes changes to our
current energy policy that are quick, clean, cheap and safe:
Quicker--Increasing energy efficiency technology and fuel
efficiency will decrease our energy use and help relieve summer
shortages immediately. In addition, wind turbines can be
installed in six months and new, combined-cycle natural gas
plants can begin saving energy and reducing pollution from old,
dirty and inefficient plants by next year.
Cleaner--By choosing energy options such as solar, wind and
energy-efficient technologies, we can protect our clean air,
clean water and climate.
Cheaper--Not only do we save energy by using more efficient
appliances and technologies, such as compact fluorescent
lightbulbs, but we save billions of dollars, too. Raising fuel
economy standards for cars, SUVs and other light trucks will
save consumers $45 billion a year at the gas pump.
Safer--An energy plan that provides a strong balance of
efficiency, renewable energy and cleaner natural gas production
is safer for our public health and environment.\80\
As a final example, the Natural Resources Defense Council has
proposed a ``responsible Energy Plan for the United States which
includes the following elements and reasoning:
A commitment to save at least 2.5 million barrels of oil per
day in 2015 and 10 million barrels per day by 2025.
Technologies exist today that can achieve these savings. We can
put American manufacturers to work building the most energy-
efficient cars and trucks, and we can put American farmers to
work growing crops for new biofuels. We can save American
consumers money by increasing the efficiency of our cars and
trucks and strengthening smart growth policies. All of these
steps will reduce dangerous air pollution, including emissions
that cause global warming. Congress should set these savings in
motion by enacting a national requirement to reduce our oil use
by 2.5 million barrels per day.
The fastest, cleanest, and cheapest way for America to
address its growing energy demand is through energy efficiency-
getting more and better service using less energy. Thanks to
readily available technology for improving heating and cooling
systems in buildings and increasing the efficiency of everyday
appliances, America can make dramatic cuts in energy use
without sacrificing comfort or profitability. Indeed, the
economic benefits of investing in efficiency measures typically
outweigh costs by a ratio of 2 to 1. To tap this underutilized
energy resource, NRDC is calling on Congress to extend the
performance-based energy tax incentives adopted in the Energy
Policy Act of 2005.
Clean energy such as wind, solar, and biomass provides
electricity without damaging the environment or releasing
dangerous air pollution. In order to ensure that all Americans
can take advantage of these clean resources, NRDC endorses a
federal renewable portfolio standard to require electricity
providers to include a minimum level of clean energy resources
in the electricity mix they deliver to their customers. We also
recommend extending the renewable-energy production tax credit
to keep renewables on their continued march to cost-
The United States Senate has before it right now a bill, introduced
by Senator Jeffords, to combat global warming, which deserves support
in its own right and as a way to strengthen our energy future.\82\ This
bill deserves your vote, and a quick passage.
\82\ See http://jeffords.senate.gov/jeffords/press/06/07/
In his book Collapse: How Societies Choose to Fail or Succeed,\83\
Pulitzer Prize-winning author Jared Diamond assesses the choices we
face today in the context of the fate of previous civilizations. He
traces how the ancient Mayans flourished for over 600 years until
deforestation and the erosion that followed destroyed their
agriculture. In contrast, he examined how other societies, such as the
Icelanders of the 15th century, saw the threat posed to their natural
resources by overgrazing and, in a practice that continues to this day,
placed a cap on the number of sheep in their herds so that they could
sustainably interact with their environment.
\83\ Viking Penguin (2005).
If anything, we face even more dire choices today, as not only is
our civilization here in the United States at risk, but so is our
entire world. We can choose to ignore the health, safety, and
environmental warning flags flying over our country and continue a
myopic reliance on oil and gas to fuel our society. Or we can begin an
aggressive transition to alternative, renewable, forms of energy;
energy that will allow us to interact with our world in a more
sustainable manner. And do so in a way that protects the special places
and values that have helped define the United States as a great
All of this is not to say that we should ignore the most immediate
lessons taught by the Prudhoe Bay debacle. As we bridge to these
alternative energy sources we must also struggle against the great
influence that the oil and gas giants have over our society, and ensure
that government acts in its proper role as steward of our environment
and protector of the existing energy supply infrastructure.
We can meet the short-term challenges by implementing the first
category of recommendations relayed above. By protecting, and
respecting, special and especially sensitive places like the Arctic
Refuge and the area near Teshekpuk Lake, and by pursuing alternative
energy sources, the United States can also start meeting the long-term
challenges faced by our society, and do so in a manner that will allow
future generations to inherit much of that which makes the United
States of America the greatest country on Earth; our vision and our
The Chairman. They will be made a part of the record as if
Now, Senators, we are going to proceed. I'm going to ask a
couple of questions and then we'll go to Senator Bingaman,
Senator Thomas, Senator Wyden, and so on.
Let me start. Admiral Barrett, we have always been told
that oil and gas operations on the North Slope of Alaska are
the cleanest and most environmentally friendly in the world. I
visited many of these sites personally and was very impressed.
But what I am hearing today is very troubling.
Your agency looks at pipeline systems across the country.
How would you describe the condition of the oil delivery system
today? In terms of the severity of oil spills, where do these
recent spills rank? When compared to other U.S. spills, are
they within the top 10, top 50, or just how do you rank them?
Admiral Barrett. Mr. Chairman, I think the recent spills
you've seen from the BP lines we're talking about are an
anomaly in the sense that the lines were unregulated and we
have not seen--I believe there's only one other spill of
comparable size, in Arthur Kill, from lines of this type,
historically. So this, with respect to low-stress lines, would
certainly be one of the largest.
We typically do not see incidents like this across the
United States with lines of this type. They typically have a
relatively good safety record. For the most part, these low-
stress lines are much smaller in size than the BP lines we're
talking about here and are much shorter segments as well.
The Chairman. The BP transit lines that failed at Prudhoe
Bay were not regulated by DOT. How many other lines are without
Admiral Barrett. These particular low-stress lines--we do
regulate extensively on other lines on the North Slope, higher
stress lines. We oversee about 400 miles of what we call
carrier lines, if you will, up on the North Slope. We have a
regular and extensive inspection program on them. So these
particular lines we're talking about, nationwide we've proposed
to bring under regulation, most recently with our rulemaking
proposal, about 600 miles of lines of this type on a national
The Chairman. Why were lines like this not regulated? Would
you tell us very clearly, so the public understands, why they
were not covered by any law.
Admiral Barrett. Mr. Chairman, we applied our highest
priority to lines that posed a risk to life safety, typically
high-stress oil and gas lines in populated areas. And we've
implemented a very aggressive program over the last 5 to 10
years to bring those lines that threaten people who live in
their communities with life-threatening problems through
integrity management programs.
So, frankly, our highest priority was life safety. These
lines, lines of this type, historically have had a generally
good record with respect to spills or other problems. And we
were moving since 2004 to bring lines of this type under
regulation. We've implemented over 50 mandates from Congress
coming out of legislation, going back particularly to the 2002
pipeline safety reauthorization, with our highest priority
being on lines that pose the greatest life safety risk. These
are some of the last pieces of the puzzle, if you will, that we
were getting on top of.
The Chairman. How would you describe the condition of the
TAPS lines? Can the country depend on a 30-year-old pipeline to
continue to reliably deliver oil?
Admiral Barrett. Mr. Chairman, you know, with a line that's
well designed, constructed, and maintained, it can continue in
service almost indefinitely as long as attention is paid to
keeping the line from corrosion or external damage problems. As
I noted, we inspect the Trans-Alaska Pipeline regularly and
have done so over the years. While we have issues with it from
time to time, we took another look at it just this past spring
following the BP failures and we have no immediate concern with
the operation of that line.
The Chairman. Let me see if I've got it straight, from your
standpoint. Why did this happen and who's to blame for it?
Admiral Barrett. I think it happened because BP
fundamentally didn't understand the conditions of their lines,
these low-stress lines on the North Slope, and didn't maintain
them properly. I think the operator is quite simply accountable
for what happened. And we do not see conditions like this
replicated in other lines on the North Slope or typically on
other lines in the national pipeline transportation system.
The Chairman. So it was up to them to do a better job of
maintaining the lines even within the system, as you've
described it, which gave them an awful lot of autonomy and
independence in terms of how they did it. And they did it
insufficiently for sure with reference to the maintenance here;
is that correct?
Admiral Barrett. That's essentially correct, sir.
The Chairman. All right.
Senator Bingaman. Thank you very much.
Mr. Malone, let me ask you this. My understanding is that
this line which is the subject of the concern here and that has
caused the shutdown was not inspected for a period of 15 years.
Is that an accurate understanding?
Mr. Malone. Senator, if you will allow me, with the
committee's approval, I don't want to use the excuse that I'm
just here for the last 2 months, but there are pieces of this
history that--Mr. Marshall, who has joined me here today, who
was on the scene, can answer those questions.
Senator Bingaman. Maybe you could give us a short version,
Mr. Marshall. I only have a few minutes here and I don't want a
long explanation. But my understanding is there was no pig run
through the line for inspection purposes for a period of 15
years, is that accurate?
Mr. Marshall. The eastern line, Senator, was last pigged in
the early 1990's, and the smart pig that was run by the
previous operator there, Arco, was unsuccessful in obtaining
good data. The western lines that BP has operated since 1977
were pigged and smart pigged in 1990 and 1998. When BP took
over the eastern side of the field in 2000 and 2001, we
instituted a program of ultrasonic testing and compared the
results of that to what we had seen on the western lines.
On the western lines, from the pigging there were very
little solids in 1998. The line was fit for service and we saw
pretty much identical results from there, and on that basis we
proceeded. It was only in 2005 that our testing program on the
west started to show increases in corrosion. As a result of
that, we increased the testing frequency and commissioned a
smart pig run for 2006.
Senator Bingaman. But the eastern line was not really
tested with a pig since 1990--the early 1990's; is that
Mr. Marshall. Maintenance pigged in 1990 and 1991, I
Senator Bingaman. I guess I would then ask, Admiral
Barrett, do you have any way of monitoring that kind of thing?
I mean, there's about a 15-year period there when nobody was
doing any pig inspection of this line. As I understand it, you
had no jurisdiction, you had not asserted jurisdiction, this
was not on your radar screen. I mean, isn't this something that
there should have been some kind of procedure in place to
ensure that this not occur?
Admiral Barrett. Senator, thank you. On regulated lines we
do require regular cleaning of the lines, which did not take
place here. We do require regular inspections. But this issue
was certainly on our radar screen.
Senator Bingaman. And by ``regular,'' how often are you
Admiral Barrett. It depends on the condition of the line,
but cleaning pigs typically would be run from every several
weeks to every several months. I believe Alyeska runs them
about every 2 weeks. Then the sensor pigs--the in-line
inspection pigs, if you will--would be run every several years.
Typically, our regs would require no less than about 5 years.
But if I could, sir, this was on our radar. We've been
working to bring lines like this under oversight since 2004,
and obviously we've accelerated those efforts recently.
Senator Bingaman. My understanding is this new regulation
that you have now put out or your proposed rule came out a
couple of weeks ago. It would still leave an estimated 78
percent of the mileage unregulated, without even corrosion
prevention requirements imposed in that 78 percent. Is that an
accurate description of your new proposed rule?
Admiral Barrett. The proposed rule would address lines that
run through what we've defined as unusually sensitive areas,
and those are lines that transit--and I would first set aside
the lines that transit populated areas or could impact
navigable waters. They are regulated, so we're talking about
lines in rural areas only here.
But of those lines, we would regulate any line that would
transit near a threatened or endangered species, or that
threatened, for example, the community water supply. And you're
correct, we do not have accurate maps, so we're using
estimates, but we think we would bring, with that unusually
sensitive definition, about 25 percent of the lines into play.
Our past practice has been, and would be in this case too,
that once the regulation is in place to get out and rigorously
inspect and assess lines that would be within or without that
definition. In the past, when we've done so, we've typically
found that more lines fall within the scope of what we're
proposing, and we'll see what happens here, sir.
Senator Bingaman. My time has expired, Mr. Chairman. Thank
Admiral Barrett. Thank you, sir.
The Chairman. Senator Thomas.
Senator Thomas. Thank you.
Mr. Marshall, your company is the operator of the Prudhoe
Bay Oil Field and owns 26 percent of the shares. Exxon, Conoco,
Chevron, and others control the remaining shares. It's my
understanding the majors must agree on how much to spend on
maintenance and how those dollars are spent. How does this
decision work then among the various companies?
Mr. Marshall. Senator, thank you for the question.
Senator Thomas. Do you have the final say as the operator?
Mr. Marshall. Absolutely. BP, as operator, will make the
decision to safely operate within, and recommend budgets every
year for submission to the co-owners, based on what we believe
to be the required amount of work for maintenance and capital
Senator Thomas. Much of the feeling is that there were not
enough maintenance dollars spent and that's the reason for the
Mr. Marshall. Since 2001, when I arrived, the level of
spending has increased at Prudhoe Bay from $434 million to $787
million. Our corrosion program has increased by 80 percent over
that period. Our major repair spending will increase fourfold
from what we spent in 2004 to what we plan to spend in 2007,
consistent with the chart to my left, which shows that the----
Senator Thomas. What could you have done then to have
avoided this issue? The corrosion, in the pictures we see, it
is pretty apparent that there were things wrong there, and you
didn't use pigs, apparently, so how do you maintain those
pipelines without using pigs?
Mr. Marshall. We actually use over 350 pigs a year across
the North Slope. We employ pigging regularly.
Senator Thomas. In this pipeline?
Mr. Marshall. Not in this pipeline.
Senator Thomas. No. Well, this is the one we're talking
Mr. Marshall. We have based our program, a very
comprehensive program of corrosion management, on the areas
which we believe to have the highest probability of corrosion.
We inject over two million gallons of corrosion inhibitor a
year at the wellhead to protect the entire system of flow
lines, gathering lines, the major facilities, and indeed these
We use ultrasonic testing. We use a number of techniques.
But clearly, in retrospect, looking back, these lines should
have had maintenance pigs.
Senator Thomas. The pigs you were using had to be turned
back in to the company because they weren't working properly,
isn't that true?
Mr. Marshall. I'm sorry, I missed the question.
Senator Thomas. I said, the pigs you were using were
subsequently recalled by the manufacturer.
Mr. Marshall. I believe you're referring to the smart pig
that was run by Arco on the eastern line in 1991 and 1992. The
data that came back from that smart pig run was not good and I
believe the pig was ultimately--the technology was actually
taken off the market.
Senator Thomas. OK.
Admiral Barrett, how long had DOT had the authority to
issue the rule that came out on August 31?
Admiral Barrett. It's in our organic statute, sir. So we've
had the basic authority to regulate on these lines for in
excess of 10 years, I believe, and, in fact, have been moving
to do so, as I had indicated.
Senator Thomas. But you did not do so until August 31?
Admiral Barrett. That's correct, sir. Our highest priority
in terms of rulemaking was high-stress oil and gas lines that
pose life safety risks in populated areas. And we moved
extensively on those lines and those risks.
Senator Thomas. And you did not consider this to be one of
Admiral Barrett. The record of problems on these lines is
of a much lower risk and to my knowledge there have been no
life safety issues associated with failures on any low-stress
Senator Thomas. Your proposed rule does not mandate the use
of smart pigs to check for deterioration. It allows operators
to rely on unsound--ultrasound testing, as it did in Prudhoe
Bay. Do you think that's the best option for ensuring the
Admiral Barrett. Sir, the proposal would require extensive
corrosion management programs and also assessments using, about
every 5 years, a smart pig or an alternative. On any pipeline,
any large pipeline system, there are segments of the lines
where you cannot run a smart pig because of the design of the
line. You can have bends or elevation changes, you can have
telescoping segments, so you cannot get in a smart pig; and we
allow alternative inspection methods, which can be
Senator Thomas. Which apparently haven't worked.
Admiral Barrett. No, sir, in many cases they do work quite
Senator Thomas. Why didn't this one work?
Admiral Barrett. On this line there was simply no
maintenance pigging done for many years and there was no
alternative inspection equivalent to a smart pig. That is where
I was going.
Senator Thomas. I see, OK. Thank you.
The Chairman. Thank you very much, Senator.
Now we'll proceed to Senator Wyden.
Senator Wyden. Thank you, Mr. Chairman.
Mr. Marshall, I find your statement that you and BP
officials didn't know about serious corrosion problems at the
pipeline until March 2 to just be preposterous, and I want to
be clear why I've come to that conclusion. In 2004, for
example, the company transferred its top pipeline inspector,
Mr. Willums, because there was an outside inquiry that found
that he had intimidated BP corrosion workers who raised safety
concerns. So BP knew enough to transfer Mr. Willums because he
had dismissed these concerns about corrosion, and I can't
understand why that alone wouldn't set off a serious set of
warning bells at the company that people should have been
following up on these concerns.
If you send somebody to a new position because he's
retaliated and you know the concern that was raised there, why
wouldn't that alone have told you about the corrosion problem?
Mr. Marshall. Senator, thank you for the question. If I
could, corrosion exists in every--just about every oilfield,
and we know it's a problem. The question is how effectively do
we manage it, and BP has a very comprehensive program to do
just that, as I described earlier. Clearly, in this case,
looking back, it was not adequate enough.
The allegations that you raise concerning Mr. Willums were
first raised in 2003. Any time we receive allegations, I am
determined that we will investigate, and in this case we did
both times. In 2003 we brought in--
Senator Wyden. But how can you say that you didn't know
about serious corrosion concerns just on the basis of that
alone? These workers aren't bringing up trivial kind of
matters. They're putting their careers at risk. It was
sufficiently serious that you had an outside inquiry. Then you
transferred Mr. Willums. How can that alone have failed to set
off the warning bells there at BP about corrosion?
Mr. Marshall. Senator, we've investigated the specific
allegations that were raised in connection with Mr. Willums. At
no time did any of those allegations point to corrosion in
these particular lines. There were corrosion issues raised
generally. Where we've been able to look at specifics, we have
investigated those and taken action. But at no time, through
the allegations raised here or indeed through any of the other
reviews that we've had done of our corrosion program----
Senator Wyden. The workers were just raising trivial
matters with respect to corrosion?
Mr. Marshall. Please, I don't want to leave that impression
Senator Wyden. Because you have said, and you said it last
week again, that you didn't know anything about serious
corrosion until March 2. The Wall Street Journal has documented
reports going back to 2002. You have an outside enquiry to look
at one of your top officials, and it seems to me, that alone
should have signaled that there was reason to follow up.
Mr. Marshall. Senator, we certainly know that corrosion
exists in the oil field. We believe the systems--the data we
were getting on these lines first indicated corrosion with the
testing we did in the second half of 2005. Looking back at the
GC-2 line, the OT-21 line, that was the first real indication
we had of increasing corrosion from ultrasonic testing. That
was very evident. And before we could actually run the smart
pig on that line, we unfortunately had the spill.
Senator Wyden. Mr. Malone, the company has an unfortunate
and documented history of engaging in anti-competitive
practices that harm consumers. For example, just recently the
Commodities Futures Trading Commission has issued a formal
complaint alleging BP illegally manipulated the propane market.
A few years ago, internal emails showed up from BP trading
managers who talked about the benefits of shorting the West
Coast market to leverage up prices there.
Again, these aren't made up. These come from BP internal
documents, documents that show that your company was interested
in ripping off the people that Senator Feinstein and I
represent. So, given what the CFTC has found recently, given
the history that I have pointed to with respect to internal BP
documents, what do you plan to do in terms of instituting
changes to stop this kind of anti-consumer conduct in the days
Mr. Malone. Senator, the events you're talking about with
propane is 2003, 2004. We had traders, and we have the tapes,
and it's very clear that they violated our policies, they
violated our code of conduct. And disciplinary action was
taken. They were terminated, three of them.
Since that time, Senator, we have instituted a number of
guidelines internally, but we recently announced that we're
doing an external audit looking at all of our procedures, our
policies, going forward to assure that we're operating within
the highest standards for trading activity. And that's been
initiated and is ongoing now.
Senator Wyden. I also saw allegations with respect to BP
manipulating crude and gasoline markets. Can you comment on
that? In other words, we've got the West Coast getting fleeced
ever since the middle 1990's. We've got the consumer--the
Commodities Futures Trading Commission already filing a
complaint. Now there are new reports with respect to the
manipulation of crude and gasoline markets. What is your
reaction to those new reports?
Mr. Malone. Senator, in 2002 and again in 2003 for gasoline
and crude oil, the CFTC has initiated an investigation. We've
been cooperating fully with the CFTC in that, in their
documents, producing documents, and in their investigation. We
plan to continue to do that. But it is an investigation at this
Senator Wyden. My time has expired, Mr. Chairman.
The Chairman. Thank you very much, Senator.
Now we'll proceed to this side. The next Senator is Senator
STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR
Senator Murkowski. Thank you, Mr. Chairman.
I have to tell you, gentlemen, this is a painful hearing
for me as an Alaskan, to be at this point where we are talking
about corrosion that has allowed for a spill on the North Slope
of the State of Alaska. And I'm sure that you have heard from
other Alaskans who are disappointed, frustrated, angry, because
for years we've been told by the industry and we have stood
alongside and we have said that the operations on Alaska's
North Slope are the gold standard. That's what we've been told,
that's what we believe, and that's what we want to continue to
But that faith has been shattered by what we are seeing up
north now, and to listen to this testimony, to listen to the
testimony that was before the House last week, and to
understand the extent of what we are dealing with is a blow to
Alaskans, it's a blow to Americans, and I would certainly hope
it's a blow to British Petroleum and its operations.
[The prepared statement of Senator Murkowski follows:]
Prepared Statement of Hon. Lisa Murkowski, U.S. Senator From Alaska
Mr. Chairman, thank you for holding this hearing.
As an Alaskan, this hearing and particularly the reasons for it
being held, are particularly painful.
Alaskans are generally proud that our Prudhoe Bay oil field has
provided this nation with more than 15 billion barrels of oil over the
past 29 years. Until this year, there had never been a major release of
oil on land in the three decades of operation of the Greater Prudhoe
Bay oil field.
When this committee a couple years ago inspected the field, we were
given ironclad assurances by state and federal officials, plus the
field operators, that Prudhoe Bay was the best run oil field in America
and the most stringently regulated. We all saw the ``diapers'' placed
under every vehicle to prevent oil drips from reaching the tundra. We
all saw the precautions taken to protect the outside of pipes and to
prevent leaks. We saw the maintenance operations and care taken in
exploration to prevent environmental damage. We asked about and were
given assurances about the size and adequacy of increasing maintenance
budgets to care for aging pipes and equipment in a land of harsh
climate conditions. What we could not see was the condition of the
inside of the miles and miles of pipelines crisscrossing the oil
In the face of complaints over the years about the potential for
pipe corrosion, we all depended on the assurances of the field
operators: BP since 2000 for all of the main field, and other companies
for the surrounding satellite fields, and of federal and state
regulators. Alaskans are distressed and disappointed by what we have
learned since March.
On March 2 our faith was somewhat shaken when BP discovered the
dime-sized pit that turned into a hole in a transit line on the far
west side of the field that had allowed nearly 5,000 barrels of oil to
leak under the snow from an underground pipe segment under a caribou
crossing. It was a leak that escaped detection by the 34-inch
pipeline's leak detection system, for a number of days. We thought for
months that the leak was an isolated problem caused in a low-spot in
the low-pressure pipeline, perhaps because the line was the first to be
used to develop ``heavy'' oil in the region--the line thus carrying
more water and perhaps more bacteria that can generate acids which can
eat into pipe walls.
Then came Aug. 4 when detailed tests, ordered after the March
spill, found similar significant pitting--corrosion--in a similar
transit line on the far east side of the field. But this time the
corrosion wasn't just in low spots, but spread occasionally throughout
the bottom of the line's pipe. BP, after finding 16 spots of corrosion
including one actual hole that leaked about 27 barrels of oil, showed
proper caution for the environment and proposed to shut in all 400,000
barrels of production from the original Prudhoe oil field until the
cause of the corrosion could be pinpointed. After a crash effort of
ultra-sound testing, the west field pipe was found healthy enough so it
was allowed to remain open, the nation being deprived of about 200,000
barrels of east field production a day.
That, coming at a time of concern about Iranian oil supplies and
concerns about gulf hurricanes (none of which has yet materialized)
drove oil prices back to near all-time highs. We know from briefings,
inspections, hearings and prepared testimony that:
BP is trying to get most of that production back up this
fall after more ultrasound testing confirms the integrity of
other east field lines and/ or through the use of by-pass lines
to move oil around any corroded pipe segments.
That the Prudhoe Bay field owners have ordered pipe to
replace all 16 miles of the east and west transit lines--at a
cost of more than $150 million--new smaller diameter pipe,
which will force higher oil velocities, hopefully preventing
water from settling into the bottom of the pipes and stopping
similar bacteria-caused corrosion in the future.
We know that the new pipe will hopefully be installed this
We know that all the existing spill sites have been cleaned
up causing no lasting damage to the environment.
And we know that the fingerpointing, investigations and
soul-searching about what went wrong, whether regulations were
broken, whether information was withheld and warning signs and
whistleblowers ignored will continue for months longer than the
actual equipment problems at the nation's largest oil field.
What I'm still cloudy about, is why this really happened, what its
true impacts were, and what we can do to make sure it doesn't happen
ever again, not in Alaska, and not in any American oil field? The
latter points are the subject of this hearing.
It appears the answer to the first question, as it frequently is,
is the leaks were caused by complacency. We now know that a ``smart''
pig examination of the inside of the west line had last been conducted
by BP in 1998. On the eastern side of the field, the last ``smart'' pig
inspection, which is a good way to look for corrosion inside the entire
length of pipes, had not occurred since ARCO did it in 1992 or 1991 or
perhaps 1990--the date is slightly unclear from recollections and
statements. And it turns out that test was so plagued by bad data, and
the fact that the test found that so many flakes of calcium had to be
scraped off the inside of the pipe walls that it clogged the Alyeska
pipeline pumps, that industry was in no hurry to repeat the use of
either maintenance or smart pigging devices in the transit lines.
Instead industry turned to ultra sound testing, the more accurate way
to find corrosion inside pipes (provided you spot test in the exact
spot where corrosion is starting to form). Industry also used
``coupons''--test strips--that should show corrosion, and increasingly
relied on chemical corrosion inhibitors to protect the pipes.
In hindsight it is clear that corrosion inhibitors work best when
lines are pigged--cleaned out--first to remove sludge and calcium
deposits that can prevent corrosion inhibitors--chemicals that kill
bacteria and coat the inside of pipe walls--from reaching the pipe
walls to protect the metal. But since the chemical tests and coupons
indicated there should not have been corrosion forming in the transit
lines, and because corrosion almost never happens in oil field
pipelines that carry market-ready oil--oil where all the water and
corrosive carbon dioxide have already been removed--apparently no one
at BP thought to question whether the corrosion inhibitors were
actually reaching the inside of pipe walls and killing bacteria hiding
under the sludge.
At the very least, complacency in not running the pigs--relatively
inexpensive test devices--and complacency by regulators--believing
assurances that the pipes had to be in good shape since corrosion
should not be forming or delay in imposing new regulations that might
have forced the pig runs--led to the corrosion not being discovered
until leaks developed. And complacency in not putting in more
redundancy in piping systems, led to the nation, so far, needing to
import million of barrels of additional oil to make up for Prudhoe's
late summer production shut-ins. I hope the testimony will talk about
how vulnerable this nation's energy security is when domestic
production is so constrained.
Since the Department of Transportation's Pipeline and Hazardous
Materials Safety Administration has stepped up, since the March 2nd
leak, and already imposed tight testing and inspection requirements
that should allow safe oil production at Prudhoe Bay, this hearing in
my view should be about identifying the root causes of the complacency,
both among North Slope oil companies, and also among government
regulators. And Congress and the executive branch likely also are not
Following a major pipeline explosion in Washington we did pass the
2002 Pipeline Safety Act reauthorization. That act gave DOT more
authority to require improvements in pipelines. The agency had been
working on improving regulations and inspections since 1992, but the
agency started first to focus on high-pressure pipelines, lines with
greater risks of leaks and accidents and those in urban areas and near
particularly unusually sensitive areas (USA's) where leaking oil would
cause the most environmental damage. So it was only in late August of
this year that DOT's PHMSA unveiled the regulations that would require
BP to pig test all low pressure lines on the Slope and perhaps others
in Alaska--there being another 67 miles of such pipeline in the Cook
Inlet field alone.
I am curious whether the delay in increasing inspection efforts for
low pressure lines like these transit lines at Prudhoe was because we,
Congress, or the Administration through actions by OMB, had not given
the agency enough funding, or whether new regulations covering them,
recently issued, arrived only because there was so many more higher
priority regulations to issue.
I am certainly prepared to introduce legislation--it's already
drafted--to mandate that oil companies use regular maintenance and
smart pig runs to look for corrosion. But since the Pipeline Safety
Administration has already issued regulations that make such
legislation somewhat duplicative, I would like to see if the
legislation would do anything more than show meaningless movement. Does
the government need any more authority from us to mandate better
pipeline inspections, changes that could well be added to the Pipeline
Safety Act already up for reauthorization? Are we locking the barn
horse after the horses have run out, if we pass such mandatory
I'm interested in getting a better handle on how oil fields across
the country deal with pipe corrosion. If the corrosion in the transit
oil lines at the Prudhoe Bay field is the result of lowering oil
production levels, that reduced the amount of oil in pipes, cutting the
velocity that the oil moved through lines and thus allowing water to
settle out, helping corrode pipes, most all oil fields in the U.S. are
in decline and facing lower oil flows. Why haven't we had similar leaks
elsewhere? Have we had similar problems, but we just don't know it
because of faulty statistic gathering--or lax reporting requirements?
In the prepared testimony for this hearing and one held last week
on the House side, I notice indications that this type of corrosion is
not found in other fields in America. Is that because other producers
tend to use more pigs to better clean sludge out of their pipelines or
could something related to unique Alaska conditions have been the cause
for the accelerated internal corrosion? I think BP needs to say more
clearly why it did not feel the need to run maintenance pigs more
frequently than one eight years ago, on the west side of the field and
none in 14 years on the east. It has been six years since BP took over
operation of the east side of Prudhoe from the former ARCO. Certainly
that is enough time for the company to have installed new maintenance
Over the weekend, there were news reports that indicated BP was
quite slow in filling a corrosion strategy specialist position. Why was
Was there an effort by companies to specifically reduce or at least
not increase maintenance spending sufficiently in the past at times of
lower oil prices, cutting corners on corrosion prevention programs,
either at BP or from any of the other eight oil companies that own part
of the Prudhoe Bay leases and have a clear say in the spending approved
for oil field maintenance? I know BP today will show a chart that shows
a marked increase in maintenance and corrosion spending at Prudhoe Bay
in 2005 and 2006. What I'm interested is, is why spending on
maintenance and corrosion was nearly flat in 2001, 2002, 2003 and 2004
at about $175 million a year for maintenance and between $35 and $50
million for corrosion? Was that spending level truly adequate to cover
the size and complexity of the field and to cover both internal and
external corrosion given Alaska's climate?
In hindsight it appears inexcusable for there not to have been more
of an investigation of the health of the low-pressure pipes in more
places than the monitoring in fixed locations of corrosion allowed by
nearly sole reliance on spot ultrasound not continuous or automatic
And finally if piping was not adequately inspected, is there any
other facet of maintenance complacency that could also impact oil
production in the future at Prudhoe Bay or any of the other satellite
fields in northern Alaska?
Really, it is not surprising that pipelines after nearly 30 years
of use would suffer corrosion in Alaska's harsh climate. The companies
have routinely replaced miles of pipe in Alaska, as a standard cost of
doing business. Alyeska has already replaced 8.5 miles of the main
Trans-Alaska oil pipeline due to external corrosion. Another thing
surprising about the recent leaks in the Prudhoe Bay field is what they
reveal about the redundancy of the infrastructure in the nation's
largest and perhaps most important oil field, and what they reveal
about maintenance practices and the decision making process that shapes
those practices, and the real regulatory oversight that infrastructure
The run up in prices in early to mid August show how important all
domestic oil production is to the financial health of America's
economy. When prices in August neared $80 a barrel because of fear that
the entire original Prudhoe Bay field would have to be shut in,
Americans were paying hundreds of millions of dollars more for fuel a
day than what they had been paying under more normal market conditions.
That is money our economy can't afford, not counting the national
security and energy security considerations.
Alaskans are proud to say that Prudhoe Bay is the best run oil
field in America. I just want to make sure we are doing everything
humanly possible to make that boast, truly be reality. This is where
I'll be focusing my questions today. Thank you.
Senator Murkowski. We're talking today about the corrosion,
but my question to you, Mr. Malone, Mr. Marshall, is: What else
are we learning as a result of this level of oversight now by
the Federal DOT? What else are we learning that we should be
concerned about? Right now it's corrosion, but are there other
operational issues that we should be alerted to? Are there
other maintenance issues, redundancy concerns, that are now on
your radar screen that we need to know about?
Mr. Malone. Thank you, Senator. As we look forward, we are
conducting a review as we speak and, as I mentioned in my oral
statement, looking back on employee concerns that have been
raised to see if we can see any issue that we may have missed.
We're also conducting an integrity audit. We've had some of my
integrity people up there working with Mr. Marshall's people
this week, looking across the North Slope to determine if
there's more that we need to do.
Senator, just on the corrosion issue, I want to highlight
this panel that we have that will be working very transparently
to look at a go-forward program on all of our Alaska pipelines,
and that information is going to be transferred, not just
across all of the operators in Alaska of the other systems, but
also across all of BP.
Senator Murkowski. So have you hired that corrosion
engineer or that person to replace the position that Mr.
Mr. Malone. Let me yield to Mr. Marshall.
Mr. Marshall. Senator, yes, we have. That position, Mr.
Willums' position, was actually filled immediately after he
departed Alaska in January 2005.
Senator Murkowski. Can you clarify that, because I thought
that that position had remained unfilled for 14, 15 months.
Mr. Marshall. No, no, that's incorrect. The corrosion
engineering position that Mr. Willums had had previously was
not filled until July 2005, by Mr. Bill Hedges. Bill was
nominated for the position in early 2005, but could not be
released from his obligations in Trinidad. What he did do,
though, was come to Alaska on a number of occasions to get up
to speed and actually participated in the Department of
Environmental Conservation review of our program in the second
quarter of 2005. So he was very active and was able to get up
to speed as quickly as he could upon his arrival in 2005.
Senator Murkowski. Then in terms of other issues that we
need to be looking to--and I don't mean to get off the
corrosion issue because that's why we are here today, but are
there other maintenance issues at play now up on Alaska's North
Slope that BP, as the operator, is concerned about, that we
should be concerned about?
Mr. Marshall. Senator, if I could, we take very seriously--
and I share the regret that this incident has happened on my
watch. I represent a group of 1,500 dedicated Alaskans who work
for BP and thousands of contractors who support us in every
aspect of our operation. I can only reflect their
disappointment that this has happened. We are determined to do
everything and anything we can to reestablish confidence and
trust, working with regulators, not only to adopt but to help
pioneer what it takes, bring in the technologies we need to
bear on these lines.
BP has already committed to replace 16 miles of transit
lines with lower, small-sized lines to promote higher
velocities. We are accelerating our renewal program of
pipelines and infrastructure to support a 50-year future. We're
increasing investment on those systems every year. We're
increasing the amount of expense spending we make on
maintenance, on major repairs, on well refurbishment, on flow
line repairs. We are determined to do everything we can to
reset that gold standard not only for BP, but for Alaska.
Senator Murkowski. I'll have further questions, Mr.
Chairman. Thank you.
The Chairman. Thank you very much, Senator.
Now we're going to proceed to Senator Feinstein on the
Democrats' side. Would you proceed, Senator.
Senator Feinstein. Thank you very much, Mr. Chairman.
Mr. Malone, you were good enough to come in yesterday and
talk with me, and you explained that you are a new president
and chairman of BP America. And I appreciate that, but you're
not unfamiliar with the company. You have been an officer of
Yesterday we discussed the reason for the replacement of
the 16 miles of pipe, which is substantial corrosion, almost to
the point where parts of the pipe have been run through. We
heard that presented just now by Mr. Marshall: ``Oh, we're
doing a good thing; we're going to replace it with smaller pipe
for higher velocity.'' The fact is, the reason you're replacing
it is because of negligent maintenance that has substantially
corroded that pipeline; is that not true?
Mr. Malone. Senator, thank you. The answer is we don't know
all the conditions of those lines with ultrasonic pigging, but
we do know----
Senator Feinstein. I'm talking about the 16 miles of line
that you told me yesterday you're replacing because of
corrosion and other problems brought about by the lack of
Mr. Malone. We are replacing all of those in-field lines,
transit lines. It's 16 miles. And we are doing that because of
questions around indeterminate--which is what caused the
shutdown. We weren't sure--with our data that we were using, we
weren't sure that we could know that the rest of these lines
were in good condition, so we made the commitment to put in 16
miles of new line.
Senator Feinstein. You're not answering my question, Mr.
Mr. Malone. Senator, I don't have the data that I think you
want me to have right now, because I haven't had the
opportunity to do my investigation.
Senator Feinstein. All right, fair enough.
Let me give you another one. Mr. Miller told my staff that
you knew, BP knew, there were problems on the line in 1998. And
just a few moments ago we heard that nobody knew there were
problems on the line. Which is it?
Mr. Malone. Senator, my knowledge--in 1998, I was running
the Trans-Alaska Pipeline and I was not involved in BP's
Senator Feinstein. OK. Well, let me just say this and then
I want to ask questions in another line. I have always
respected BP. I worked with them when I was mayor. We fast-
tracked a building in which BP leased space in San Francisco. I
met John Browne. I've always respected him. I thought finally
there's going to be an oil company that has a sense of
conscience and is going to be green and wants to work on global
warming, et cetera.
I must tell you, I no longer believe that, and it's been a
very big disillusionment. I agree with Senator Wyden, I think
it's inexcusable to have an email exchange in which your
trading managers discuss the benefits of shorting the West
Coast market to leverage up prices. And I think that it is
inexcusable to come here today and not admit before the
American public, ``Yes, we made a mistake, the line was not
adequately maintained, but, Senators, we're going to change
that, and I'm a new manager and I'm going to go in there and do
So let me just express my profound dismay. If it were my
State, I can assure you I wouldn't be as graceful as Senator
Murkowski has been today.
Let me ask the Department of Transportation a question.
It's my understanding that there are approximately 5,000 miles
of low-pressure pipeline that's unregulated; is that correct,
Admiral Barrett. That's essentially correct, Senator.
Senator Feinstein. OK. So how can the Department say that
other companies are acting more appropriately to maintain their
pipelines when the only reason we know about BP's maintenance
is because of the spill in March?
Admiral Barrett. Senator, in conjunction with the
rulemaking that we've been working on for the past 2 years to
bring lines like this under regulation, we have had a number of
public hearings, we've had information surveys in the industry
to assess, for example, the cost impact of these regulations.
And our sense is that most of these lines are much smaller than
BP's. They're shorter segments, but most of them are operated
with more attention to corrosion, with more attention to
cleaning, and, frankly, better maintained than what we've seen
up on the North Slope with BP.
Senator Feinstein. Well, do you believe BP has been
negligent in maintaining this line?
Mr. Malone. What we've seen with BP is they did not keep
these lines up to the same standard of care we see elsewhere on
the North Slope and typically elsewhere in the industry.
Senator Feinstein. Thank you.
Just one last comment. Senator Wyden indicated some of the
trading problems, and you know the company has settled ten
violations. They did go back to 2001 and 2002. You know that in
June the CFTC filed a civil complaint against you. You know
that on September 6 a class action lawsuit was filed against BP
accusing the company of manipulating crude oil prices. And you
know the Department of Justice is investigating BP on charges
of manipulating the crude oil and gasoline markets.
As a West Coaster, those of us on the West Coast, Mr.
Malone, we're not going to put up with this and I just want you
to know it. It has got front--in our attention span, it is way
up there as a high priority. You know, once fooled, shame on
us; twice fooled, it's a different story. And I really hope
that you are going to exercise the kind of leadership that's
necessary, because I think this company is deeply troubled
If you'd like to respond, I would be happy to have you do
Mr. Malone. Senator, I have two comments I'd like to make.
I understand, and I said it up front, that this is unacceptable
to us and that we are going to prove to you and the American
public that we will get this right. Senator, I have all the
authority to do this. I have the personal commitment to do
this, and I am happy to come back and talk to you about this as
I make progress.
Second, Senator, I understand your questioning of our green
credentials, but I would like an opportunity that we--
continuing to move down that agenda, around renewable energy,
around alternative fuels, around biofuels, we will continue to
do that, because it's a core of our beliefs and our values.
Senator Feinstein. Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you very much, Senator Feinstein.
I might say, Mr. Malone, we all look at the questions that
were propounded to you by the Senator from California and we
all look at the answers that you have given, and the
expectations have been forthcoming to us based on those
questions and those answers. And we won't go through each one
again, but you have told me also in my office just what you
have said here today: You have all the authority and all the
resources at your disposal and there's no excuse; right? No
excuses. It's all doing things right and paying for it. Whether
you have in the past or not, you're going to have to start
paying for it now.
With that, I want to move to a distinguished Senator who
has been waiting a long time. And he usually doesn't like what
he is hearing and I would assume he feels the same way today as
he has on a couple other situations. Senator Bunning.
STATEMENT OF HON. JIM BUNNING, U.S. SENATOR
Senator Bunning. Thank you, Mr. Chairman. I also would like
unanimous consent to put my opening statement in the record.
The Chairman. It will be made a part of the record as if
[The prepared statement of Senator Bunning follows:]
Prepared Statement of Hon. Jim Bunning, U.S. Senator From Kentucky
Thank you, Mr. Chairman.
I believe many of us will agree that this pipeline spill and the
discovery of such extensive corrosion demonstrate a failure on the part
of BP to properly maintain its pipeline system. This failure is so
appalling because it could have been prevented if BP had reacted to any
of the warning signs in the past decade.
I believe the pressure to drive up profits has played an
unfortunate role in this accident. As early as 1999, letters from
employees and inspections by the Alaska Department of Environmental
Conservation and Federal Department of Transportation have indicated
serious corrosion problems in the Prudhoe Bay pipelines. Amid record
profits, the maintenance habits of BP at this oil field have been half-
hearted at best. I hope that we can learn more about how these problems
were allowed to go unresolved and what additional safety legislation
may be needed from Congress.
While BP must accept responsibility, there are other lessons to be
learned. There are industry-wide deficiencies in the perceived
maintenance needs of some pipelines. It seems we are only now coming to
terms with the corrosion that may occur in low-stress or smaller
pipelines. The Government must also bear some responsibility for
failing to ensure the safety of these unregulated pipelines. I am
pleased that the Department of Transportation's Pipeline and Hazardous
Materials Safety Administration now has regulations in place for many
I am disappointed there is the need for a hearing like this one,
but I hope that discussing BP's deficient maintenance of the Prudhoe
Bay pipelines will prevent future spills and ensure that domestic
production has a reliable pipeline network to reach the marketplace.
Thank you, Mr. Chairman.
Senator Bunning. Mr. Malone and Mr. Marshall, it has been
suggested that BP has put profits ahead of safety of its
pipeline network. Since 2000 your company has made more than
$70 billion. I'm repeating that so that the people can hear
that--$70 billion in profits. I am aware of all the money the
oil industry reinvests. But you only have 26 percent of the
Prudhoe Bay, yet you are the controller of Prudhoe Bay. That
doesn't count all the other profits of the oil industry, Exxon
Mobil and all the other companies that are partners with you in
the Prudhoe Bay investment. But most of the money is directed
to discovering new products. Do you believe that your
investment has lagged in maintenance at Prudhoe Bay, and why
wasn't more done? Why wasn't it?
Mr. Malone. Senator, if I can----
Senator Bunning. I've heard a lot of explanations, but none
Mr. Marshall. Senator, if I can, the budgets for Prudhoe
Bay have increased----
Senator Bunning. I've heard that, from $400 million to
Mr. Marshall. That's correct.
Senator Bunning. That's chicken feed when you're looking at
$70 billion in profits.
Mr. Marshall. We have a program which we are determined to
focus on the areas we need to focus on, whether it's corrosion,
whether it's well refurbishment, whether it's pipeline
replacement. We're in action doing that. We have been doing
Senator Bunning. You obviously have not been doing that or
we wouldn't have a spill, we wouldn't--I was on Prudhoe Bay's
North Slope--I was on Alaska's North Slope with Senator
Murkowski, and we went through some of your facilities and you
bragged--was it 3 years ago, 4 years ago?
Senator Murkowski. Two years ago.
Senator Bunning. Two years ago. And you bragged to us how
good you were doing. Now, don't tell me that you didn't have an
inkling of the fact that your pipelines might be corroding. The
people you bought them from, they might not have done a good
job. The west side is a little different than the east side,
but you bought the east side from another operator. You
obviously could have gone and done more with the inspections of
Mr. Marshall. Clearly, looking back, we could.
Senator Bunning. Hindsight's 20-20, sir.
Mr. Marshall. We're determined that when we bring in the
new lines we will implement a full program of maintenance
pigging, smart pigging, and any other technology we can to make
sure this doesn't happen again.
Senator Bunning. Well, we hope so, because if it does
happen again you may have to shut it all down.
Mr. Marshall. I understand.
Mr. Malone. Senator, may I----
Senator Bunning. No, I'm going to continue on, because I am
very short on time.
Mr. Malone, there has been some speculation, as the
Senators from Oregon and California have talked about, that
Prudhoe Bay was actually shut down--this was engineered by BP
and it was shut down was to maximize profits. Given the recent
allegations pending before the Commodities Future Trading
Commission that your company attempted to artificially inflate
propane prices for a profit, I want your assurance to the
members of this committee that BP did not deliberately enhance
profits for itself or any subsidiary by the timing of the
Prudhoe Bay shutdown.
Mr. Malone. Senator, I was involved in that decision. I can
assure you that my decision was made around the safety and
integrity of that pipeline and to prevent a spill. We are
cooperating with CFTC and providing documents looking at all of
our trading activities post-disclosure, and to date, I'm
assured they have found no improper trades take place, sir.
Senator Bunning. One last question, as time will allow. Mr.
Malone and Mr. Marshall, as production slows down in older oil
fields, as it has been nearly 70 percent in Prudhoe Bay, it
becomes more expensive to operate and maintain pipeline
networks. Do you believe that the diminished returns on
investment in older oil fields have led to maintenance problems
in the industry?
In other words, as the production we saw on your charts has
gone down--and it's now only about 30 percent effective in
bringing the oil out, where it was once at 100 percent--is that
the reason we're not getting the maintenance that we should
Mr. Malone. Senator, for the bigger BP I can address the
issue and I'll ask Mr. Marshall specifically on Alaska. But in
the reviews that I've done so far--and it's still the early
days in the job, but the reviews I've done so far, I'm not
being told that we had a problem because of the age of the
field or the lack of funds. But I'll come back and assure you
of that in short order.
Senator Bunning. It isn't lack of funds by anyone that's
pumping oil out of Prudhoe Bay. We all know that. It's lack of
attention to the maintenance of the pipelines.
The Chairman. Are you finished, Senator?
Senator Bunning. Yes.
The Chairman. We're now going to go to Senator Landrieu.
STATEMENT OF HON. MARY L. LANDRIEU, U.S. SENATOR
Senator Landrieu. Thank you, Mr. Chairman.
I'm going to go to a little different line of comment and
questioning. And I say this--not that there's any excuse for
what happened. My colleagues on both sides of the aisle have
pressed that issue I think very well, but there's no excuse for
what happened and the company has a serious obligation to
address it and to fix it and to take those steps immediately.
But I think this record would be absent an important point,
Mr. Chairman, if I did not raise for the record that one of the
reasons that a breakdown like this can affect our markets is
because our markets are so tight, because the demand is rising
and the supply is sometimes questionable. And Mr. Chairman and
ranking member, while there is no excuse for what happened in
Alaska, from an oil-producing State, I have to say that if the
industry had greater access to less hostile environments--i.e.,
where temperatures are not 50 degrees below zero--that we might
have a better opportunity to manage the infrastructure
necessary to produce the oil and gas the country needs.
Now, there's no excuse for what happened, but it is hard
for me, from an oil- and gas-producing State, understanding the
extraordinary technology and effort that goes into tapping into
these resources, finding them and delivering them safely, and
the extraordinary effort it takes to maintain these pipelines,
to have to sit here and be quiet when I know that the Federal
Government, itself, along with many members, particularly in
the Democratic Party, and some Republican members, won't allow
us to drill where it's easy to lay pipelines and to manage the
infrastructure necessary to produce the oil and gas for the
So I don't want BP to get off the hook, but I do want to
add that to the record. And I'm going to submit a statement
along those lines for the record for this hearing.
My question is about the maintenance of pipelines. Could
someone that is representing the company talk about whether you
do this in-house or through contractors? Are most of your
workers in-house BP or contractors? If they are in-house, are
we increasing, and what are we doing to increase the amount of
money in that budget and how much? And if not, what procedures
are in place to watch or to monitor or to report your outside
contractors that are responsible for the maintenance of these
pipelines? I don't know what----
Mr. Marshall. Senator, I'll take the response to that
question. BP employs about 1,500 direct staff. We also have
somewhere in the range of several thousand contractors working
across various aspects of our business. With specific reference
to the maintenance activities, we have a combination of both BP
staff providing the supervision, the management, and a number
of the specialized technicians that we rely on to cover
everything from turbine maintenance to pump maintenance,
pipeline repair and so on.
In addition, we have a number of contractor companies which
provide specialized expertise, whether it's for insulation
removal, for inspection testing, with specific reference to
these pipelines. We employ a number of companies to provide
The amount of expenditure--before you cover the
expenditures, we are adding people, have been adding people for
several years now. This year we're--over the next--this year
and next we're adding between 80 and 100 technicians as part of
our renewal program of people. We've added between 200 and 300
contractors over the last few years to increase the level of
maintenance activity. As the production drops, the level of
maintenance requirements increase and the amount of activity
that we have to take on has also increased. And at the same
time, since I've arrived in 2001, where quite frankly we didn't
have the kind of maintenance system that I believe a first-
class company should have, we've been addressing that. We've
been getting back to basics and eliminating backlogs,
particularly in safety-critical equipment, working toward
getting that baseline established so we can actually go ahead
now and lay in the amount of expenditure, both operating
expense and capital, that needs to keep that infrastructure
healthy for the next many years.
Senator Landrieu. Mr. Chairman, I raise this question
because I think it's important for our committee to think about
the answer to this, because if Starbucks doesn't invest in
their infrastructure, the country might just get a little
groggier every day because we just can't access the coffee. And
that's a problem, but it's not a major problem. But when the
oil industry is not investing properly in its infrastructure,
it causes major problems for everyone, from the automobile
manufacturers and the airline manufacturers to the small
businesses to our farmers. It drives up prices and makes prices
I'm not one for mandating industries. I believe in the
competitive market and the free market. But I want to go on the
record as saying I'm going to consider the solution to this
dilemma that we find ourselves in is to deal with the
investment aspect, to make sure that the investments and the
maintenance of just infrastructure meets the standards of a
great economy like America and the world that depends on us to
function regularly and without dramatic situations like this.
I don't have anything to offer, but I just want to go on
the record, Mr. Chairman, as thinking that we may have to
explore some options that would not be appropriate for industry
generally, but maybe for the energy industry we have to think
about it to ward off any dramatic effects that are causing a
shutdown of major pipelines and particular fields, et cetera.
I'll leave it there and thank you.
The Chairman. Thank you very much, Senator.
Now we're going to go to this side with Senator Talent.
Senator Talent. Thank you, Mr. Chairman.
Well, you can tell everybody up here is pretty upset. I'm
going to give you my perspective on this. We have a very
sophisticated oil company and we have an agency that's supposed
to be expert in regulating this, and I think those of us in the
Congress are thinking that the elementary things that need to
be done to maintain these lines and these pipelines aren't
being done, and clearly it was not done.
I read, Mr. Malone, your statement about, ``With a program
this comprehensive, what happened?'' I think that's the
question we're all asking. I guess the closest thing to an
answer is--and you asked the question--why wasn't the corrosion
detected by BP's monitoring program? You said, while you had an
active inspection program, the isolated pits were too widely
spaced to be detected by that program.
So I guess the question is why didn't you have a program
that would have inspected and would have discovered the
isolated pits even though they were widely spaced?
Admiral Barrett, why don't we have regulations that are
adequate to make sure that we are protected against disruption
in supply? It seems to me you've been oriented in the past very
much toward protecting population and the environment, and of
course that's very important, but the supply of energy is
hugely important as well. And I don't think anybody's explained
yet, given that I think we understand the technology and
understand how these lines work, why, for example, it was 15
years--I think your testimony in the House was it was 15 years
since you've done any pigging on these low-stress lines.
So, given that that's how you discovered the problem with
the lines and that that technology was available--it wasn't
new--why weren't you doing it?
Mr. Marshall. Senator, with respect to the eastern lines,
which are the ones that had not been pigged since the early
1990's--Prudhoe Bay consists of two halves, the east and the
west. The east is what was formerly operated by Arco. It is
essentially a mirror image of the west, which BP operated--
three major facilities and 8 miles of transit lines on each
BP had run pigs in 1990 and 1998. The smart pig data from
both results confirmed the line was fit for service. We looked
when we took over the eastern line, which is the one that you
referenced had not been pigged. We looked at the data and we
instituted a testing program, but admittedly ultrasonic
testing. Those results confirmed the condition of the line to
be very similar to the line which had been pigged only 2 years
prior. We had good evidence there were virtually no solids in
that pig run, less than 2 cubic yards, and the line was
pronounced fit for service.
So we viewed that data and saw the lines were in broadly
similar shape. It was only in 2005, when we were doing the
testing, that we started to see increases in corrosion, which
certainly proved to be the pitting type of corrosion that you
Senator Talent. So are you telling me that this problem
developed over the course of the last year or two?
Mr. Marshall. Senator, it's too early to say definitively
exactly what the cause is. That will only be determined when we
complete the failure analysis of both sections of failed line.
That has not been done. We need to get that lab work done to
really understand accurately what the corrosion mechanism was
and to be able to make a determination about over what
timeframe it occurred.
Certainly there is evidence on the west that there was a
very rapid deterioration of that line, but right now that is
still a theory, not a confirmed outcome.
Senator Talent. Admiral Barrett, can you assure us that
when you're done with these new regulations that all the
pipelines which are necessary to protect supply are going to be
the subject of regulations requiring inspection and that those
regulations will be designed to protect not just population and
the environment, as important as that is, but also the supply
of energy to the country?
Admiral Barrett. Two comments, sir. First, the lines we're
talking about, the BP lines, with the regulation we propose,
the corrosion management program they'll have to put in place
would have prevented this from occurring, and that's the case
on their other lines up there that we do regularly. What they
had in place, particularly the absence of the maintenance
pigging, would not have been acceptable. And I will certainly
take into account the point you make that in assessing the
safety and environmental risk that we focus on that and we look
at, as well, how our actions can advance the energy security of
Senator Talent. Yes, I would say the energy security of the
country is worth being the subject of your regulatory review. I
certainly think we all believe that that was one of the objects
of your regulation and I certainly hope it is in the future.
Mr. Chairman, I thank you for holding this hearing. I'll
just join in the comments that have been made by other Senators
that this is very unsettling, especially for those of us who
have been trying so hard to open up new sources of energy. We
have to have assurance that when we do that, when we get the
energy, it's not going to be disrupted because of a lack of
investment in the use of technology that is, if not routine, at
least commonly used technology. And I appreciate the hearing.
The Chairman. Thank you very much. Thank you very much,
Senator. I'm just wondering, do you have any wrap-up questions
or did you get out what you wanted to ask?
Senator Talent. I'm fine, Mr. Chairman.
The Chairman. How about you, Senator?
Senator Bunning. I have some others, but I'll submit them.
The Chairman. Let's go right now with them. Give them to
Senator Wyden. I have one.
The Chairman. You have one additional. And, Senator, you
and I will stay and do whatever we want. Please proceed.
Senator Bunning. First of all, let me assure the people at
the table that I am a big supporter of additional exploration
on our own domestic soil and securing more domestic energy,
including the exploration and production in ANWR, but I believe
that this type of situation completely sets back any hope that
we had to get that bill passed in the Congress of the United
States. And I can assure you that if we are going to do what
the President wants to do and get our dependency off foreign
sources of oil, this is a major setback.
We were assured when we were up at Prudhoe Bay, at Alpine,
that this was the gold standard, as Senator Murkowski has said.
And we went to your new platforms at Alpine, where you had
seven safety valves on your drilling, but we didn't see any of
the pipelines. And this is just 2 years ago, so those pipelines
were corroding at that time badly.
Why in the world wouldn't you make sure that we weren't
going to have any kind of spills, if in fact we want to
discover and be able to drill in other areas in Alaska? Why,
when it's so essential to rid ourselves of foreign sources of
oil? I'm asking the president of BP.
Mr. Malone. Senator, I can't address specifically the
issues in Alaska, but I can tell you that, Senator, you have
our commitment to operate Prudhoe Bay at a gold standard and I
can assure you of that. And as I have said several times, I
have the financial support, I've got the people and I have the
resources to assure you of that.
Senator Bunning. If that be the case, you have set back our
ability in the Congress to move any type of exploration close
to Alpine or Prudhoe Bay in the immediate future. It's taken a
giant step backward. I want you to understand that because of
the spills and the things--we were assured that nothing like
this could ever happen in Prudhoe Bay.
The Chairman. Senator, we're going to start back.
Senator Bingaman. Let me ask you, first, Admiral Barrett,
as I read the statute that sets up your office, your job is to
look after safety. In particular, that's defined as ``risk to
life and property posed by the pipeline transportation
facility.'' You are not directed in this statute to look after
supply, to ensure the reliability of supply, and accordingly,
you take into account if this is an area that a lot of people
live in. You look after the things that you have traditionally
Senator Talent was asking questions about if you are also
committed to dealing with the energy security and protecting
supply and all that. We haven't told you to do that, as I read
Admiral Barrett. Sir, I think there are two points there.
One is in our Pipeline Reauthorization Act. The administration
this year has proposed, in cooperation with the Department of
Energy, authority to conduct a study of the impact of capacity
problems on the energy supply. And if that reauthorization
passes with that provision that the administration has
requested, we would provide perhaps some basis for you to
consider what additional action might be necessary.
Senator Bingaman. But you're saying we should go ahead,
first of all, and authorize a study before we decide whether or
not someone, your office presumably, should be responsible for
looking at the reliability of our energy infrastructure. It
seems to me that's sort of a no-brainer, that we ought to have
a Federal agency whose job it is to look after the reliability
of our infrastructure for purposes of maintaining supply, and
we don't have that today. I don't really see why we need to
have another study to decide whether or not that's an
appropriate thing for someone to do.
Admiral Barrett. The only other observation, as I noted, is
that I do believe strongly that if we focus on safety and some
of the other risks we're talking about, that will improve
Senator Bingaman. I agree, they're related. And to the
extent you solve the safety problems, you help solve the
reliability problems, but you don't necessarily solve the
reliability problems, as evidenced by the fact that you had
never asserted jurisdiction over this line because the line is
a long way from where the public is.
Admiral Barrett. Well, it posed lower risks than other
Senator Bingaman. Lower risks to the public?
Admiral Barrett. Yes, sir.
Senator Bingaman. But not lower risk to interruption of
Admiral Barrett. I understand your point, sir.
Senator Bingaman. It seems to me we ought to fix that
problem, Mr. Chairman. I don't know exactly how we get it done,
but we ought to make sure that the statute clearly directs
Admiral Barrett's office to look at safety, but also look at
reliability of supply. That seems to me to be another goal that
we've given short shrift to.
Mr. Van Tuyn, let me ask you, there have been a lot of
statements here that this is an anomaly, that the problem is
not a more general one on the North Slope or elsewhere in
Alaska or around the country. I think the statement in Admiral
Barrett's statement is that these BP transit line failures are
not indicative of the state of the rest of the U.S. energy
infrastructure, and I guess then more specifically on the North
Is that your assessment, as well, or do you feel like you
know enough about the condition of the infrastructure on the
North Slope to pass judgment on the condition of it?
Mr. Van Tuyn. Mr. Chairman, Senator Bingaman, thank you for
the question. I think the old adage ``If you don't want to know
the answer, don't ask the question'' applies at every level of
industry and regulatory review on the North Slope. So I can't
stand here or sit here today and say that I have an absolute
understanding of the facilities' integrity or lack of
I can tell you that I have witnessed, in specific, numerous
examples, for over 15 years, situations where the questions
were intentionally not asked. Examples such as the Teshekpuk
Lake region, where the Federal district court judge last week
issued a temporary ruling that, despite promises from the
Interior Department to look at cumulative impacts of oil
development in that area, that Interior once again put off
asking the questions.
I can tell you that the State of Alaska Department of
Environmental Conservation has not looked at its prevention
authority as something that it's strong to implement. I can
tell you the same with DOT. Thank you for the question, but
that's the reality on the North Slope.
Senator Bingaman. Thank you, Mr. Chairman.
The Chairman. Well, Senator Bingaman, I accept your
thoughts just preceding the answer, when you suggested that
perhaps we should do something about this, and I think we
should, in our manner of doing business, ask both our staffs
collectively to look at that issue and see what it is, and how
we would fix it easiest and quickest. No use waiting. It's all
by itself. It could get done if we set ourselves to doing it.
And, not letting BP off the hook or anything, it's just
straightening up an anomaly that we find.
Now, Senators, both of the remaining Senators wanted to
take time, and I think we'll get by before the floor takes us
away by following the regular course. So you will be next,
Senator Murkowski, and then we'll come back to you, Senator
Wyden, and that will be it, I guess.
Senator Murkowski. Thank you, Mr. Chairman.
To follow up, just from the legislative perspective,
Admiral Barrett, you and I have had a chance to talk about the
tools that you have at your disposal, and when it comes to the
compliance orders that you have put before BP, the four
compliance orders, you have indicated to me that legislatively
you have what you need, the authority that you need. Is that
still the situation? What else can we provide you in terms of
the tools that you need?
Admiral Barrett. Senator, thank you. In terms of our
ability to enforce the safety requirements that we feel are
essential, either by way of orders or by bringing forward
regulatory packages, which is generally done, I would say that
our authority in that area is adequate.
Senator Murkowski. You mentioned in response to a question
from Senator Domenici--this was as it related to the Trans-
Alaska Pipeline and the soundness of that line itself--you
indicated that there were issues from time to time, but then
you stated that you had no immediate concerns with TAPS. That
raised a red flag with me. You don't have immediate concerns,
but do you have long-term concerns about the safety and
soundness of the operation of that line?
Admiral Barrett. What I meant was we inspect that line on a
regular basis, and from time to time TAPS and other lines that
we regulate are required to have a risk management program to
continually assess and reassess the risks that they face on
that line. For example, most recently, the drop in production
would have caused us to look at how they manage the hydraulics
on the line and was their program adequate for that.
But from time to time, as they look at their risk and we
oversee that, we will identify areas where they think--we think
and believe they need to pay more attention. It may be some
aspects of their corrosion management or their integrity
management that we'll identify in the course of our
inspections, and we will require them to take corrective
So what I meant was, based on the recent inspections that
we've done, there are no actions where we feel we would be
compelled to order them, to direct them to some immediate
problem. There is not an immediate hazard on our scope with
respect to TAPS.
The Chairman. Mr. Hostler, you have been pretty quiet
throughout this hearing. I know that there are many who, when
they learned of the situation up North, assumed that it was a
shutdown or that there were problems with the Trans-Alaska
Pipeline itself, and of course we know that that is not the
case. But you've got the same oil that is causing corrosive
problems within the BP feeder lines going into the main line.
What assurances can you give me that we won't have the same
corrosion issues that you are facing with the BP operations on
Mr. Hostler. Well, thank you, Senator. Immediately
following the March 2 spill, we put in a program to accelerate
and enhance our corrosion monitoring program, the same program
that Admiral Barrett has been speaking to. And we put steps in
to look for this accelerated corrosion aspect that BP
experienced and looked at our pump stations and looked
throughout our system down to the terminal. But most
importantly, we looked in the main line, and we are currently
running an intelligent pig through that line, a year ahead of
schedule, looking for any potential anomalies as experienced by
But as Admiral Barrett has said, we have quite an extensive
integrity management program that they oversee, as well as a
corrosion management program the Joint Pipeline Office, which
includes BLM and other agencies, also oversees, and we have an
annual audit of that program. So we've looked back at our past
and looked at ways we can enhance it. So my assurance to you is
we've taken all the steps we believe are appropriate to look at
this problem as it was experienced by BP at Prudhoe Bay.
Senator Murkowski. Looking at the 50-year vision diagram
over there for BP and your efforts in Alaska, we want to
believe that that picture can continue, that that chart, that
graph, will continue with the levels of oil and with the
additional level of gas brought on. But we want to make sure
that you're only going to continue in that capacity if you are
an operator that is up to the standards that we expect of you
as Alaskans and that we expect of you as Americans.
I feel a little bit humbled after Senator Feinstein said
that my questions to you were too gracious and perhaps I'm
``not beating up enough on the operators here,'' but our
reality is we want those that will perform to the level and a
standard that is acceptable and is above what we are seeing
from BP, and if BP cannot bring the standards up, I don't know
that we want that 50-year vision. And that's a very difficult
statement for me to make, but we can't have it at the expense
of our environment. And I would certainly hope that this is a
turn-around for this company, this is a turn-around for every
employee, from the guy who's working out in the 50 below to
those of you that are back in London, that there is an attitude
and a change about how we deal with safety, how we deal with
maintenance, how we deal with ongoing operations, and that
there is never, never a reason to back off on those standards.
Thank you, Mr. Chairman.
The Chairman. We're about to finish, Senator. If you let me
go and then you go, then that will be even.
Senator Wyden. Whatever you think, Mr. Chairman.
The Chairman. You go ahead, Senator. You've been waiting a
Senator Wyden. Mr. Malone, according to the Government
Accountability Office, the taxpayers of this country are going
to lose out on at least $20 billion in royalties that your
company and others are supposed to be paying for oil and gas
that is extracted from Federal lands. Now, this has been a
bipartisan ripoff. What you've had is essentially the Clinton
Administration in the late 1990's not including price
thresholds that would protect the taxpayers. Then the new
Secretary of Interior, Gale Norton, came in and sweetened it up
even more. And then in the last energy bill, over my
opposition, it got even sweeter.
What is your objection to your company paying normal
royalties on oil that your company extracts from lands that are
owned by the people of this country?
Mr. Malone. Senator, we do not object to paying fair rent.
You may or may not be aware, on the 1998 and 1999, we have
voluntarily moved forward to negotiate with MMS and we're very
close to a settlement on that.
Senator Wyden. Will that settlement involve normal
royalties? If you're talking about the 1998 and 1999 leases,
those of course are the ones where the Clinton Administration
You've used a term ``fair rent,'' which I think is a little
different than what the statute is talking about. I want to
know, are you committing this morning to saying that you will
pay the normal royalty that you would have paid on those 1998-
1999 leases if the Clinton Administration had not fouled up?
Mr. Malone. Senator, if you'll allow me. I'm sorry, I don't
have enough detail on exactly what you're speaking about. I
don't have that level of detail to make that commitment.
Senator Wyden. Well, it's just a question of whether you're
going to pay the normal royalties.
Mr. Malone. Again, if the normal royalties are what are in
the standards and the law, yes, we'll pay them.
Senator Wyden. I appreciate the answer, and we're going to
do everything we can to drain this swamp. It is outrageous that
there is a prospect now of upwards of $70 billion being the
final sum here, as you know, if the Kerr-McGee suit is
successful. But if you will follow through on the pledge you're
making for the committee now that you will correct those leases
so that you would pay the normal royalties, as if the Clinton
Administration had not fouled up in 1998 and 1999, that is a
constructive step, and I appreciate getting that information
Thank you, Mr. Chairman.
The Chairman. Well, let me take that issue, because it
always gets out of focus. The distinguished Senator is quick to
have it his way and let it read as if it's his way, but the
truth of the matter is there are a number of oil companies that
are negotiating with the Department relative to the royalties
that were attributable to 2 years during which the Clinton
Administration quite inappropriately issued leases without
royalties being required, and those are just as valid and legal
as anything you can have out there. They don't owe the money.
You can't go claim they do.
But I have indicated, and the companies have listened
carefully, that I believe it's time they all come to the party
and sit down and solve this problem so that they're not in
And you're one of the companies that stepped forth rather
quickly in that round of negotiations to see what could be done
to get rid of that litigation. That's good. That's going to be
solid money and it's good for the country.
Now, before we close, let me make sure that we see a couple
of other things around here. I don't know how to do this, but
for me it's pretty easy. Do you see this diagram?
Mr. Marshall. Yes, sir.
The Chairman. Mr. Steve Marshall, you can see this. Now,
can we put it up there so everybody can see it. This is a
pipeline and it looks like it's got something wrong with it,
right? What's wrong with it?
Mr. Marshall. That is an example of the pitting type of
corrosion that we've experienced here. It's essentially a piece
of broadly good pipe with something about the size of an almond
showing where the corrosion has occurred. That's what this
The Chairman. OK. Now, that is the situation where, if you
had been running a smart pig up and down that pipeline in the
last few years ,you would have found that. And that smart pig
is right here. It's this one here. Maybe you can get that and
put it up and everybody can see it. That's this one right here.
See, that one down on the right hand, looking at it from this
side, the bottom right hand. Isn't that the smart pig?
Mr. Marshall. That's correct, yes.
The Chairman. You own those, don't you?
Mr. Marshall. We own some of those. We bring some other
pigs in that are specialized pieces of equipment from
The Chairman. Now, that's the kind of thing we would be
complaining that you did not use on this 16 miles of pipeline,
which thus permitted it to go undetected as to what that smart
pig would otherwise find, right?
Mr. Marshall. Well, the smart pig was run on the western
lines in 1998 and 1990.
The Chairman. Where was it not run?
Mr. Marshall. The smart pig was attempted on the eastern
lines, which Arco operated, in the early 1990's, but it was an
The Chairman. What does it mean for an unsuccessful pig
Mr. Marshall. To the best of my knowledge, the technology
used in that particular device was not proven to be market-
worthy. It was withdrawn from the market soon after that, that
The Chairman. So it wasn't a very good product; is that
what you're saying?
Mr. Marshall. Apparently that's correct.
The Chairman. But there must have been a better product
than you used, that you just didn't get a hold of to run on
that pipeline or that was running elsewhere; is that not
Mr. Marshall. I don't have the knowledge of what
conversations might have occurred in Arco at the time once they
got that data back.
The Chairman. Well, what are we saying you didn't do then?
What equipment was around that you didn't use that everybody's
either saying or implying that you should have used, that the
Admiral was talking about? Which equipment is it?
Mr. Marshall. Mr. Chairman, certainly we've reflected
deeply on that, in light of the incident, since March. Clearly,
looking back, we should have--as the Admiral has said, we
should have been maintenance pigging those lines. It would have
eliminated the solids, which we didn't anticipate to be a
problem. Smart pigging was scheduled for 2006. It was based on
the evidence, the data that we've seen coming back from our
inspections last year. Unfortunately, it was just too late to
prevent the spill in march.
The Chairman. So then we don't have any argument over
whether I'm using the right pig picture here or not. We are
talking about the fact that there was usable technology that
should have been used that wasn't during this period of time;
is that right?
Mr. Marshall. The technology was available, yes.
The Chairman. It was available.
Now, I was going to ask the other gentleman, Mr. Hostler,
you're part of TAPS, how often was the pig used on TAPS?
Mr. Hostler. Sir, we run a maintenance or cleaning pig
every 7 to 14 days and we run an intelligent pig every 3 years.
And we've run, over the life of this field, the pig I spoke of
earlier. We are on our 61st intelligent pig.
The Chairman. On the lines we are talking about, BP's, it
was 16 years since they'd run one, correct?
Mr. Hostler. That's my understanding, sir.
The Chairman. I don't want to beat a dead horse because,
Mr. Malone, you have come here saying there was a mistake, you
know it, you knew you'd done wrong, and you've now got all the
authority and all of the resources and manpower to do it right,
and that you're going to do it right. The question we have,
that you have, is you're going to have to prove to some people
that believed you before, you've got to prove to them that they
ought to believe you now. That's a tough problem because you
already had a fragile atmosphere, you can understand.
I was up there and I was convinced. I saw Alpine. I use
Alpine as an example--in my mind it is fixed--that you can
build a full plant out there for 150,000 barrels a day from
scratch right there on the ice, and when it's all finished and
everything melts around it, it's self-executing. You've been
there, haven't you?
Mr. Malone. Yes.
The Chairman. They mention Alpine. They don't think I know
about it. 150,000 barrels a day, that's what comes to my mind.
But you know what else? I came home from there telling
everybody that I saw that there was a culture of cleanliness
the likes of which I had not experienced. Do you know that?
Here I am, I don't come from there, he took me up there, I come
back, I'm ready to tell the world, ``Boy, that's perfectly
clean, they don't make mistakes.''
Now, I'm not saying you've made them, because you didn't
make any up there. I'm quite sure Alpine has no mistakes. But
I'm also sure that we've got to look at this issue of cleaning
these lines up and we've got to make sure that we reinstate
credibility into this system that it is safe, or we won't get
the votes we had already with reference to ANWR, much less move
ahead, right? We only need a couple of votes, but let's hope
it's a couple of votes we get and get going in the right
direction. It might be they go backward with this kind of
event. So you really carry a lot of weight here.
Now let me change directions because we've all forgotten.
Maybe this will bring this very bright, intelligent man, Mr.
Peter Davies, to talk a little bit. We had an expert sitting
here for 3 hours and never asked him a word. How come all the
bad things didn't happen when this spill occurred? We had
everything go the opposite direction. We didn't have prices go
up; we had them come down. We didn't have the price of oil go
up; it came down, tumbling down, still coming down. We had the
price of a gallon of gasoline come down, even on the West
Coast, which is the most onerous one and the one most directly
affected by mistakes where they were allegedly made. The West
Coast was supposedly affected adversely. It went the other way.
It then affected it positively.
Can you tell us, as an expert, what happened? Why did we
not get all of these shocks to the system, as you see it?
Mr. Davies. Well, thank you, Mr. Chairman. Thank you for
the opportunity to speak. I think there's two reasons. First of
all, the world oil market was adequately supplied at this time.
It was the time when we have seen increasing levels of both
crude and product, and as a result there was some flexibility
in the world market to absorb a shock such as this.
Second, the actual decline was triggered as a result of
some other developments as we went forward during the week
which began on August 7. Most particularly, August 10, on the
Thursday, there was a terrorist event or there was a warning of
a terrorist event in London. This had the impact of reducing
oil prices. The oil market had observed the effect of 9/11 on
crude markets, where we had a $10 decline in the 2 months after
September 11th, and there was a fear that air travel would be
adversely affected and that this would undermine the demand for
The Chairman. Which event was that one?
Mr. Davies. That was in London, where there was a plot or
the alleged plot to bomb aircraft coming from the U.K.
The Chairman. The aircraft going to America.
Mr. Davies. And the fear was that this would affect air
travel substantially, like we saw after September 11, when air
travel was seriously disrupted.
There was also news that a Nigerian pipeline had been
restored, one of the pipelines that had been closed as a result
of disruptions in that country. And there were some other
trading developments concerning gasoline which led to a
reduction in the price of gasoline.
So all these developments had a negative impact on price
that brought the price down fortuitously, and the result was
that we ended the week with lower prices for crude oil on the
West Coast, on the NYMEX, in London, and also the price of
gasoline around the world. It was a global development.
The Chairman. A pretty good deal, right?
Mr. Davies. It was fortuitous timing.
The Chairman. I guess you couldn't say, ``Let's have a
spill like this, so we can get a result like this; we'll take
the spill.'' That's not true, right? They're unrelated?
Mr. Davies. It's unrelated.
The Chairman. So we had better not take any spills
presuming that we'll get this kind of good deal?
Mr. Davies. Absolutely.
The Chairman. How long is this downward trend going to go?
Give us your best thinking.
Mr. Davies. I have learned never to predict oil markets and
prices. I think at the present time we're in a downward trend.
The sentiment is certainly very cautious about prices and there
is a downward momentum, but there are many uncertainties out
there which could reverse as we go forward, so we shouldn't
rely on a continuation of this for a long period of time.
The Chairman. Dr. Howard, how about you? You guys are
really the real experts. I mean, your boss isn't here, but he
doesn't hire people who don't know. You know about as much as
Mr. Gruenspecht. Well, I don't know about that. He's out
talking to OPEC, so he may know more than me.
The Chairman. Well, OPEC said they were going to keep
producing. They have, right?
Mr. Gruenspecht. They did. They did make that statement.
The Chairman. They made the statement, but did they live up
to it for a little while?
Mr. Gruenspecht. Well, we'll see. Again, I discussed the
short-term outlook in my testimony, and we do see somewhat of a
downward trend in gasoline prices and diesel prices. But we do
have a roller-coaster type of scenario in mind and, as I noted
earlier in the oral statement, the price of wholesale gasoline
and the price of crude oil have gotten very close and that
probably won't persist. So there are some factors that could
cause prices to rise again, hopefully not to the peak that
we've unfortunately become familiar with, the $3 a gallon area.
The Chairman. Senator Murkowski, I'm ready to close the
hearing, unless you have something very important that you want
Senator Murkowski. Mr. Chairman, I just wanted to just make
sure that I understand, because I had initially heard you say,
Mr. Marshall, that the reason that the pigging operation and
the data didn't work was the technology was not up to par at
that particular time. But is it not correct, Admiral Barrett,
that everybody else in the industry up north was pigging?
Admiral Barrett. That's essentially correct, Senator.
Senator Murkowski. So the technology was there, it was just
a corporate decision to not do pigging for BP's operation?
Mr. Marshall. Senator, if I could maybe just provide
perspective on that. The pigging in question, in 1991,
thereabouts, that Arco did, that was just related to that
specific pig run, where the technology did not work for that
Senator Murkowski. For that particular device.
Mr. Marshall. For that particular device.
Senator Murkowski. You could have gotten another device
similar to what other companies were utilizing.
Mr. Marshall. Technologies clearly existed at that time to
do smart pigging. Only 2 years prior to that, BP had
successfully smart-pigged the western transit lines in 1990,
and did so again in 1998.
Senator Murkowski. But then the question remains, why was
BP the only one on the slope to not do pigging through their
lines? If others do it, did it, why did BP take another route?
Mr. Marshall. Well, BP was pigging, smart pigging, the
western transit lines in 1990, 1998. We planned another pig run
in 2006 on the eastern lines, which BP did not operate until
2000. That line had only been pigged once, in 1990 or 1991.
As I said, the smart pig run was not successful. I cannot
speak to why a follow-up pig run wasn't made in the 1990's.
What BP did when we took over those lines in 2000 was institute
the ultrasonic testing that we had been doing on the west.
Senator Murkowski. Admiral Barrett, if the testing was done
every 8 years then on the western one, as Mr. Marshall has
indicated, what were the other companies doing in terms of
their pigging and the time period within which they would run a
Admiral Barrett. Senator, there were two things in play.
One is the type of pigging. One of the things that did not go
on here was regular maintenance pigging, and that takes place
typically over several weeks or over several months on those
And by the way, on the other lines BP has up there that we
regulate, they don't have an option. They have to do it on
their regulated lines.
But there are two different things that failed here. One is
they weren't maintenance pigging the lines, and what happens
when that occurs is you get sediment, you get calcification on
the sides of your lines, you get sludge, if you will, build-up
that can keep your corrosion inhibitors away from the wall of
the pipe. And then you get the type of--you run the risk of the
type of biologically induced corrosion that is shown in that
So it was both the maintenance pigging that wasn't taking
place on this line and then regularly looking on some regular
basis to do the in-line inspection. The best analogy I can give
you is probably a dental X-ray: If you don't look inside the
tooth, you may have a cavity you don't know about. They
fundamentally, in my view, didn't know enough about the
condition of the insides of those lines.
Senator Murkowski. And yet everybody else up north was
doing a routine maintenance pigging operation.
Admiral Barrett. Senator, yes. What we saw reflected on
these particular lines by BP was not typical of the standard of
care we saw exercised elsewhere on the Slope and elsewhere in
the industry in this country.
Senator Murkowski. Thank you. I appreciate it.
Mr. Chairman, Mr. Van Tuyn had made reference to creating a
citizens oversight group and I would like to submit for the
record a letter and a fact sheet from the Prince William Sound
RCAC, which kind of describes the actual operation of the RCAC
and how they currently work, just for the record. Thank you.
The Chairman. Certainly that will be done.
[The prepared statement of Dr. Devens follows:]
Regional Citizens' Advisory Council,
Anchorage, AK, September 12, 2006.
Hon. Lisa Murkowski,
Chairman, Subcommittee on Water and Power, Committee on Energy and
Natural Resources, U.S. Senate, Washington, DC.
Dear Senator Murkowski: As Executive Director of the
congressionally authorized Prince William Sound Regional Citizens'
Advisory Council (PWSRCAC), I was interested to hear through a public
radio broadcast last week your view that, with respect to the feeder
pipelines on the North Slope, it does make sense to consider additional
pipeline oversight and that a citizen oversight panel for that purpose
is worth considering.
In light of that, I thought that you might find it helpful to have
a current, short briefing paper on the oversight responsibilities and
activities of the PWSRCAC, and on how this Council's experience
fulfilling congressionally mandated oversight activities of certain oil
operations in Alaska can be easily applied to the North Slope.
As you know from our work with you and your office in the past,
citizen oversight plays a unique and crucial role in the often tedious,
sometimes complicated, detailed and time-consuming task of overseeing
oil transport activities by the private sector that have potential to
cause serious adverse effects on people, the environment, and the
national and state economies.
As you also are aware, your predecessor, Governor Frank Murkowski,
played a key role in incorporating the provisions that created the
PWSRCAC in the Oil Pollution Act of 1990. He studied the experience at
Sullom Voe in Scotland, the largest oil terminal facility in Europe. He
recognized that, in light of the Exxon Valdez oil spill, to have
citizen confidence in and support for continued oil development and
transportation, the public must be engaged in overseeing that
development and transportation in a meaningful way.
Considering that nearly 20 percent of the daily U.S. oil production
flows through Valdez, the vigorous and effective citizens' oversight of
the terminal facility to ensure its integrity is of substantial
national importance. In part as a result of the combined effort of the
Alaska delegation and others in Congress to establish rigorous
oversight of the equipment, facilities, procedures and operations at
the Valdez oil terminal through citizen oversight, today the transport
of oil from the Valdez terminal is the safest of any similar facility
anywhere in the world.
The PWSRCAC has provided substantial results and is now viewed as a
model for other countries interested in establishing citizens'
oversight panels. The citizen oversight model that Congress established
in 1990 is a good one. And, although not perfect, it has made a huge
difference for the better in terms of effective oversight of the
terminal and in terms of building the public's confidence in its safe
operation. If something is not going right, the public knows that the
chances are very good it will be uncovered through such oversight and
another potential accident likely averted.
If Congress decides to establish a citizen panel similar to the one
it established in 1990 to help oversee other aspects of the oil
transportation system in Alaska such as on the North Slope, the PWSRCAC
stands ready to provide information and any other assistance that may
be helpful to you and your colleagues.
Thank you for your continuing assistance to the PWSRCAC as it seeks
to fulfill its mandated responsibilities to and on behalf of the
John S. Devens, Ph.D.,
Background Briefing Paper
ROLE OF STATUTORILY ESTABLISHED CITIZEN OVERSIGHT COUNCILS IN THE
CONDUCT OF OVERSIGHT OF OIL TRANSPORTATION OPERATIONS, FACILITIES AND
Seventeen years ago, following the Exxon Valdez oil spill in Prince
William Sound, Alaska, through the efforts of Senator Ted Stevens,
Senator Frank Murkowski, Congressman Don Young and strong bipartisan
action in Congress during the Administration of President George H. W.
Bush, two citizen panels were authorized to help reduce the frequency
and impacts of oil spills in Alaska's waters through more effective
oversight: the Prince William Sound Regional Citizens' Advisory Council
(PWSRCAC) and its counterpart for the Cook Inlet. The genesis of such
panels came from congressional review of similar panels established in
Sullom Voe, Scotland, the largest oil terminal in Europe, and from
citizen concerns following the 1989 oil spill.
The diverse make up of the PWSRCAC includes:
Villages of Chenega Bay (ground zero of the impacts of the
1989 oil spill) and Tatitlek.
Cities of Valdez, Seward, Kodiak, Cordova, Homer, Seldovia
Alaska State Chamber of Commerce
Kenai Peninsula Borough
Kodiak Island Borough
Kodiak Village Mayors Association
Alaska Wilderness Recreation and Tourism Association
Chugach Alaska Corporation
Cordova District Fishermen United
Oil Spill Region Environmental Coalition
Prince William Sound Aquaculture Corporation
The accomplishments and effectiveness of this membership and its
citizen-based approach to oversight have clearly vindicated the
judgment of including such authorization and direction in the Oil
Pollution Act of 1990.
Recent concerns raised by Congress over several incidents on the
North Slope of Alaska underscore the need for increased and enhanced
oversight. Considering the record in Alaska of citizen oversight,
applying best practices from citizens' oversight efforts to the North
Slope could be similarly beneficial there.
1. Rationale for and Purposes Served by Citizen Oversight
In the aftermath of the 1989 Exxon Valdez oil spill in Prince
William Sound, Congress in the Oil Pollution Act of 1990 (OPA 90)
established citizens' councils to help combat the complacency seen as
responsible for the 1989 spill and provide a needed layer of scrutiny
to increase public confidence in the safety of the state's oil
transportation system. The council role, defined by OPA 90 as purely
advisory, was to help correct the problems leading to the oil spill by
fostering partnership among the oil industry, government, and local
communities in addressing environmental concerns. The responsibilities
assigned to the PWSRCAC by Congress in OPA 90 include:
provide advice and recommendations . . . on policies,
permits, and site-specific regulations relating to the
operation and maintenance of terminal facilities and crude oil
tankers which affect or may affect the environment in the
vicinity of the terminal facilities;
monitor . . . the environmental impacts of the operation of
the terminal facilities and crude oil tankers;
monitor those aspects of terminal facilities' and crude oil
tankers' operations and maintenance which affect or may affect
the environment in the vicinity of the terminal facilities;
review . . . the adequacy of oil spill prevention and
contingency plans for the terminal facilities and the adequacy
of oil spill prevention and contingency plans for crude oil
tankers operating in Prince William Sound;
provide advice and recommendations . . . on port operations,
policies and practices;
recommend . . .
standards and stipulations for permits and site-specific
regulations intended to minimize the impact of the terminal
facilities' and crude oil tankers' operations in the
vicinity of the terminal facilities;
modifications of terminal facility operations and
maintenance intended to minimize the risk and mitigate the
impact of terminal facilities, operations in the vicinity
of the terminal facilities and to minimize the risk of oil
modifications of crude oil tanker operations and
maintenance in Prince William Sound intended to minimize
the risk and mitigate the impact of oil spills; and
modifications to the oil spill prevention and contingency
plans for terminal facilities and for crude oil tankers in
Prince William Sound intended to enhance the ability to
prevent and respond to an oil spill.
Additionally, the Council is authorized to conduct its own
scientific research and review the scientific work undertaken
by or on behalf of the terminal operators or crude oil tanker
operators as a result of a legal requirement to undertake that
work. The Council is authorized to review the relevant
scientific work undertaken by or on behalf of any government
entity relating to the terminal facilities or crude oil
2. Examples of Tasks Accomplished by the PWSRCAC
In almost two decades of existence, the PWSRCAC, working closely
with industry and regulators, has made many contributions to improving
the environmental safety of oil-industry operations in Alaska waters. A
few of these include:
Representatives from the Council worked closely with
Congress and the Coast Guard to establish and implement double-
hull requirements pursuant to OPA90;
The Council led the effort, and commissioned much of the
technical research, that led to the world-class system of
tanker escort tugs operating in the Sound today which are vital
to the system of transport of oil through the Port which is the
safest in the world;
The Council sponsored research and financed much of the
hardware for a radar system that detects glacial icebergs that
could threaten tankers and other vessels in the Sound as such
icebergs did in connection with the Exxon Valdez oil spill;
The Council sponsored research the led to the installation
of vapor controls on the loading systems at the Valdez tanker
terminal to reduce the release of dangerous air pollution.
In recognition of its work, the PWSRCAC has twice received the
Legacy Award from the Pacific States-British Columbia Oil Spill Task
3. Structural Attributes Needed for a Citizens' Oversight Panel
Over time, the Council has learned that certain structural
attributes are necessary for effective and constructive citizen
oversight. These include:
The panel's independence should be assured if it is to
effectively conduct oversight activities and its work to have
credibility. In furtherance of that independence, it should be
allowed to devise its own system for seating board members. The
makeup of a federally mandated panel may be usefully specified
in law--for example, a requirement that board representation
must include Alaska Natives organizations, local
municipalities, the tourism industry, and an environmental
seat, from within the group's area, but not representation of
government agencies, companies or industries within the panel's
oversight responsibilities. The specific details of the manner
in which representatives from the designated community
interests are chosen and seated on the board are best left up
to the panel, rather than being a matter of political
appointment and confirmation. In the case of the PWSRCAC, under
the regime established under existing law, each member entity
selects its representative to the Board; the Board then votes
to seat the representative.
Within reasonable constraints and guidelines provided by law
and/or contract, the panel should be able to establish its
budget. As long as the panel operates within those guidelines,
it is critical that neither industry, regulators, nor
government officials have veto authority over council projects
or initiatives (although the budgeting process, like all the
panel's activities, would be public and open to comment by any
The panel should be able to retain technical experts and
commission research even if, in some cases, this research may
be in the same areas as, or intended to verify, industry or
The panel should be able to communicate with the public,
news media, regulators, and elected officials as necessary to
carry out its mission and inform the public of its work.
Assured funding: The panel should have adequate, inflation-
adjusted funding not subject to undue influence that a
political process would entail. In PWSRCAC's case, funding is
through a long-term contract with industry. Such a funding
contract should be mandatory as a matter of law in order for
the industry being overseen to be considered in compliance with
its oil-spill contingency plans and other regulatory
Access: The establishing law, as well as any funding
contract, should assure that the panel is provided authority
for access to company facilities, personnel, and records on the
same basis as regulators. In addition, regulators and companies
receiving formal advice or other communications from the panel
should be directed to respond in writing to panel requests
(though, of course, they would not be required to accept the
advice or agree with the communication). In the case of Prince
William Sound, OPA 90 requires that federal agencies consult
with the PWSRCAC when taking actions in the region that would
affect the Council's mission.
4. Conclusion: Compelling Benefits of Citizen Oversight
Given the long history of responsible achievement by the existing
Alaska citizens' councils, and today's problems at Prudhoe Bay on the
North Slope, it is clear that a properly constituted citizen oversight
panel could materially contribute not only to environmental safety, but
also to protecting the nation's oil supply from the disruptions caused
by major spills, breakdowns, and other technical problems.
Given the increasing challenges of operating in the oil industry,
and realizing the important role that industry plays in the state and
national economies, our nation's oil supply and its homeland security,
instituting a responsible and vigorous citizens' oversight capability
for the North Slope can substantially bolster public confidence in the
integrity and safety of ongoing as well as new oil operations.
Thanks to all of you who are in attendance, we appreciate
the interest that you've shown and the long period of time that
you've spent. And the witnesses, thank you, each and every one
of you. We hope you've been treated fairly, considering the
seriousness of these hearings.
And we now are in recess until the chair calls another
meeting. We stand in recess.
[Whereupon, at 12:21 p.m., the hearing was adjourned.]
Responses to Additional Questions
Responses of Ret. Vice Admiral Thomas Barrett to Questions
From Senator Domenici
Question 1a. We have always been told that oil and gas operations
on the North Slope of Alaska are the cleanest and most environmentally
friendly in the world. I've visited many of these sites personally and
was very impressed, but what I'm hearing today is very troubling. Your
agency looks at pipeline systems across the country.
How would you describe the condition of the oil delivery system on
the North Slope today?
Answer. Based on our previous inspections, the additional reviews
which we conducted of all North Slope pipelines following the BP
incidents, we have no immediate safety concerns beyond those identified
on the BP low stress lines.
Question 1b. In terms of the severity of oil spills, where do these
recent spills rank when compared to other U.S. spills? Are they within
the top 10 . . . the top 50?
Answer. At the estimated 205,000 gallon volume, the BP crude oil
spill discovered March 2, 2006 ranks 94th among the largest 100
hazardous liquid pipeline spills since 1985. The August 6, 2006 spill
was much smaller.
Question 1c. The BP transit lines that failed at Prudhoe Bay were
not regulated by DOT. How many other lines are without regulation?
Answer. We estimate there are about 5,000 miles of unregulated low
stress transmission lines nationwide. We recently proposed rules to
bring low stress lines that pose risks to unusually sensitive
environmental areas under federal oversight.
Question 1d. How would you describe the condition of the TAPS line?
Can the country depend on a 30-year-old pipeline to continue to
reliably deliver oil?
Answer. We believe, based on our past inspections and recent
inspections conducted since the BP spills, that the TAPS is fit for
service. TAPS, like most other large pipelines, can be operated safely
for the foreseeable future if maintained properly in full compliance
with our regulations.
Responses of Ret. Vice Admiral Thomas Barrett to Questions
From Senator Thomas
Question 1. You said in testimony before the House Energy &
Commerce Committee that, ``the type of problem you've seen with BP, we
have not seen repeated elsewhere in the country.'' This may be a
rhetorical question, but, how do you know to be true if we have not
been checking these pipes?
Answer. In developing our regulatory proposal for rural low stress
transmission pipelines PHMSA conducted public meetings, including
consulting with our Hazardous Liquid Technical Advisory Committee, and
consulted with state regulators and operators to understand operations
and maintenance practices currently in use. We also reviewed spill
incident history on these types of lines. My statements are based on
Question 2. The initial spill of 270,000 gallons of oil in March of
this year prompted further inspections by your agency. Those
inspections did not take place until July, however. Why did it take so
Answer. Our inspectors have been on the scene at Prudhoe Bay since
early March. I took over as Administrator in June and personally
visited Prudhoe Bay in July to assess the situation and what I
perceived as slow compliance with our orders. We continue to maintain
on scene presence at Prudhoe Bay, and will continue to do so as long as
needed to resolve the situation.
Response of Ret. Vice Admiral Thomas Barrett to Question
From Senator Wyden
Question 1. Is there any precedent for repeat violators of pipeline
safety regulations to lose their leases?
BP employees, Alaska state officials, EPA and the U.S. Public
Interest Research Group have documented dozens of safety violations at
BP's Prudhoe Bay operations starting in 1999 with their illegally
dumping hazardous waste into the groundwater at the Endicott Oil Field.
EPA fined BP in 2001 for Clean Water Act violations. In 2002, BP was
fined again for failing to install systems to detect pipeline leaks and
the costs related to cleaning up a 60,000 gallon spill. In 2003,
pipeline corrosion caused a 6, 000 gallon spill near a caribou
crossing. Then in March and August, 2006, corroded pipelines leak more
crude oil over state lands. How many violations of health, safety or
environmental regulations does it take before the federal and/or state
government can revoke BP's North Slope leases and look for someone else
to manage these vital resources responsibly? Do we need a new law that
gives DOl and DOT the authority to penalize repeat offenders by
revoking their leases? Additional authority that provides states
delegated authority to revoke leases when safety regulations have been
Answer. PHMSA does not have the authority to grant or revoke
leases. The Department of Interior has informed us that the regulations
of the Minerals Management Service (30 CFR 250.135) provide for
revocation of a company's designation as a lease operator if their
safety or environmental performance on a federal lease is deemed
unacceptable. This prohibits a company from conducting drilling and
production operations on the specified leases. The State of Alaska
claims authority to take action under States leases including those at
Responses of Dr. Howard Gruenspecht to Questions From Senator Domenici
Question 1. It appears that the partial shutdown of Prudhoe Bay has
had little effect on markets.
a. Why would this be the case?
b. How might the result have been different in a more volatile
Answer. While the initial announcement on Sunday, August 6,
indicated that 400 thousand barrels per day of crude oil production
might be curtailed, it was clear as early as Tuesday, August 8, that
the maximum sustained production curtailment was likely to be half, or
less, of this amount. Several other factors served to cushion the
impact and calm markets. U.S. inventories of crude oil and products
were high for that time of year. In particular, West Coast crude oil
inventories, where the loss of production would first be felt, were at
the high end of the typical range at the beginning of the month before
the announcement. In addition West Coast refineries are among the
world's most sophisticated, in part due to the very stringent clean
fuel requirements in the California market. These refineries have the
capability to process different types of crude oil from many sources,
providing them with more flexibility to replace lost crude oil than
less complex refineries.
A number of other market factors during August also served to
counter the potential price impacts of the Alaskan supply loss. These
include the foiled terrorist plot to bomb multiple flights between the
United Kingdom and the U.S., which raised concerns of a substantial
drop in demand for air travel and jet fuel, such as occurred following
the 9111 attacks; counter-seasonal builds in gasoline inventories that
suggested the availability of surplus supply; and reduced concerns
regarding the potential for weather-related disruptions in production
and refining operations during the 2006 hurricane season.
The results could have been different if the supply loss had
occurred during a period of very low inventories and when geopolitical
and other market concerns were high. However, the loss of 200 thousand
barrels per day can generally be made up, even though the loss of
nearby supply sources like Alaska can leave a temporary gap until
alternative supply sources are identified and diverted.
Question 2. What could happen if we were to lose the full 800,
800,000 barrels of production from the North Slope at one time?
Answer. Clearly that would be a much larger problem than the loss
that actually occurred. It is very difficult to generalize, because the
extent of any impacts would depend on myriad factors, such as the level
of West Coast crude and product stocks, world surplus capacity,
seasonal factors, and the perceived duration of the hypothetical
disruption. Looking just at the global upstream balance, ETA estimates
that the current excess production capacity worldwide is only about 1.0
to 1.5 million barrels per day, with all of this residing in Saudi
Arabia. At the current low level of worldwide surplus production
capacity, the loss of around 800 thousand barrels per day of supply
from Alaska for an extended period could trigger a noticeable rise in
the world oil price. Initial responses by West Coast refiners would
likely include both some drawdown of crude oil stocks and efforts to
increase crude imports, as mentioned in the answer to the previous
Responses of Robert Malone to Questions From Senator Domenici
Question 1. In your written testimony, you describe corrosion as a
``natural degradation of pipe that cannot be eliminated but that can be
effectively managed-through monitoring and mitigation. ``
How does a company with the global experience of BP fail to find
and correct this kind of corrosion before suffering an oil spill?
Answer. BP has nearly a 30 year history and record of safe
operation of pipelines in Alaska.
Despite this experience, an unusual combination of circumstances
and conditions resulted in localized, pitted corrosion in the oil
transit lines at Prudhoe Bay. This corrosion was not detected by our
corrosion monitoring efforts and resulted in the leaks that were
discovered in March and August.
The OT21 oil transit line in the Western Operating Area (WOA) was
subjected to a program of monitoring, corrosion inhibition, inspection
and repair. Under this monitoring and corrosion management program, the
line was operated for 27 years without a spill or leak. Those tests and
monitoring procedures were reviewed annually by regulators and
consultants, and were thought to be appropriate. This line was also
smart pigged twice (in 1990 and 1998) and after the last smart pig run
in 1998, BP regularly inspected the OT21 line to monitor the status of
corrosion. In 2004, BPXA's Corrosion Inspection and Chemicals Group
(``CIC'') Group noted increased corrosion rates within the Gathering
Center 2 facility. As a result of that observed increase, BPXA
substantially increased the number of inspections in 2005, which led to
the discovery of increased rates of corrosion within the oil transit
lines between GC2 and Pump Station 1. As a result of this emerging
data, BPXA scheduled a smart pig run for the OT21 line for 2006, but
the March leak in the line occurred before the smart pig run could be
Protecting its operations against the harsh effects of corrosion
present on the North Slope is accorded a high priority within BPXA.
This is evident in the steadily increasing budgets for BPXA's CIC group
over the last 5 years. BPXA deeply regrets that this leak occurred
despite all of these efforts and expenditures. In retrospect, BPXA's
program had a gap that allowed the corrosion in the oil transit lines
to escape discovery until it resulted in the leaks in March and August.
BPXA's corrosion monitoring programs will, therefore, be supplemented
with additional use of cleaning and intelligent pigs in the future.
Question 2. Some have argued that ifBP had pigged these pipelines
this mishap could have been avoided. Others have accused BP of cutting
corners to save on costs.
In comparison to the overall costs associated with operating an oil
field the size of Prudhoe Bay, how costly can it be to routinely run
pipeline cleaning pigs and intelligence collecting pigs?
Answer. BPXA routinely runs in excess of 370 pigs per year in our
Prudhoe Bay operations. Pig runs vary in cost depending upon the type
of operation being performed (cleaning vs. inspection) as well as the
length of the pipeline segment. As a general rule, internal line
inspection (i.e., smart) pigs cost between $15,000 and $20,000 per mile
The frequency of pig runs on the oil transit lines was not
determined based on cost. It was based primarily on the results of
prior pig runs, inspection and monitoring data, and engineering
analyses, which, in the aggregate, indicated that the conditions of the
oil transit lines did not warrant more frequent pig runs. Many other
lines are routinely pigged on the North Slope by BPXA because they
transport substances with a higher potential for corrosion and operate
at high pressures that present greater risks to personnel and to the
environment when corrosion events occur. We have found no indication
that a recommendation to conduct a pig run was ever dismissed over
concerns regarding its cost. BPXA further notes that over the last 5
years, its maintenance and corrosion spend on Prudhoe Bay has increased
by 45% while oil production has declined by 23%.
Question 3. For some of those that are opposed to opening the
Arctic National Wildlife Refuge, this situation has provided a new
argument for not drilling in ANWR. How would you respond?
Answer. This is the first spill from this line in the almost 30
years that Prudhoe Bay has been in operation. BP deeply regrets its
occurrence but we don't believe the ecological impacts of this incident
supports suspension of development in the Arctic region. In all, the
spilled crude oil impacted less than 2 acres of the North Slope. BPXA
responded immediately and has expended significant efforts to remove
the spilled oil and to begin the steps to restore this roughly 2-acre
area. No animals were harmed by or exposed to the spilled oil before
cleanup was complete. We will continue to monitor the area to assess
any impacts to the tundra.
BP believes that its response to the spills in the Eastern
Operating Area reflects a commitment to the environment that should
reassure those concerned about operating in the Arctic. In August, BPXA
shut down its entire Prudhoe Bay eastern area operation because of our
concern about possible impacts to the environment.
Question 4. While visiting the North Slope 2 years ago, I had the
opportunity to visit some of your facilities at Prudhoe Bay. Quite
frankly, I was very impressed. As I recall, we were told at that time
that BP has sufficient resources to sustain production for more than 30
Wouldn't that make it prudent to invest more in maintaining
Answer. The Prudhoe Bay Unit presents complex and evolving
conditions. Over the years, BPXA's maintenance and integrity management
program has successfully identified and mitigated or addressed these
complex challenges. Unfortunately, the recent incidents exposed a gap
in that program, despite the fact that BPXA had devoted significant
resources to it. Over the last 5 years, BPXA's inspection, corrosion
inhibition and maintenance and corrosion management spend on Prudhoe
Bay has increased by 45% while oil production has declined by 23%. Each
year, additional resources are spent to repair or replace lines that
are found to be no longer fit for service. For example, in April 2005,
BP devoted substantial resources to replacing approximately 5000 feet
of production pipe from Milne Point based on corrosion degradation that
it discovered on the lines.
BP is committed to closing the gap in our integrity management
program and restoring public confidence in our Alaskan pipeline
operations. We have announced plans to replace 16 miles of oil transit
lines and BP has retained three of the foremost experts in the world on
corrosion and infrastructure management to evaluate and make
recommendations for improving the corrosion management program in
Alaska. BP will apply their recommendations throughout its pipeline
operations in the U.S.
Further, BP has added an additional $1 billion to the $6 billion
already earmarked to upgrade all aspects of safety at its U.S.
refineries and for integrity management in Alaska. Over $550 million
(net) will be spent on integrity management improvements in Alaska over
the next two years.
Question 5. Your testimony refers several times to your business
partners in the Prudhoe Bay field. You stated that the costs and
production are shared by nine companies.
a. Who are the other companies?
b. To what extent do the other companies participate in decisions
made with respect to maintenance?
Answer. Prior to 2000, the owners of Greater Prudhoe Bay included:
Amerada Hess, ARCO, BPXA, Chevron, Exxon, Forest Oil, Mobil, Phillips
and Texaco. After several recent company mergers and owner sales of
their Prudhoe interests, the leasehold owners of the field are
currently: ExxonMobil: 36.4%, ConocoPhillips: 36.1%, BP: 26.4% and
* Equities add to 100.1% due to rounding.
Budgets are agreed annually among the three major owners of Prudhoe
Bay (ExxonMobil (36.4%), ConocoPhillips (36.1%), and BPXA (26.4%)) in
November for the following year. (In August 2006, Forest Oil sold its
share to ExxonMobil, ConocoPhillips and BPXA.) The Prudhoe Bay
Operating Agreement requires BPXA as operator to put forward a
preliminary budget in August and a final budget in October which the
major owners approve in November. With the exception of emergency
spending, the agreed budget constitutes a spending limit.
Typically, discussions between the major owners begin in the second
or third quarters of each year to evaluate the maintenance priorities
and scope of work for the following year. As Operator, BPXA then
formalizes the budget request in August and October. As Operator, BPXA
generally has the authority to determine, on its own and without the
agreement of the other owners, whether equipment and elements of the
Prudhoe Bay Unit's infrastructure are safe to operate. Additionally, as
the Operator of the unit, BPXA has authority to spend up to $1.25
million on individual items without seeking the approval of the other
owners. Items that require spending above this limit typically must
receive approval from ExxonMobil and ConocoPhillips although there are
provisions for emergency expenditures. Most major maintenance and
repair items would require approval however.
Response of Robert Malone to Question From Senator Thomas
Question 1. BP has invested a significant number of dollars in my
home state of Wyoming. The state has benefited from that investment and
your company has profited. What are you doing in Wyoming to ensure that
my state does not have to endure the consequences of irresponsible
Answer. BP believes that it is a responsible corporate citizen in
all communities where it operates including Wyoming. BP has a core
commitment to safety in its operations not only to provide a safe
workplace for its employees but also to avoid any adverse impacts to
its neighbors or the environment. BP's history of operating in Wyoming
dates back to the early 1900's through our heritage companies. As one
of the state's leading gas producers, BP continues to be a major
contributor to Wyoming's economy where we contribute approximately $100
million in state and local taxes.
We have ongoing drilling and field improvement programs at the
Jonah natural gas field and are expanding operations in the Wamsutter
natural gas field. We will invest over $2 billion to double production
from our acreage in Wamsutter. This multi-year drilling program is
expected to increase BP's share of ultimate recovery from the field by
450 million barrels of oil equivalent and increase our daily net
production from 125 to 250 million standard cubic feet per day by the
end of the decade. This will include drilling of 2,000 wells over the
next 15 years and a two-year, $120 million technology field trial
program which could lead to additional field development in the future.
Recently, we took responsibility for cleaning up areas impacted by
legacy refinery operations which facilitated the redevelopment of the
site in concert with the State and local community. This site, now
known as Platte River Commons, is a mixed-use development that
comprises an office complex, an 18-hole golf course designed by Robert
Trent Jones, an industrial development area, pedestrian trails and a
whitewater course along the Platte River.
At BP we take the privilege of developing natural resources
seriously. We are guided by important environmental and business
performance values and principles--our health, safety and environmental
goals are to have no accidents and do no harm to people or the
In response to the spills in Alaska and other events, BP is taking
affirmative actions to ensure that all BP operations throughout the
United States are run in a manner that meets our operational
expectations. For instance, we are currently reviewing our pipeline
monitoring, maintenance and corrosion management practices. In doing
so, we have retained three of the world's leading experts in corrosion
and infrastructure management.
These individuals will evaluate our existing systems and make
recommendations for improving our operations. We will apply the
relevant lessons learned from these reviews and the Prudhoe Bay oil
transit line experience throughout our operations in the U.S.
Responses of Steve Marshall to Questions From Senator Thomas
Question 1. It is my understanding that the pig used in your
transit lines during the early 90's produced faulty data. That
particular model of pig, however, was subsequently taken off the market
because it was poorly designed. Assuming you knew that the faulty data
produced by that particular pig was the result of a faulty product and
not a shortcoming of the pigging process itself, why then did BP not
subsequently employ the use of a pig that actually worked?
Answer. The event in question refers to a pig run that was
conducted by ARCO Alaska when it was the operator of the Eastern
Operating Area of Prudhoe Bay. Our knowledge of ARCO Alaska's historic
operating practices is incomplete. BP has been informed by individuals
who were employed by ARCO Alaska at that time that the pig that was
used did not provide accurate data and subsequently was taken off the
market. Our inquiry into these matters continues and has we learn more
we will provide you with an update.
BPXA operated the oil transit lines in the Western Operating Area
since their installation and BPXA maintenance pigged and smart pigged
those lines in 1990 and 1998. When BPXA took over the Eastern Operating
Area from ARCO Alaska in 2000 and 2001, it substantially increased the
level of corrosion monitoring on those lines and instituted a program
of ultrasonic testing. BPXA then compared the results of that testing
to the data it had developed on the Western Operating Area oil transit
lines, which had been smart pigged two years earlier. The 1998 pigging
of the Western Operating Area oil transit lines produced a very small
volume of solids, revealed very little corrosion activity, and
indicated that the lines were fit for service. Because the lines on the
eastern side of the field were nearly identical and carried virtually
identical sales quality crude oil, and because the ultrasonic test
results were consistent with what BPXA obtained on the western side of
the field, BPXA. concluded that the oil transit lines on the eastern
side of the field were, likewise, free from either significant solids
or corrosion and were fit for service. Therefore, BPXA did not believe
a pig run of the Eastern Operating Area was necessary. Even with this
increased scrutiny, in retrospect, and in light of what we have learned
from this incident, we regret that we did not schedule a baseline pig
run when BPXA assumed operations in 2001.
Question 2. Your company is the operator in Prudhoe Bay and owns a
26% share. ExxonMobil, ConocoPhillips, Chevron and Forest Oil Group
control the remaining shares there. Its my understanding that the
majors must agree on how much to spend on maintenance and how those
dollars are spent. Can you please explain exactly how that process
works and how those decisions are made? As operator of the field, do
you have final say on how and where money is spent on maintenance or is
there a more inclusive process in place?
Answer. Budgets are agreed annually between the three major owners
of Prudhoe Bay--ExxonMobil (36.4%), ConocoPhillips (36.1%), and BPXA
(26.4%)--in November for the following year. The Prudhoe Bay Operating
Agreement requires BPXA as operator to put forward a preliminary budget
in August and a final budget in October which the major owners approve
in November. With the exception of emergency spending, the agreed
budget constitutes a spending limit.
Typically, discussions between the major owners begin in the second
or third quarters of each year to evaluate the maintenance priorities
and scope of work for the following year. As Operator, BPXA then
formalizes the budget request in August and October. As
Operator, BPXA generally has the authority to determine, on its own
and without the agreement of the other owners, whether equipment and
elements of the Prudhoe Bay Unit's infrastructure are safe to operate.
Additionally, as the Operator of the unit, BPXA has authority to spend
up to $1.25 million on individual items without seeking the approval of
the other owners. Items that require spending above this limit
typically must receive approval from ExxonMobil and ConocoPhillips
although there are provisions for emergency expenditures. Most major
maintenance and repair items would require approval however.
Response of Peter Davies to Question From Senator Thomas
Question 1. The low-pressure pipelines involved in the Prudhoe Bay
incident have generally been left un-regulated because of a belief that
it is in the best interest of the companies that operate them,
economically and otherwise, to maintain them. Can you explain the
situation in Prudhoe Bay as a business decision? It must be more
expensive to install a new pipeline than to clean the one that is
already there, is it not?
The costs of maintaining a pipeline, including any inspection or
cleaning costs, are far less than installing a new pipeline. As a
general rule, internal line inspection (i.e., smart) pigs cost between
$15,000 and $20,000 per mile of pipe. In retrospect, maintenance and
smart pigging these lines some time before 2006 would have been the
right thing to do.
However, the oil transit lines in the Western Operating Area were
pigged in 1998, two years before the ARCO merger, and follow-up
inspection using ultrasonic techniques had confirmed the results of the
testing. The observed corrosion rates in both oil transit lines were
within ranges for safe operation. Moreover, the documents from 1998
suggest that only a small amount of solids were recovered in connection
with the pigging of the oil transit line in the western operating area.
It was the judgment of the BPXA CIC group that the oil transit
lines did not pose a high risk of aggressive corrosion that would lead
to the type of pitting that actually occurred. The important
considerations include the fact that they transport processed oil (from
which the water has largely been removed) and which do not present the
same high corrosion risk as other fluids on Prudhoe Bay (i.e., three-
phase fluids); the data being developed on a yearly basis from the
coupons (the corrosivity of the fluid) and through the ultrasonic
testing that did not show high corrosion rates; and from the data about
the amounts of solids in the line after the 1998 pigging.
When ultrasonic inspection in 2004 found some increasing rates of
corrosion in pipelines within GC2 that carried processed oil, BPXA
significantly expanded its inspection program for the oil transit lines
in the western operating area to monitor for corrosion.
When that inspection determined that there were increasing rates of
corrosion within the line, BPXA scheduled a smart pig for 2006.
Unfortunately, the leak occurred before this pig run was conducted.
As a result of these incidents, BP has announced that it will
replace 16 miles of oil transit lines.
Responses of Kevin Hostler to Questions From Senator Domenici
Question 1. Since the Trans Alaska Pipeline System provides a
significant percentage of America's energy security and will for some
time to come, do we need to be worried that the TAPS line is also
developing serious corrosion problems?
Answer. No. As referenced in our testimony to the committee, we
have not seen indications of accelerated corrosion on TAPS. Adverse
conditions on any one line connecting into TAPS are partly mitigated
because the oil from all of the fields is-combined at Pump Station One.
Further, Alyeska Pipeline Service Company maintains a corrosion control
program that is part of our overall Integrity Management Program (IMP)
and uses multiple techniques to prevent, identify, and repair corrosion
in the mainline, storage tanks throughout the system, and pump station
and terminal piping. This IMP is audited by the U.S. Department of
Transportation Office of Pipeline Safety and monitored annually by the
Joint Pipeline Office. Our top priority is safe operations and
maintenance of this asset.
Question 1a. What is your primary issue with respect to managing
corrosion and other pipeline integrity matters on the TAPS system?
Answer. Managing corrosion, as part of overall integrity management
program, is critical for the future operation of TAPS. Our primary
corrosion issues on TAPS are external corrosion on the mainline and
internal corrosion in facilities piping, both at the pump stations and
at the Valdez Marine Terminal. Alyeska uses cathodic protection for the
below ground segments of the pipeline. We are currently working with
the DOT to resolve low cathodic protection performance in the last
southern 20 miles of the pipeline. For our facilities piping, Alyeska
is reviewing our inspection practices to determine if we need to change
our monitoring approach for some of the harder to reach facility
piping. For example, we are conducting inspection digs at PS 1 this
Fall to examine a buried line that connects the Prudhoe Bay field into
TAPS. We are also reviewing corrosion inspection practices at the
Valdez Marine Terminal.
Alyeska runs instrumentation pigs through the pipeline to gather
data about corrosion, mechanical damage, pipe curvature, and
settlement. We use the data from all instrument pig runs to make
calculations about investigating the integrity of the pipeline. When we
find an anomaly that exceeds one of seven criteria (e.g., wall loss,
remaining strength, curvature, dents, gouges) listed in our Pipeline
Integrity Pigging Procedure (MP-166-3.04, Table 1), we schedule the
location for inspection. These physical investigations then help us
determine if repairs or some other remedy is required to address the
anomaly. In many cases, our criteria are more conservative than
required by regulation (e.g., Alyeska digs corrosion calls greater than
40% whereas DOT regulations require investigation at 50% because the
corrosion pig error tolerance is +/^10%).
We continue to challenge ourselves to ensure we are taking the
appropriate steps to manage corrosion on TAPS. Going forward we have
taken the lessons learned from the North Slop incidents and are
incorporating them into our integrity management program. It should be
noted that security and mechanical damage remain greater threats to
system integrity than corrosion. Both are important pieces of our
overall integrity management program.
Question 1b. When was the last time TAPS had a smart pig
Answer. We concluded our 61st instrumentation pig run on September
1e, 2006. We had previously planned on running this pig in 2007 and
made the decision to move it up on year as part of the action plan we
prepared after the March spill on the North Slope. As a result of
waxing issues associated with lower throughput, we did not meet our
data standards for this pig run (on the southern part of the line) and
plan to repeat it in late October if BP is able to restore full
production-by then. In addition to corrosion pigs, Alyeska runs
instrumentation pigs that look for pipe curvature and settlement.
Alyeska also runs a cleaning pig every seven to fourteen days.
Question 1c. What does it cost to run a smart pig through TAPS?
Answer. Cost is primarily determined by length of the pig run. For
TAPS, it costs approximately $2 million dollars to run a smart pig the
entire 800 miles. This includes staff time, pig transit time, and data
Question 2. With diminishing amounts of oil coming through TAPS,
does this create technical problems in your operation of the line?
Answer. Should short term throughput drop below 500,000 barrels per
day (as a result of additional suspension of production on the North
Slope) under our current configuration, we will face technical
challenges. Our engineering and technical staff are currently analyzing
the impacts of these challenges could present. Among the more
significant issues we are evaluating are: the challenges associated
with cooler temperatures of the oil, particularly in winter, and the
potential for water and paraffin drop out from the oil; the potential
for increased vibration due to slack line conditions at the three
mountain passes the pipeline must cross; and the efficiency of the
biological treatment process of our ballast water plant because of
lower ballast water flows due to reduced tanker traffic to the Valdez
Marine Terminal. Alyeska has some of the best technical resources
available for analyzing these conditions. We are also establishing
appropriate mitigation plans for my management team to consider. It is
worth noting that our $500 million dollar pipeline upgrade project will
introduce significantly more flexibility into our ability to manage
through variations in pipeline throughput.
Once full production has been restored on the North Slope, Alyeska
will continue with its long range planning process to identify and
address operational challenges associated with the slow decline of
North Slope production.
Question 3a. There are many concerns that have been raised about
the pipeline shutting down in the dead of winter for a significant
period of time.
What contingency plans do you have for restarting the pipeline and
dealing with the impacts from cold weather?
Answer. Alyeska has had contingency plans in place to restart the
pipeline in the event of a cold restart situation since operations
began in 1977. Cold restart refers to restarting the pipeline after a
pipeline shutdown for a prolonged period of time during extremely cold
winter conditions. Our current studies and plan indicate that if the
pipeline is shutdown during continuous ^40 F temperatures, we will
need to restart within 14 days to avoid significant problems. If BP
reduces throughput this winter to 500,000 barrels or less, we may only
have 9 days to restart after a cold temperature shut down.
There are four issues about cold restart that concern us: the crude
oil develops a gel strength that is too strong to allow pipeline start-
up; water drops out of the crude oil, collects in low spots, and
freezes; ice in the pipeline upon restart could plug the mainline pump
suction piping and custody transfer flow meter strainers, causing
restart to fail; and the pipe steel temperature cools to ^40 F or ^50
F, making pipe welds susceptible to fracture. Given the current lower
throughputs that we're faced with for this winter, we have also
undertaken a full effort to insure we are prepared for any situation
this winter. Alyeska is evaluating whether some contingency piping
should be preinstalled due to a shorter restart window as a result of
colder oil temperatures.
I'm including a fact sheet we prepared about this issue for your
review. It's important to stress that we are continuously evaluating
our cold restart plan. We work on this issue with the Joint Pipeline
Office. It's also worth nothing that in nearly 30 years of operation we
have never needed to enact our cold restart plan. The longest the
pipeline was shutdown was during the November 2002 earthquake when the
system was down for 66 hours.
Question 4. The primary federal agency that oversees TAPS is DOT.
Answer. As part of the regulatory framework established by the
passage of the Trans Alaska Pipeline Authorization Act and the
establishment of the Federal Grant of Right of Way (the state manages
their piece of the TAPS corridor via the State Lease of Right of Way),
the Bureau of Land Management also has a significant role to play in
the oversight of TAPS as the lead agency for the Joint Pipeline Office.
The JPO mission is to ensure the safety, integrity and environmental
protection of TAPS. The BLM also coordinates agency regulatory activity
within the JPO.
Question 4a. How rigorous and detailed has their oversight been?
Answer. DOT oversight of TAPS is consistently rigorous and
detailed. TAPS has been subject to rigorous inspections and audits by
the DOT. The DOT has conducted an inspection of Alyeska's Integrity
Management Program three of the past four years (2002, 2004, 2005); and
an additional inspection is scheduled for October.
Standard DOT inspections have taken place every year (most
pipelines are inspected every two years), with additional inspections
occurring for such items in the recent past as Integrity Management and
Operator Qualifications. Notices of Amendment (requests to change our
procedures) or Probably Violation (failure to follow regulation)
usually result. During standard inspections, TAPS has been divided into
4 or 5 sections, with a week spent in each segment. TAPS operations and
maintenance practices were inspected via a task force in August. This
group will review findings and recommendations with Alyeska as their
work is completed.
DOT also conducted a routine inspection of the TAPS SCADA and
Controls systems and the Operations Control Center (OCC) in September.
Question 5. How many other State or Federal agencies provide
Answer. Over 60 federal, state, and local agencies provide some
level of oversight on TAPS activities. The activities of 12 major
oversight agencies (the Alaska Department of Natural Resources, Alaska
Department of Environmental Conservation, Alaska Department of Fish and
Game, Alaska Department of Public Safety Division of Fire Prevention,
Alaska Department of Transportation and Public Facilities, Alaska
Department of Labor and Workforce Development, the Bureau of Land
Management, the Department of Transportation Office of Pipeline Safety,
and U.S. Army Corps of Engineers, the U.S. Coast Guard, the Minerals
Management Service, and the Environmental Protection Agency) are
coordinated through the JPO. The JPO currently has approximately 70
full time staff employees. On average, Alyeska receives four or five
letters from a government agency each work day.
Question 5a. Has the Joint Pipeline Office arrangement (in which 12
agencies regulate activities of the Trans Alaska Pipeline System) been
effective in overseeing the 800 miles of 48 inch pipeline?
Answer. Yes, the JPO has been very effective in its oversight role
for TAPS. JPO staff understand TAPS operations and the oversight role
they perform. Alyeska and the JPO work to resolve issues in a proactive
manner before they become problems. The JPO performed 689 surveillances
in 2005 (406 YTD 2006) related to Grant & Lease compliance.
Approximately 3% of their findings were unsatisfactory, requiring
corrective action by Alyeska.
Question 6. I understand that TAPS is in the middle of changing its
pumps and modernizing its control system to meet its needs for the
What are you doing to insure that this updated system will work as
effectively as the system being replaced that has delivered 15 billion
barrels of crude oil?
Answer. Alyeska is in the process of a nearly $500 million dollar
upgrade to its pump stations and control systems that is designed to
help the company better manage future variation in throughput. It is
designed to maintain high pipeline reliability--the time that the
system is available to receive and transport crude oil--with no
decrease in safety or operational integrity.
Four of the critical pump stations will be upgraded with modular,
scalable facilities. The design provides more flexibility to adjust for
changing crude oil forecasts, and allows those adjustments to be made
more easily. The installation of electrically driven pumps, modem
automation and control equipment, and other facilities will allow
centralized remote monitoring and unattended operations creating a
simplified, fit-for-purpose system that is less expensive to operate.
In addition, maintenance requirements for the new equipment will be
much less than that required for the current equipment. Maintenance of
the equipment that employs a high degree of monitoring increases
equipment reliability. We have a very detailed commissioning and start
up plan that we will follow to ensure the new equipment will work as
designed. We will not start up the new system until we are confident it
will meet safety, integrity, and reliability criteria.
Our current schedule is to start up the new facilities at Pump
Station 09 by December of this year and then to complete construction
and start up of the other three stations next year.