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Reports, January 2007 Fire at Pump Station 9
Call TAPS Safety Practices Into Question

As Alyeska Struggles to Put Strategic
Reconfiguration Into Operation,
Government Agencies Struggle
To Coordinate Oversight Efforts

By Richard A. Fineberg
January 20, 2008

Violations of federal requirements for safe pipeline operations and failure to follow company operating guidelines in December 2006 and January 2007 have earned the Alyeska Pipeline Service Company a proposed civil penalty of $817,000 from the federal Pipeline and Hazardous Materials Safety Administration (PHMSA). Alyeska is the operator of the 800-mile Trans-Alaska Pipeline System (TAPS). The proposed fine is more than twice the amount of the second largest proposed civil penalty the agency issued during 2007, according to agency records. (1)

The proposed penalties levied by PHMSA, an agency of the U.S. Department of Transportation, deal with a series of operational failures that occurred on TAPS shortly before the first renovated pump station was placed into service early last year under the pipeline's troubled Strategic Reconfiguration (SR) project, the largest construction effort on TAPS since the pipeline began pumping in 1977. The proposed sanction calls for payment of:

• $506,000 for eight separate violations of operating procedures and safety practices that caused a brief but intense fire at Pump Station 9 as the pipeline company struggled to put its first renovated pump station into service under the company's SR program last January 6;
• $195,000 for repeated failures to follow its manual of operational procedures that caused a n oil spill at a remote gate valve in the Brooks Range three days later; and
  
• $116,000 for failures to implement anti-corrosion measures in a timely manner. (2)
  

PHMSA also cites Alyeska for additional operational shortcomings associated with the destruction of a pipeline cleaning device known as a pig in December 2006. According to PHMSA, "[t]hese failures . . . are cause for concern regarding the operational integrity of TAPS." In addition, the Nov. 27 notice warns Alyeska to correct five other reported operating procedure deficiencies for which no penalties were issued. (3)

The PHMSA Notice of Proposed Violation, Proposed Civil Penalty and Proposed Compliance Order, issued Nov. 27, asks Alyeska to address each proposed penalty issue within a specified time. A second notice issued the same date describes the pig failure and lists 20 other procedural problems on TAPS that PHMSA says it identified during a series of 2006 inspections. No fines or penalties are associated with the second notice. (4)

If pipeline procedural breaches are associated with violation of criminal statutes,PHMSA may refer the violations to the Department of Justice for criminal action. For example, PHMSA assisted in the prosecution of BP's 2006 maintenance failures at Prudhoe Bay, where failure to prevent and detect corrosion on pipelines at Prudhoe Bay caused the largest oil spill in North Slope history and resulted in a $20 million criminal penalty package. Those payments, announced two days before PHMSA issued the proposed civil penalties against Alyeska, included a $12 million criminal fine, $4 million in criminal restitution to the State of Alaska and $4 million for additional North Slope research. (5)

BP, a major North Slope producer and the operator of the Prudhoe Bay field, is the major owner of TAPS, with a 46.93% interest. Other owners of TAPS are ConocoPhillips, 28.29%; ExxonMobil, 20.34%; Koch Industries, 3.08%; and Chevron, 1.36%; the three main owners of TAPS are also the largest North Slope producers.

Alyeska President Kevin Hostler recently called the January 2007 Pump Station 9 fire and Brooks Range spill "unacceptable." But Hostler's clear repudiation of his company's performance, nearly one year after the fact, came only after PHMSA lowered the boom. In fact, Alyeska's early reaction to the problems that precipitated the proposed PHMSA fines was equivocal. When reports of that safety violations led to the fire at Pump Station 9 came to public attention, an Alyeska spokesman said that "we take this (event) extremely seriously." But such statements were contradicted by the fulsome praise of Hostler and other Alyeska executives for the safety standards with which the pipeline company implemented the SR project. (6)

Review of PHMSA's enforcement actions in 2007 indicates the depth of the agency's concerns about safety on TAPS. Forty-one of the 245 civil action notices PHMSA issued nationwide in 2007 call for penalty payments. The proposed Alyeska penalty of $817,000 is more than ten times the average of the remaining 40. Moreover, as noted above, the recent Alyeska sanction is also more than twice as large as PHMSA's second largest 2007 civil enforcement action. In keeping with pipeline safety procedures, Alyeska may contest the notice and request a hearing on all or part of the charges. According to PHMSA records, however, between 2002 and 2006, the Department of Transportation's pipeline safety unit collected 86% of its proposed penalty assessments. (7)

A Closer Look at TAPS

Since Alyeska has the dubious distinction of topping PHMSA's civil enforcement chart for 2007, a closer look at the problems on TAPS that led to these proposed penalties is warranted. Developments on TAPS in 2007 centered around implementation of the SR project, under which the pipeline company is replacing the pipeline's original jet-engine crude oil pumps with electrically driven pumps at the four pump stations that remain in operation, combined with increased automation and upgraded control systems. When Alyeska formally announced the SR program early in 2004, the pipeline company said the project would be completed by the end of 2005 and would cost $250 million. Two years later, SR is far from completion, while project expenditures have nearly tripled the 2004 estimate. (8)

From the outset, Alyeska said safety was a central consideration in undertaking SR. According to Alyeska, SR - the largest single project undertaken on TAPS since pipeline construction - is intended to enhance the safety of remote operations and replace old fire detection and response equipment whose maintenance, according to Alyeska, has become "particularly problematic in recent years." To mitigate risks associated with converting from existing pipeline systems to the new operating equipment, Alyeska said that a rigorous management of change (MOC) process had been developed. (9)

Review of the documentary record on the major operational failures later cited by PHMSA will delineate the sharp disconnect between Alyeska's rhetoric and reality - and the failure of the 12-agency state-federal Joint Pipeline Office (JPO) to force Alyeska to look beyond the specific violations of basic safety procedures to identify the conditions that led to those failures.

In September 2006, four months before the fire at Pump Station 9, Alyeska President Hostler emphasized safety's importance to Alyeska, telling a congressional committee, "I take seriously the responsibility I have to run a safe operation . . . . Safety is our first priority in resolving the issues we currently face." At that moment, Congress was not looking at TAPS; the hearings were about BP's North Slope problems.

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At this web site you will find fact-based information about economic and environmental aspects of oil industry operations in Alaska, with special emphasis on the North Slope oil fields and the Trans-Alaska Pipeline System (TAPS), which provides about one million barrels of oil per day (five percent of the nation's total consumption) to the West Coast. Due to the oil industry's power, political clout and media skills, much of the information you will find here is not widely reported or readily available elsewhere.

Three major petroleum companies -- BP, ConocoPhillips and ExxonMobil (originally Sohio, ARCO and Exxon) -- control more than 90 percent of the North Slope production and own a similar share of the Alyeska Pipeline Service Company, which built and operates TAPS. The sprawling North Slope complex centers around Prudhoe Bay, the largest producing oil field ever discovered on the North American continent. About one million barrels of oil per day is pumped from beneath the frozen substrate and loaded into TAPS for the 800-mile journey across Alaska to the ice-free port of Valdez in Prince William Sound. There, the oil is loaded on tankers that carry approximately one-third of the oil consumed daily in the western United States.

Alaska's North Slope development and its pipeline link to market provide unusual opportunities to observe the actions of decision makers, as well as greater access to the central participants than most other places afford. Based on this experience and supplemented by information from two pipeline-dependent petroleum provinces of the Former Soviet Union, the information presented here points to two significant conclusions:

• (1) petroleum developers can and frequently do use pipelines to maximize profit and inhibit competition, to the detriment of host populations; and
• (2) the chronic discrepancy between promise and practice on major oil projects frequently places the populace and the environment at significant and needless risk.

The material presented here was researched and compiled by Richard A. Fineberg, founder and principal investigator of Research Associates of Ester, Alaska. Fineberg has observed Alaska petroleum development for three decades as a prize-winning reporter, as an advisor to the Governor of Alaska on oil and gas policy and as an independent consultant to investors, government agencies and non-profit organizations. In recent years his horizons have expanded to include two oil provinces in the Former Soviet Union, the Caspian Basin and Sakhalin Island. Often controversial, Fineberg's petroleum research has earned a reputation for dedication to factual accuracy and carefully reasoned analysis.

Richard Fineberg addresses a conference on Caspian petroleum development in Baku, Azerbaijan, May 2003. (Photo: OSI Assistance Fndtn. / Azerbaijan.)

A fundamental premise of this web site is that it falls to each of us, as citizens, to inform ourselves and respond appropriately to the issues and events that shape the broad directions of our society and the detailed fabric of our social interactions. Based on the fact-driven information presented here, readers can come to independent judgments regarding the authenticity of the content, the significance of the relevant facts and the logic and appropriateness of the conclusions. In effect, each of the topics reported here can stand alone as a documented case study in petroleum development.

During the 3-1/2 decades since the discovery of the nation's largest oil field at Prudhoe Bay on Alaska's North Slope, events from Watergate to the collapse of powerful corporate entities such as Enron and WorldCom demonstrate that large institutions frequently fail -- often by grotesque margins -- to live up to legal and moral obligations and to deliver on their public pronouncements. Concurrently, the major oil companies who have played such a large role in Alaska's development have performed their tasks with a chronic and troubling discrepancy between promise and practice. Despite lavishly funded advertising campaigns and public relations efforts urging that Alaska's oil companies can be trusted as the avatars of social salvation, closer examination reveals a profound gap between what these companies say and what they do. With equally disturbing regularity, when confronted with evidence of those failures, government has failed to protect the public interest. This web site explores the economic and environmental impacts of those failures in concrete terms in the belief that well-informed individuals can and will make a positive contribution to the course of human development.

Reports on pipeline and petroleum development issues found in the "Oil Patch" section of this web site may be understood as case studies providing insight into the relationships among powerful corporate and government institutions and the complex interactions between individuals and institutions. At this broad level, a growing body of research on the political and economic aspects of petroleum development known as petropolitics suggests that the price of oil wealth includes, with disturbing frequency, poverty, a widening gap between rich and poor, economic stagnation, corruption, dictatorship and war. The petropolitical approach to petroleum development goes far beyond the conclusions presented here regarding pipeline economics and the industry's chronic discrepancy between promise and practice. While one reader may take the fact-based case studies presented here to support a petropolitical interpretation of petroleum development, another reader may apply the same information to a different understanding of social activity; in any event, these case studies are fact-driven and therefore stand alone.

In sum, the principal purpose of this web site is to gather in one place many of the basic facts regarding the environmental impacts and economic results of oil development in Alaska and elsewhere - information that industry and government prefer to ignore or to spin. Using case studies presented with fidelity to reason and factual accuracy, FinebergResearch.com brings to public attention information about economic and environmental issues related to petroleum development that is not readily available elsewhere.

TAPS: Rhetoric, Reality, Fires and Safety

"Review of the documentary record on the major operational failures later cited by PHMSA will delineate the sharp disconnect between Alyeska's rhetoric and reality - and the failure of the 12-agency state-federal Joint Pipeline Office (JPO) to force Alyeska to look beyond the specific violations of basic safety procedures to identify the conditions that led to those failures."

"A series of fires on the North Slope reported later in 2007 suggest striking similarities between the operational deficiencies on the part of the companies that operate the North Slope and TAPS, undermining safety and placing the nation's largest oil field at undue risk. BP's North Slope fire problems have come to public attention largely through the efforts of Chuck Hamel of Alexandria, Virginia, who frequently serves as a conduit for North Slope worker complaints."

Largest Proposed Penalty of 2007
(Continued)

At the September 2006 hearings, even then-PHMSA Administrator Thomas M. Barrett contrasted BP's failure to pig its pipelines at Prudhoe Bay to Alyeska's aggressive pigging program on the Alyeska's trans-Alaska system. Ironically, Hostler's September 2006 testimony celebrated the each of the non-fire-related aspects of his company's operations that caused PHMSA to issue its largest proposed penalties of 2007. (10)

One month after the fire and shortly after Pump Station 9 entered service in February 2007, Alyeska officials heaped lavish praise on the SR project - and the company's safety practices. Hostler stated in a press release that "[o]ur focus has been on the safe, quality startup of Pump Station 9." He continued, "[w]e have a lot of work to do before all upgrades at the pump stations are complete and I am extremely proud of the hard working men and women who have put in a lot of extra hours to upgrade this station." Alyeska Vice President Jim F. Johnson echoed Hostler's comments, stating that "[w]e are very satisfied with how the work has progressed at the site and we thank all involved for their commitment to deliver the project safely." (11)

The Alyeska executives' praise of SR's safety processes is called into question by an e-mail notice to all workers less than two weeks after the fire that summarized the company's preliminary accident investigation report and identified numerous safety violations. At that time, the pipeline company said, it was instituting measures to prevent similar problems from occurring in the future. (12) This statement confirms that from the outset it was evident that the brief fire that nearly destroyed Pump Station 9 occurred because procedures already in place were violated (e.g., lack of fire watch, placement of open flame in dangerous location), or were transparently inadequate (e.g., communication systems).

The Fire at Pump Station 9

It is difficult to reconcile Alyeska's proclaimed "commitment to deliver the [SR] project safely" and focus on a "safe, quality startup of Pump Station 9" with the facts of the Jan. 6 fire. The fire occurred when fumes expelled from a vent in the large relief tank at Pump Station 9 were ignited by an industrial heater. PHMSA officials credit the Alaska Department of Labor's investigation for documenting a series of inadequate and violated safety procedures led to the fire at Pump Station 9:

• The vent in question, an integral part of the 55,000-barrel tank designed to handle overflow from a pipeline, is located high on the giant tank. The vent automatically opens to release flammable vapors whenever the tank fills. For this reason, federal regulations specify that open flames are not allowed in the vicinity of the vent. Review of PHMSA enforcement documents relating to other pipeline systems contain numerous references to the necessity for caution in the vicinity of pipeline breakout tanks due to the potential for fire or explosion. On Jan. 6, it was 25 degrees below zero as workers pressed to put the new pipeline pump and control system into place. The electronic links between the new SR control system and the tank farm had to be checked out prior to the long-delayed SR startup. An electrical worker was dispatched with an industrial heater to perform the check. Against regulations, he placed the heater too close to the vent.
• Work in the tank farm is done under a "hot work permit" whose procedures are supposed to provide an added margin of safety. Under the hot work permit, a worker is supposed to standing fire watch to observe any conditions that might jeopardize safety, like sudden venting. The electrical worker served as his own fire watch.
• Some reports say that Alyeska was testing the new automatic shutdown system. Another version of events is that an erroneous signal from a site nearly 150 miles south of Pump Station 9 triggered the automatic shutdown. In any event, while the electrician was working, an unexpected pipeline shutdown occurred and breakout tank began filling. The vent opened to release the fumes, which cascaded down the wall of the tank toward the misplaced industrial heater and caught fire, sending what officials now describe as a fireball high into the air over the pump station.
• In the absence of a venting alarm system, a radio link to the pump station control room is supposed to provide an added margin of safety. The control room was trying to contact the electrician, but he couldn't hear his hand-held radio over the roar of the industrial heater. Working without the prescribed dedicated fire watch, he was unaware of the situation until the misplaced industrial heater ignited the fumes, sending what some officials describe as a fireball shooting high into the air.
• The electrician could not get to the heater to turn it off. Instead, he jumped into his truck, conveniently idling nearby, and drove to his assigned emergency response rallying point. The truck engine running inside the tank farm constituted another potential source of ignition and another violation of standard operating procedures.
• The blaze was big, but it didn't last long. Flames rose high in the air over the tank farm for about five minutes. When the flow to the breakout tank stopped, the vents closed and the fire went out before things got completely out of hand. The fire drew local fire department response and shut down the pipeline for two hours. (13)
  

Most of the proposed penalty of $506,000 for the Pump Station 9 fire deals with the string of violations of safe operating procedures described in the preceding bullets. Two relatively minor reporting violations demonstrate institutional insouciance. PHMSA's Nov. 27 notice states that Alyeska failed to comply with federal regulations requiring telephone notice to the National Response Center of any explosion or fire not intentionally set by the operator at "the earliest practicable moment." Additionally, a written report on a DOT form is required within 30 days. These two reporting infractions account for $22,000 of the civil penalties proposed by PHMSA. (14)

A series of fires on the North Slope reported later in 2007 suggest striking similarities between the operational deficiencies on the part of the companies that operate the North Slope and TAPS, undermining safety and placing the nation's largest oil field at undue risk. BP's North Slope fire problems have come to public attention largely through the efforts of Chuck Hamel of Alexandria, Virginia, who frequently serves as a conduit for North Slope worker complaints. (15)

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