Thursday, November 3, 2016

Aging Pipelines Raise Concerns

Building new systems has become harder amid opposition from landowners and environmental groups.


By Alison Sider and Nicole Friedman
The Wall Street Journal
November 3, 2016

More than 60% of U.S. fuel pipelines were built before 1970, according to federal figures. Recent disruptions on Colonial Pipeline Co.’s fuel artery running up the East Coast show why some energy observers worry that this is a problem.

The pipeline, which began operating fully in 1964, was partially shut down for nearly two weeks in September. Fuel prices spiked throughout the Southeast, rising more than 20 cents a gallon in places like Atlanta.

Motorists this week began to worry again after the company’s main gasoline pipeline, which supplies about a third of the gas consumed on the East Coast, was shut down. It was struck by construction equipment Monday, killing one person and injuring several others.

The company has said the 5,500-mile pipeline, which runs from Houston to New Jersey and serves 13 states, could restart as soon as Saturday, though as of Wednesday afternoon the pipeline was still on fire. Gasoline futures fell 2.4%, to $1.4479 a gallon, on the New York Mercantile Exchange Wednesday after rising as much as 15% following the Colonial explosion.

Colonial isn’t the only major pipeline constructed decades ago. That includes a 3,000-mile fuel pipeline that first opened in 1956 and serves California, Texas and five other states. Another system that now carries fuel more than 1,800 miles from the Gulf Coast to the Chicago area opened in 1971.

Building pipelines has become harder amid opposition from landowners and environmental groups concerned about pipeline safety and stemming fossil-fuel development. Kinder Morgan Inc.had plans to build a new fuel pipeline from South Carolina to Jacksonville, Fla., by 2017. But it shelved the project after running into opposition, including legislation in Georgia aimed at keeping it from being built.

Carl Weimer, executive director of the advocacy group Pipeline Safety Trust, said fuel pipeline systems can operate safely for decades if they are well maintained. But after 40 or 50 years, problems like corrosion increase. “Clearly, operators don’t have a complete handle on how to operate these older pipelines,” Mr. Weimer said, referring to maintenance issues that get harder as systems age.

Companies, industry groups and even regulators have said that with advances in pipeline monitoring and repair techniques, as well as regular maintenance and inspection, pipelines can last a long time.

Colonial’s pipeline carries more than 100 million gallons of fuel a day. Its role as a critical link between refiners on the Gulf Coast and consumers up and down the Atlantic Coast means that any problem on the pipeline can have an outsize impact on fuel supplies and prices at the pump.

Most other regions that rely on pipelines to deliver fuel from far-flung refiners are located near a second system that could deliver fuel as a fallback.

“If a pipeline from Los Angeles to Las Vegas goes down, there’s some capability to supply Las Vegas from Salt Lake City,” said David Hackett, president of consulting firm Stillwater Associates.



Colonial Pipeline has spent more than $95 million on an upgrade that has allowed the pipeline to carry more than 200,000 additional barrels a day since 2011. But the company would need to expand its capacity by another 300,000 to 500,000 barrels a day to meet demand, Chief Financial Officer Dave Doudna said in a 2015 interview. He said that would require a new pipeline, which would cost more than a billion dollars and face large regulatory hurdles.

“The permitting process takes a long time, the cost to build is expensive. And what you end up finding is that customers aren’t willing, or have not been willing to commit, for a period of 10 to 15 years,” he said. “I would say a lot of it is the regulatory environment we’re living in today.”

Finding customers to underwrite the cost of a big investment like a pipeline is a challenge for the infrastructure industry broadly, said Rob Thummel, portfolio manager for energy-focused asset manager Tortoise Capital Advisors.

In places like the Northeast, which can also take in fuel from overseas or waterborne shipments from the Gulf Coast in a pinch, customers aren’t always willing to lock in long-term contracts. Some customers worry that demand will change in the coming years or imports could become more attractive.

“It’s not just, ‘Build it and they will come,’ ” he said. “You need a committed partner who is committed to pay the toll, not just for a year or two, but at least 10 years.”

By contrast, more than 20,000 miles of new crude-oil pipelines have been built in the past decade, and natural-gas pipeline infrastructure has expanded as well, as production from U.S. shale formations increased rapidly, though these projects are also facing opposition.

But the pipes that carry gasoline, diesel and other fuels haven’t experienced the same growth, because fuel demand isn’t rising everywhere and because some run through more populated areas than where crude is drilled and face more public resistance.


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