US regulatory squeeze dominates industry’s pipeline integrity concerns

Aug. 28, 2006
A number of critical trends have combined to escalate pipeline integrity challenges to unprecedented heights.

A number of critical trends have combined to escalate pipeline integrity challenges to unprecedented heights.

The convergence of growing security, safety, environmental, and energy supply reliability concerns, all reaching critical mass, demands a new paradigm for monitoring and managing the integrity of the world’s pipeline systems.

These concerns are compounded by a boom in new pipeline construction spurred by surging oil and natural gas demand growth, a spike in the cost of related materials and services, an aging pipeline infrastructure, and a shrinking labor pool for tomorrow’s workforce.

At the same time, the pipeline industry is grappling with mounting regulatory pressures in the wake of a string of high-profile pipeline disasters in recent years. Most noteworthy is the 2002 US Pipeline Safety Improvement Act (PSIA), which has ushered in a daunting new set of challenges for industry to meet in maintaining pipeline integrity.

PSIA requires enhanced maintenance programs and continuing integrity inspections of all pipelines in so-called high-consequence areas (HCAs). The Interstate Natural Gas Association of America estimates that implementing PSIA will cost industry more than $2 billion for the first 10 years. Given the convergence of factors pressing industry from all sides, pipeline industry officials interviewed for this supplement voiced concern about the industry’s ability to meet PSIA deadlines for implementing effective pipeline integrity management programs. Of special concern are mandates to ascertain and maintain the integrity of the US’s vast network of aging pipelines-much of it unpiggable.

These circumstances have created a commanding urgency for industry to develop new technologies to ensure the integrity of existing and future pipelines.

Regulatory hurdles

The most daunting regulatory hurdle for the pipeline industry is compliance with PSIA within the mandated timeframe. This is complicated by the strains on industry caused by soaring material and service costs combined with a shortage of qualified personnel, all at a time when demand for new pipelines remains robust. The National Petroleum Council in 2003 estimated that $8 billion/year must be invested in new and expanded transmission and distribution infrastructure through 2025 to meet increased demand for natural gas alone in the US.

PSIA requires pipeline operators to prepare and implement an integrity management program that includes identifying HCAs on their systems, conduct risk analyses of these areas, perform baseline integrity assessments of each pipeline segment, and inspect the entire system according to a set schedule and using prescribed methods.

Pipeline companies were required to identify all HCAs by Dec. 17, 2004, and to submit specific integrity management programs to the Office of Pipeline Safety (OPS), a part of the US Department of Transportation’s Research and Special Projects Administration.

All pipeline segments within HCAs must be inspected by Dec. 17, 2008, and, if required, remediation plans must be completed within that same timeframe. Non-HCA segments must be inspected by 2012. With certain exceptions, all pipeline segments must be reinspected at least every 7 years.

PSIA also calls for:

  • Participation in one-call notification programs for third-party excavations.
  • Stiffer penalties for safety standard violations.
  • ”Whistle-blower” protection for pipeline employees.
  • Qualification programs for employees performing sensitive tasks.
  • Authorization of some state participation in oversight of interstate pipelines.
  • A multiagency program of research, development, demonstration, and standardization to enhance pipeline integrity. Involved are the departments of Transportation and Energy and the National Institute of Standards and Technology. That research focuses on developing new technologies for pipeline leak and damage prevention; enhancing technologies for pipeline operating, monitoring, and control; and improving pipeline materials.
  • An interagency task force to expedite environmental reviews needed for pipeline repairs.
  • Government mapping of the nation’s pipeline system and public dissemination of pipeline operator contact information.

Initial industry estimates of PSIA requirements to natural gas companies alone were pegged at $11 billion over 20 years. OPS, however, put the cost of implementation at $4.7 billion, considering the discretion it has under the law. The agency estimates implementation costs at $0.036/Mcf in the first year.

The legislation also established a new DOT agency to oversee PSIA provisions enforcement and permitting, the Pipeline and Hazardous Materials Safety Administration (PHMSA), with authority through 2006. PHMSA in June 2006 submitted a proposal to Congress to reauthorize PSIA.

Worrisome timetable

What’s most worrisome about PSIA for the pipeline industry is the law’s tight timetable for compliance.

When the legislation was created in 2000, no one could have envisioned the current state of oil, gas, and steel markets and the resulting competition for capital, material, and people that the pipeline industry would face, says Dietmar Neidhardt, vice-president and general manager of pipeline operations for Tuboscope Pipeline Services, a division of National Oilwell Varco, Houston.

“When such constellations come into play, the most likely outcome is a delay of projects,” Neidhardt says. “It is my belief that with these and other closely related facts, the timely implementation of the integrity management rules…will face significant time challenges. These challenges are of such magnitude that they might in turn require legislation to accept delays, in completing selected projects, well beyond the original timetable.”

The timetable for compliance by oil pipelines (45CFR 195) is 7 years for baseline inspection with 5-year reinspection cycles. For gas pipelines (45CFR 192), the timetable is 10 years and 7-year reinspections.

“[This] will cause intensification through superpositioning of inspection activities from 2007 through 2012,” says Neidhardt. “Most likely this intensification was not planned for when originally defining the framework of the ruling.”

Operators attempting to make unpiggable lines piggable face an even more challenging timetable, he adds, “as they find themselves threatened by additional hurdles such as material procurement and construction challenges for lines, which have been generally pushed into the second half of the baseline assessment interval, and, as such, have no way out.”

Steve Schroder, general manager of Houston-based Baker Hughes’s pipeline management group, noting that all operators have some unpiggable segments in their systems, said that his company expects “an increase in demand for assessment of unpiggable line segments as the regulatory time window closes for the completion of the first integrity management plan cycle.”

PHMSA Program Development Senior Engineer Zach Barrett acknowledges the challenges the industry faces on timely PSIA compliance.

“The 7-year reassessment interval mandated by Congress in [PSIA] can be challenging for coordinating assessments for larger operators, competing for assessment resources for smaller operators, and accommodating client needs for contractors,” he says.

Barrett notes that PHMSA’s proposed reauthorization could provide some relief for industry: “The proposal builds on the foundation for a systems approach to managing safety, and, among other things, looks to amend the 7-year reassessment requirement in favor of a reassessment interval based on technical data, risk factors, and engineering analysis.”

Personnel concerns

A shortage of qualified personnel is a universal complaint within the oil and gas industry today.

The issue is especially pressing in the pipeline industry, given the heightened focus on pipeline integrity, according to Claudi Santiago, president of GE Oil & Gas, Florence, Italy. (GE Oil & Gas has a Pipeline Integrity & Inspection Services unit.)

“With the increasing global focus on pipeline safety, there is a significant shortfall in experienced pipeline and integrity engineers to meet demand,” he says.

Neidhardt blames the shortage on the financial and public perceptions of the pipeline industry, which has hindered efforts to attract young engineers.

“As a consequence, the average age of our technical personnel is situated at a much higher level than other, comparable industries,” he says. “At the same time, we are faced with a booming E&P environment, which pays top wages, further complicating chances to attract future generations to out industry.

“In the years to come, we can only try to delay-but ultimately will not be able to avoid-the impact of the baby boomers departing the industry. If we can’t replace them in a timely manner, we will be faced with a more risky pipeline environment and in consequence jeopardizing the long-term success of the tremendous efforts presently under way.”

TransCanada PipeLines Ltd., Calgary, believes that companies must focus on development, training, and succession planning in order to ensure a strong workforce, says Curtis Parker, manager, technical support and technology management, asset reliability.

“TransCanada relies on numerous contractors to help maintain our pipeline integrity, and we also expect these companies to develop plans to address the pending labor shortage,” he says.

Parker contends that good data and document management systems is one way to help address the personnel shortage issue.

“Rather than having the information wrapped up in the minds of today’s integrity personnel, if it’s archived and easily accessible by future employees, contractors, and other stakeholders, that knowledge can be passed on,” he says.

New approaches

The personnel squeeze comes at a time when pipeline operators are being forced to rethink their approaches to pipeline integrity, says GE’s Santiago:

“We see that many operators who for years have implemented integrity and maintenance programs are starting to question, top-down, whether current practices are providing them truly effective, consistent, and auditable integrity management.”

TransCanada places a strong emphasis on data management, putting into place a cyclical approach to managing pipeline integrity with a process to collect and analyze data, address integrity threats, and then reassessing and restarting the process.

“The challenge lies in integrating that information into an ongoing system to ensure we’re using the data to make better management decisions,” Parker adds.

The company also has developed a database for its contractors that lets it streamline ways to gather this information and automatically align the data with its systems.

Operator-contractor relationships

The pipeline industry’s pressing needs today warrant new approaches to operator-contractor relationships, some industry executives say. Liability is a critical concern.

“From a contractor’s perspective, one of the most difficult aspects of a business relationship is how to contractually balance liabilities and indemnifications,” says Schroder. “Terms that include uncapped consequential damages are onerous for a contractor, given the limited scope of their operations.”

Neal Prescott, director, subsea/deepwater technology, in Fluor Corp.’s Upstream SBL, Energy & Chemicals group based in Sugar Land, Tex., contends that “improvements to the operator-contractor relationship can be made only when each side addresses the practical limits on liability for contractor [pipeline integrity assessment and management, or PIAM] assessment and effected repairs.

“Only a strong relationship and commitment from both sides will ensure a successful PIAM process.”

TransCanada’s Parker notes that his company requires its contractors to have processes in place that align with the principles of its own cyclical pipeline integrity management system.

“This type of management system will help to guarantee quality service, allow for continuous improvement, and assist in meeting the overall objective of maintaining a safe and reliable pipeline system,” he says.

Neidhardt contends that the challenges of PSIA require that short-term planning be replaced with a long-term integrity management approach.

“This approach will require a departure from sometimes previously applied philosophies where opportunistic business decisions tended to dominate over long-term quality and performance-related strategies.”