Pipeline Inspectors Employed by Pipeline Developers: Is Self-Regulation a Recipe for Disaster?

 

     A special report issued by Politico’s E&E News in May 2024 details some serious issues around pipeline inspections done by pipeline developers. According to the report, both flawed inspections and ignored warnings from inspectors have resulted in disasters that could have been averted.

     The issue of self-regulation and whether and where it works is still unresolved. I think it can work but if corners are cut and potential problems are ignored, or worse, covered up, then it can become a big problem. The special report suggests that is the case with developer-employed private pipeline inspectors. Presumably, the inspectors provide reports for the pipeline developer and the developer decides whether or not to act on them. Speaking as someone who has worked both in a highly regulated industry and as a regulator, I can say self-regulation can go either way. The goal of any regulator, whether public or private, should be to get the facts correct about risks and act accordingly. Many companies hire environmental firms to do compliance audits as a kind of pre-inspection to prepare for inspections by state and federal agencies like EPA, OSHA, mine safety, natural resources, and in this case pipeline safety: The Pipeline and Hazardous Materials Safety Administration (PHMSA). These agencies do not have the manpower to observe day-to-day construction. Thus, self-regulation must be relied upon to a significant extent.

     For pipelines there is apparently some discrepancy about whose responsibility it is to ensure pipeline safety as the following opinions from the article show:

 

“It’s the operator that’s responsible for making sure that that work is being done correctly,” said Dave Murk, senior director of midstream policy at the American Petroleum Institute, the industry’s main trade group. “But ultimately, it’s PHMSA’s job, or state inspectors, to make sure what’s been done by the operator and contractors is in accordance with the regulations. The regulator is responsible for making sure it’s done safely.”

 

“But the regulators see it differently. Without directly contradicting Murk, a PHMSA spokesperson said the agency’s position is that the operator is “fully responsible” for compliance and safety.”

 

     The companies developing pipelines hire private inspectors who are supposed to ensure day-to-day compliance. They represent the developer. PHMSA or state inspectors only see what they can during their periodic inspections. Thus, the private inspectors see far more of what is going on than the state or PHMSA inspectors. But as inspectors, even though private, they still have a mandate to ensure that the pipeline is built safely and in compliance with safety and environmental rules. The state and PHMSA inspectors verify that as best they can with more limited availability. PHMSA has about 200 inspectors and there are about 450 inspectors in state-level agencies. In contrast, according to the Interstate Natural Gas Association of America, there are about 8000 certified private inspectors.

    According to the report, flawed inspections resulted in several preventable environmental tragedies:

 

“Oil spills in Kansas and damage to farms in Oklahoma have been linked to flawed inspections. Inspection failures were cited by federal investigators seeking a $40 million fine for the spilling of toxic drilling fluid in Ohio. And on the Mountain Valley gas pipeline project in Virginia and West Virginia, federal appeals court judges say inspectors “failed to prevent” widespread erosion problems.”

Self-regulation can bring up conflict-of-interest concerns. If the pipeline developer limits the power of the inspectors they hire to make changes, as has been alleged, then that is a big concern. Of course, one should probably not expect private inspectors to be as neutral as government inspectors. Both could be biased. Some government inspectors may be anti-fossil fuel advocates. Company-paid inspectors may be fossil fuel advocates. We can’t really change personal biases.

     The report recounts a whistleblower who said he observed several avoidable mistakes that were not corrected. The pipeline developer, Shell in this case, disputes this, but they did receive misdemeanor criminal charges for several covered-up spills documented by the whistleblower.

     In the fall of 2017 while Energy Transfer Partners’ Rover pipeline was being built in Ohio, horizontally drilling for the large diameter line under the Tuscarawas River and adjacent wetlands resulted in a large amount of bentonite slurry being lost underground in unconsolidated sediments or fractures and some resurfacing in the wetlands. Further analysis showed that diesel fuel was added to the slurry. The company had private inspectors for this horizontal drilling section, but they failed to discover the fluid loss or the presence of diesel fuel in the slurry. I wrote about this when it happened here. I wrote that:

“ETP also added third-party independent inspectors for the last horizontal/directional (HDD) drilling sites as a result of the new FERC requirements. They also added an annular pressure tool to monitor pressure changes in the annulus that might indicate fluid loss or reduced circulation.”

FERC concluded in their 2021 enforcement report that the private inspectors working on the project were “untrained, lacked direction and left powerless” and that ETP pressured inspectors and fostered a “corporate culture that favored speed and construction progress over regulatory compliance.” FERC also alleged that private inspectors on a Cheniere pipeline often failed to note when post-construction land reclamation was inadequate.

     Some pipelines, such as those supplying export facilities, are inspected by FERC. These projects add a third layer of inspectors, known as ‘compliance monitors’ who report to FERC but are paid as contractors by the pipeline developer. It is a compromise of sorts, but it does add a third layer of protection so to speak. FERC defends the compliance monitors as impartial and says they work for FERC, even if paid by the developer. It gives them the needed ‘eyes and ears’ on these geographically spread-out projects. FERC also argues that their inspectors are very experienced and well-trained.

     Another issue is how the pipeline developer manages their own contractors on these projects. ETP and Cheniere both argued that “rogue contractors” were responsible for environmental issues, the added diesel fuel in ETP’s case and the poor land reclamation in Cheniere’s case.

     As for solutions, some argue for more money to be spent far more government inspectors. Others want PHMSA to have their inspectors in the field more. Enbridge wrote in 2021 about their Line 3 oil pipeline replacement project in Minnesota which began transporting oil in October 2021:

 

“Enbridge will retain environmental inspectors (EIs) during Project construction who will be responsible for understanding all regulatory requirements and permit conditions, and ensuring that contractors abide by these conditions. The project will also be supervised by third-party environmental monitors who will report any concerns directly to appropriate agencies.”

Thus, there are third-party monitors reporting any concerns to the regulating agencies. This should resolve a big chunk of conflict-of-interest concerns. When there are three layers of private, public, and third-party inspectors on these projects there should be less excuses for avoidable violations. I think that self-regulation can work in this way as an overlapping hybrid of compliance assurance.

 

 

References:

‘Everything’s on fire’: Inside the nation’s failure to safeguard toxic pipelines. Mike Soraghan. Politico. May 5, 2024. ‘Everything’s on fire’: Inside the nation’s failure to safeguard toxic pipelines - POLITICO

Line 3 Replacement Project. Environmental Permitting. Enbridge. June 19, 2021. Environmental Permitting - Enbridge Inc. (archive.org)

Unexpected Drilling Fluid Releases Via 'Lost Returns' During Horizontal Drilling Under Ohio Wetlands and Waterways in Constructing the Rover Pipeline: Operational and Regulatory Issues. Kent Stewart. Blue Dragon Energy Blog. November 20, 2017. Blue Dragon Energy Blog: Unexpected Drilling Fluid Releases Via 'Lost Returns' During Horizontal Drilling Under Ohio Wetlands and Waterways in Constructing the Rover Pipeline: Operational and Regulatory Issues