Mind the gap
IT WOULD be ironic if BP's performance in the first world were to compromise its emerging reputation for good citizenship in the developing world. But recent blunders in the US suggest that might be happening. Last month, the company shut down the 400,000 barrels a day (b/d) Prudhoe Bay field in Alaska after intelligent pigging revealed worse-than-expected corrosion in some of the pipelines servicing the field. BP had carried out the tests at the government's behest, after over 4,500 barrels of oil spilled onto the Arctic Tundra from one of the company's pipelines in March.
At the time of writing, BP had restored about 200,000 b/d of Prudhoe Bay's production, but roughly half of the field's capacity is expected to remain out of service while BP carries out repairs. This looks likely to take months. Lost domestic oil production is a sensitive matter to the energy-deficient US and the interruption to oil flows caused political uproar.
There was another oil spill last month too (albeit a few barrels only); understandably, the continuing threat to the local environment – in an area that has become a symbolic battleground for oilmen and the green lobby – further inflamed public opinion.
BP now finds itself under attack from all sides amid suspicions that the situation could have been avoided. It is facing legal action. Stull, Stull & Brody, a New York law firm specialising in shareholder litigation, has filed a complaint claiming that BP knew about corrosion, but did not take appropriate action. "BP now faces hundreds of millions of dollars in costs to remedy the damage, lost earnings, significant civil and criminal liability, regulatory scrutiny and action and the wrath of customers nationwide," the complaint reads.
Charles Hamel, who represents the interests of local oil workers, claims he has been warning BP about pipeline corrosion in Prudhoe Bay for years. He cites specific correspondence with senior BP officials in 2003 and 2004 in which he warned about the dangers.
The company admits the recent tests were the first time it has used intelligent pigs on the defective section of pipeline since 1992. Pipeline experts say a 14-year gap is unusually long (see box).
It does not help that BP's reputation, before the disastrous spill in March, had already suffered considerably in the US. Last year, 15 people died after an explosion and fire at BP's Texas City refinery. BP has admitted that "management system failures" contributed to the catastrophe. The company also stands accused of manipulating the US propane market in 2004.
There have been allegations, denied by the company, that BP manipulated inspection data to avoid replacing pipelines in Alaska. BP and its partners have been served with subpoenas forcing them to preserve documents relating to pipeline corrosion in Prudhoe Bay. There have even been accusations from US politicians – denied by BP and highly improbable in Petroleum Economist's view – that BP's decision to shut Prudhoe Bay was a strategy to manipulate the oil market. The accusation, however, is symptomatic of the pressure under which BP finds itself in the US.
BP executives have been suitably contrite. However, there is not much the company can say to pacify its large and growing band of critics. It points out that the regulations did not require intelligent pigging; that it had budgeted to spend over $70m a year on corrosion inspection and prevention in Alaska this year; that it was conducting various other pipeline tests; that it had believed the pipelines were not at significant risk from the microbial corrosion that it suspects did the damage; and that, as low-pressure lines, they were low risk for leaks.
Nonetheless, the clear impression is that BP's performance runs considerably short of expectations and the image it is trying to project. "We had a corrosion-inspection programme that we believed was effective, but there was a gap," admits spokesman Neil Chapman.
BP's recent safety and environmental record in the US diminishes its credibility as an industry leader in the field of corporate social responsibility (CSR) and project management. As such, it is a public-relations disaster for a company that has invested significant amounts of money and time in asserting its green credentials – from the branding gimmick of Beyond Petroleum to its admirable investments in renewables and its significant acceptance of global warming theory and support for carbon-reduction schemes.
Meanwhile, inevitable doubts about its project-management expertise may harm its prospects when it pitches for new business elsewhere.
Yet while things are very bad, BP can improve the situation. To its credit, the company seems to be making a good fist of crisis management. It is buying crude and products on the spot market to cover the shortfall. And it has ordered 16 miles of new pipeline. Delivery is expected by the fourth quarter and the pipeline could be back in operation by "early next year". Some estimates suggest it will have to spend around $200m.
Things could take a turn for the worse if the most serious allegations prove true. However, if BP responds to the present crisis by overhauling its safety culture in the US and ensuring all of its operations do not just meet but exceed accepted standards, it will start to regain lost credibility in the US.
BP Americas owes it not just to Alaska, but to other divisions of the company whose reputation has been sullied by association. John O'Reilly, a commentator on CSR, describes BP's human-rights standards at, for example, the Baku-Tbilisi-Ceyhan pipeline and the Tangguh LNG project in Indonesia as "superior" to those of other companies in terms of their sophistication and application. It is sad to see achievements such as those being compromised by another division failing on the basics. Ultimately, it's up to chief executive John Browne to make sure it is fixed. And he probably will.
INTELLIGENT pigs are not a cure-all for pipelines. They can be used inefficiently – collecting useless data, for instance. They cannot be used at all in some pipelines – including many in Russia, for example, because of the way the sections of pipe are welded together.
Nonetheless, although they constitute just one test among many useful procedures, intelligent pigs are a highly valued tool. Pipeline-integrity experts, therefore, express surprise that BP, which was relying on ultrasound and other external testing techniques, had not run an intelligent pig through the defective Prudhoe Bay pipeline since 1992. The general rule of thumb is to run smart pigs every five years or so – enabling operators to build a picture of the pipeline's health and, by monitoring changes over time, to predict how the pipeline will corrode.
Alyeska Pipeline Service, which operates and maintains the 800 mile Trans Alaska Pipeline System, runs a smart pig every three years and a cleaning pig every week or two. By these standards, 14 years without an intelligent pig is a very long time. "It's very surprising," says one expert. "If they were following what we understand to be BP's and industry-wide practices, they would have had quite good advance knowledge of the problems."