08.21.06

Cantwell Applauds Senate Hearings on BP Pipeline Shutdown

Senator calls for review of pipeline regulations and enforcement, pushes for broader inquiry into oil company inventory management practices

WASHINGTON, DC – Monday, U.S. Senator Maria Cantwell (D-WA) applauded the Senate Energy Committee’s plan to hold hearings on the failure of BP’s Prudhoe Bay pipeline, and called on the Commerce Committee to look into the shutdown through hearings of its own. Cantwell, a member of both the Energy and Commerce Committees, said comprehensive hearings could help improve pipeline safety, shed light on oil company inventory management practices, and ensure the U.S. is prepared for energy emergencies.

“It’s clear this pipeline situation should never have been allowed to deteriorate to this extent,” said Cantwell. “It’s obvious we need better pipeline safety and stricter enforcement, and need to require higher safety standards from the corporations that transport oil and gas through our communities and our pristine public lands. Saying oil companies can monitor themselves just doesn’t cut it. With record-breaking profits, oil companies can easily afford any necessary upgrades. We need significant progress before we even consider opening up more pristine public lands to oil and gas development.

“This incident is also a wake-up call. We need to do more to insulate American consumers and the economy from potential supply shocks, and shed more light on oil industry practices that could be shorting the marketplace and contributing to price volatility. But most of all, we need a serious national strategy to move America toward energy independence, through fuel efficiency, renewables, and biofuels production that will provide Americans with 21st-century energy alternatives.”

Chairman Pete Domenici (R-NM) announced the Energy Committee’s planned hearing late last week following BP’s August 6 announcement that it had discovered severe corrosion—up to an 80 percent loss in pipeline wall thickness—in a significant portion of its Prudhoe Bay pipeline system. The panel is scheduled to take up the matter on September 12. The inspection that uncovered the BP pipeline corrosion was mandated by federal officials following a 200,000 gallon spill in March 2006.

In a letter to Commerce Committee Co-Chairmen Ted Stevens (R-AK) and Daniel Inouye (D-HI), Cantwell has also called for separate Commerce Committee hearings on the shutdown. The Commerce Committee has jurisdiction over oil pipeline safety through its oversight of the Department of Transportation, and Stevens had indicated previously that the committee may hold hearings on the issue. The Puget Sound region receives the largest share of oil from Prudhoe Bay.

In her letter to Stevens and Inouye, Cantwell urged the committee to look into the circumstances that gave rise to the shutdown and begin a broader investigation of current oil company strategies that could contribute to U.S. energy supply shocks.

“I believe a more comprehensive inquiry into this matter would be valuable in cultivating a deeper understanding of factors influencing the increased volatility of U.S. fuel prices,” wrote Cantwell. “And in particular, the way in which BP and other interests managed their inventories, refinery output and trading portfolios in the midst of the recent Prudhoe Bay shut-down would provide an object lesson in the variables impacting our nation’s complex and interrelated energy markets. …I believe the current situation makes it imperative that policymakers examine in greater detail the dynamics governing oil companies’ strategies for inventory management and the economic impact these practices may have on our economy and consumers—particularly in the midst of unanticipated supply shocks.”

At a hearing last November, Cantwell questioned oil company CEOs about below-average reserve capacities, unregulated trading markets, and gasoline exporting during times of record U.S. prices. In response, oil executives told Cantwell they would provide data to answer her questions, but later refused to disclose much of the requested information. To get the answers oil companies refused to provide, Cantwell and Inouye have also requested a Government Accountability Office (GAO) investigation into fuel inventory practices, refining capacity, and market transparency. The GAO has said it will begin the investigation this year.

In her letter to Stevens, Cantwell highlighted hearings on BP’s pipeline shutdown and the resulting supply shocks as an additional opportunity to shed light on oil company inventory management practices. Last year, Cantwell proposed a national gas price-gouging ban in times of energy emergencies. The measure garnered 57 votes when it was considered last fall—including the support of 13 Republicans—but required 60 votes for Senate passage at the time. Cantwell’s legislation would outlaw gas price-gouging at all levels, impose tougher fines and criminal penalties on violators, give federal and state authorities new powers to ensure greater market transparency and go after companies that manipulate oil and gas prices.

She is also the cosponsor of legislation to enhance the transparency of energy commodity trading—up to 80 percent of which is currently taking place beyond the reach of federal regulators, thanks to the “Enron loophole” in U.S. commodity trading laws. Cantwell has been a consistent advocate of measures to promote greater use of domestically produced biofuels, develop a biofuels industry in Washington state, increase the availability of flex-fuel vehicles, and improve national fuel economy standards.

In 2005, Cantwell worked with Senate leaders to include her proposal to improve the accuracy of Environmental Protection Agency gas mileage tests in then-pending transportation legislation. The proposal passed the Senate, but was later removed from the bill by House members of a conference committee called to work out differences between House and Senate versions of the bill. In June, Cantwell introduced her bipartisan Ten-in-Ten Fuel Economy Act, which would increase combined corporate average fuel economy (CAFE) standards to 35 miles per gallon by 2017 for all passenger cars and light trucks, including sport utility vehicles.

She has also sponsored legislation to set a national goal of reducing domestic oil consumption equivalent to 40 percent of America’s projected imports in the next 20 years. Cantwell has also worked tirelessly to guard against a devastating oil spill off Washington’s coast and led efforts to prevent oil drilling in Alaska’s pristine Arctic National Wildlife Refuge.

Earlier this year, Cantwell introduced her Oil Pollution Prevention and Response Act, which would reduce the risk of an oil spill in Puget Sound and the Strait of Juan de Fuca by requiring a year-round rescue tug in Neah Bay, stationing oil response equipment along the entire Strait of Juan de Fuca, strengthening navigational measures in sensitive areas, and authorizing financial support for Washington's Oil Spill Advisory Council. The legislation would also increase oil spill liability caps and require more comprehensive structural inspections of single-hull oil tankers.

[The Text of Cantwell’s letter to Commerce Committee Co-Chairmen Stevens and Inouye follows below]

August 21, 2006

Dear Chairman Stevens and Co-Chairman Inouye:

As you know, BP on August 6, 2006, announced that it had discovered severe corrosion in a significant portion of its Prudhoe Bay pipeline system and was taking the unprecedented action of shutting down the nation’s largest oilfield. Prudhoe Bay accounts for about 8 percent of U.S. production and 0.5 percent of global daily output.

Given a number of important policy questions posed by these circumstances, I very respectfully request that the Commerce Committee hold hearings into the matter as expeditiously as possible. The extensive corrosion of the Prudhoe Bay pipeline system, which reportedly included a 70 to 81 percent loss in the thickness of multiple sections of pipeline wall, was discovered following inspections required under a March 15, 2006 Corrective Action Order (CAO) issued by the Transportation Department’s Pipeline and Hazardous Materials Safety Administration (PHMSA).

The CAO mandated BP undertake extensive cleaning and inspection operations of its Prudhoe Bay facilities following a March 2, 2006 spill of around 200,000 gallons of crude oil onto the North Slope tundra. There seems to be a great deal of uncertainty and conflicting reports as to responsibility and liability for this shutdown. BP has claimed it was surprised to find such severe corrosion, while admitting it had never before this year used a pipeline inspection "smart pig" to clean out its lines since the pipeline began operation in 1977. At the same time, a May 2004 letter to BP leadership cited warnings of these corrosion issues by BP employees and contract workers.

In addition, I was surprised to learn that the section of pipeline shutdown was actually exempt from PHMSA oversight because current regulations do not cover low-pressure pipelines and those in unpopulated areas away from major waterways. Press reports indicate that the Administration will in coming weeks propose new regulations to cover more of our nation’s existing pipeline system. As such, I hope the Committee will consider these regulations at its earliest convenience, as well as assess the adequacy of existing enforcement mechanisms and the sufficiency of penalties for those instances in which violations occur. I believe these are crucial policy issues, given the high stakes associated with sudden energy supply shocks—not just for individual American consumers, but for our nation’s economy as a whole.

Along these lines, I hope any Commerce Committee hearings will also include testimony related to oil companies’ management of fuel inventories. This is an issue on which the Committee has previously heard from state Attorneys General, who have cited growing concern about the implications of the industry’s shift to “just in time” inventory in instances in which disruptions occur related to U.S. critical energy infrastructure.

I believe a more comprehensive inquiry into this matter would be valuable in cultivating a deeper understanding of factors influencing the increased volatility of U.S. fuel prices. And in particular, the way in which BP and other interests managed their inventories, refinery output and trading portfolios in the midst of the recent Prudhoe Bay shut-down would provide an object lesson in the variables impacting our nation’s complex and interrelated energy markets. Previous attempts to acquire this information from oil companies including BP--even within the context of Committee hearings--have met with substantial resistance. H

owever, I believe the current situation makes it imperative that policymakers examine in greater detail the dynamics governing oil companies’ strategies for inventory management and the economic impact these practices may have on our economy and consumers—particularly in the midst of unanticipated supply shocks.

Thank you for your consideration of this request.

Sincerely,

Maria Cantwell
United States Senator

###