Canada's 12 biggest pipelines predict they could all be safely shut down and abandoned for C$4.58 billion (US$ at par), in formal estimates presented to the National Energy Board (NEB). But landowners along the big dozen's natural gas and oil conduits are protesting that the companies have only owned up to a small fraction of their environmental liability.
Before a November deadline set by the NEB for the pipelines to prepare abandonment funding plans, demands for a full recognition of eventual scrapping costs are being filed from across Canada.
"Don't leave your garbage behind," wrote southwestern Ontario farmers Delbert and Lorraine Murray in a letter to the board. An aging branch line across their property is up for abandonment. "With the advancement of environmental cleanups in our country we certainly hope that we will not inherit the future gift of a rotten rusting pipe."
The big dozen Canadian energy shipping systems have a combined 61,189 kilometers (36,713 miles) of pipelines. Of the total, 48,650 kilometers (29,190 miles) or 80% carry natural gas, and 12,538 kilometers (7,523 miles) deliver oil and refined products.
The abandonment cost estimates presented by the companies are: $186 million for Alliance Pipeline; $779.7 million for Enbridge Pipelines; $29.7 million for Enbridge NW in the Northwest Territories; $9.1 million for Kinder Morgan Canada's Cochin system; $284.9 million for Kinder Morgan Canada's Trans Mountain Pipeline; $98.5 million for Foothills Pipe Lines; $68.6 million for Trans Quebec & Maritimes Pipeline; $1.023 billion for TransCanada Corp.'s western Nova grid; $1.642 billion for TransCanada's national Mainline; $114.7 million for TransCanada's Keystone Pipeline; $76.2 million for Trans-Northern Pipeline; and $270.9 million for Spectra Energy's Westcoast grid in British Columbia.
The forecasts cover closure and abandonment expenses for only the Canadian parts of long-distance, international systems that have similar or longer legs in the United States. The cost inventory grew out of a marathon proceeding that the NEB calls its Land Management Consultation Initiative. Launched in 2008, the exercise is intended to ensure that the board and the Canadian pipeline sector keep current with rising standards of covering environmental liabilities. The initiative sets a deadline of 2015 for pipelines to begin raising funds for special abandonment accounts. Tacking surcharges onto tolls is expected to be the industry formula.
After the first round in a planned series of hearings, the NEB assured in a 2009 ruling on principles that there was no evidence of an urgent need for action. At the time, none of the energy transporters showed any signs of scrapping significant parts of their pipeline systems, said the board.
But conditions in markets for gas transportation services began changing drastically soon after the NEB decision, calling into question the future of the two biggest pipeline systems. U.S. shale gas supply development, rising central Canadian imports of U.S.-sourced gas and dwindling deliveries from Alberta led to growing excess capacity on the TransCanada Mainline's 13,787 kilometers (8,272 miles) of pipe and potentially on Nova's 23,944-kilometer (14,366-mile) grid.
The Ontario farmers' letter to the NEB expressed a widespread view among Canadian property owners directly affected by pipelines. The prevailing attitude is expressed formally in a policy "default option" proposed by the Canadian Association of Energy and Pipeline Landowner Associations (CAEPLA).
The umbrella group for property owner coalitions advocates a two-part rule: complete excavation and removal of all the steel when every pipe in a right-of-way corridor is shut down, and continued maintenance "as though operating" of abandoned pipe when corridors are only partially wound down.
The industry default position is the opposite: simply clean out and leave in the ground scrapped pipelines, except in rare spots where potentially conflicting land uses such as real estate development or exceptionally deep-digging agriculture like tree farming require special treatment. In most cases requiring extra attention, the industry suggests adequate safety and cleanliness can be achieved by just filling abandoned pipe with concrete to make it capable of bearing weight and resisting penetration.
The abandonment expense forecast for TransCanada's Mainline, for instance, estimates that only 5.6% of the pipe will eventually have to be dug up and removed. TransCanada has told the NEB that removing pipe costs 15-20 times more than just cleaning out all the contents and leaving it in the ground. In cultivated areas and wilderness alike, the excavation and reclamation required to dig up scrapped pipe would cause far greater damage -- and hazards to wildlife and people -- than abandoning it in place, the company said.
So far, the NEB has rejected the landowners' demands for complete scrap pipe removal. In a 12-part statement of principles laid out by its 2009 ruling on the conflict the board said, "Landowners will not be liable for costs of pipeline abandonment." In addition, "Pipeline companies are ultimately responsibly for the full costs of constructing, operating and abandoning their pipelines."
But the board principles also said, "The removal of all large-diameter abandoned pipe from agricultural land is not a prudent or effective approach for the purpose of establishing preliminary abandonment cost estimates." The ruling on abandonment principles added that the NEB "does not believe that it is practicable for regulated companies to eliminate all risk no matter what the cost. At some point on the continuum of possible risks, a point of diminishing returns is reached, where the cost of trying to eliminate all risk is out of proportion to the incremental benefits that might result."
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