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Daily Mail: City & Finance: Red alert over pipeline safety

City Focus
By Sam Fleming

BELIEVE it or not, BP was until recently considered one of the better performers when it came to oil pipeline safety. The British oil major’s inspection and repair standards were seen by some as an example of best practice in an industry with a messy history.

Monday’s news that miles of Alaskan pipeline will have to be replaced because of ‘severe corrosion’ has tarnished that reputation. Coming only months after a spill from the same Prudhoe Bay field, chief executive Lord Browne’s efforts to turn his firm into an environmentally friendly pin-up have been holed below the waterline.

But BP’s Alaskan blunders are sparking a broader crisis of confidence in the oil industry. If a firm everyone thought was a role model can get things so wrong, how bad are things elsewhere?

The portents are not good. One leading pipeline consultant says what he sees in other parts of the world is disturbing. Old, previously uneconomic wells are being restarted to capitalise on record prices. Qualified staff are spread thin, as oil firms maximise shareholder value by running their plants on ‘streamlined’ workforces.

Russia and Latin American governments are tightening their grip on their domestic oil industries, imposing the public sector’s age-old record of incompetent and poorly incentivised management. Nepotism and corruption are rife in the African oil industry and spills from neglected plants frequently blight local communities.

‘The clock has been ticking for many years on these issues,’ said the consultant, who works with most oil majors including BP. ‘There are a lot of operators with massive infrastructure who don’t understand it.

‘A lot of these companies acquired assets they don’t know a lot about. Some of them have turned out to be liabilities.

‘It is all very well saying we have a problem and throwing money at it, but there is a finite number of people with experience.’

BP is shutting its whole Prudhoe Bay operation after discovering a relatively small leak. That is partly because of the increasingly exacting standards being imposed by the American authorities.

The move came after a March spill of 270,000 gallons at the same field and over a year after the Texas City refinery disaster, which killed 15 people and injured 170. Elsewhere in the world, however, the idea of shutting down a whole field after a five-barrel crude spill would be incomprehensible.

Pilots flying over Russian terrain are reported to have spotted massive oil floods and fireballs.

In 2004 the Shell joint venture in Nigeria presided over 236 spills, of which it says 157 were sabotage and 79 ‘controllable incidents’ like equipment failure, corrosion or human error.

BP’s high-profile joint venture with TNK in Russia is spending more than £890m upgrading its infrastructure.

As a BP spokesman admitted: ‘We inherited a system with a lot of leaks in it.’

Still, the blunders in Alaska are particularly high-profile and the costs of putting them right could be painful. Analysts at UBS believe full production won’t start again before the end of the year, underpinning high oil prices.

James Leaton of the environmental group WWF said: ‘What worries us is places like Alaska are supposed to be the best in the world. This is the standard other companies refer to.’

Bob Williams, who worked in exploration at BP in the 1970s and 1980s, says as long as the industry relies on ageing pipelines, the risks of further damage are great. I’m sure there are particular Alaskan dimensions, but the basic problem is old infrastructure being used beyond its original design life.

THE EXPERTS REPORT

Russia: ‘There are some horrendous environmental issues. A lot of the infrastructure is not well put together in the first place and not well looked after.’

Alaska: ‘Whatever risks they were susceptible to, they clearly didn’t understand them. Otherwise they wouldn’t have let it happen.’

Nigeria: ‘Makes Alaska look like a tea party.’

Venezuela: ‘Chavez fired almost every single sensible person in the state oil company. They are trying to survive without technical skills.’

North Sea: ‘Things are quite well advanced on pipeline issues.’

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