Friday, May 30, 2014

The Real Reason Keystone XL Might Fail. Only 50 Permanent Jobs?

Pipes sit at the TransCanada Houston Lateral Project pipe yard in Mont Belvieu, Tex., on March 5

Pipes sit at the TransCanada Houston Lateral Project pipe yard in Mont Belvieu, Tex., on March 5
Radically revised jobs numbers (from tens of thousands to, say, 50). 
Misleading ad campaigns (“energy security” that translates to Canadian exports to China). Ass-covering bureaucrats at the U.S. State Department. A president who can’t seem to decide, yes or no, despite evidence that the project fails his own criteria for approval. The battle over the proposed fourth and final leg of the Keystone oil pipeline complex—the Keystone XL—long ago became something of a farce. But whereas much of the debate has been based on projections of one form or another (including this magazine’s analysis of the oil price point ($65 per barrel) at which the Keystone becomes a big old boondoggle, or the amount of carbon humans can add to the earth’s atmosphere before it’s “game over,” according to a NASA scientist)—that all seems a bit hypothetical compared with the news this week, news that had been hidden in plain sight, and only gained a wider audience on Tuesday, when Joan Lowy of the Associated Press published on it.
Last fall, the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) sent its inspectors to check on the progress of the third, Southern leg of the Keystone, the Gulf Coast Pipeline. This is the line that TransCanada (TRP) Chief Executive Officer Russ Girling called the “world’s safest pipeline” when it began moving crude in January, and the same one that President Obama flew to Cushing, Okla., to champion back in March 2012.
Well, the inspectors were so disturbed by the defective construction they found—in particular, the crap welding—that they stopped construction for a day just to get TransCanada’s attention; sent two severe warning letters to the Calgary oil company; and slapped two “special conditions” on top of the 57 already required of TransCanada for the proposed Keystone XL—right there in the State Department’s Jan. 31 Final Environmental Impact Statement that we and scores of others combed through and missed.
The first stipulates that if State approves the Keystone XL, TransCanada has to implement a quality management system for the entire construction process to “ensure that this pipeline is—from the beginning—built to the highest standards.” Second, and more notably, TransCanada must hire an independent, third-party inspection company to go behind it and double-check all its work: the welding, the trench-digging, the laying of pipe, etc. For a company as large as TransCanada, that is rare, pipeline analysts say. Something usually required of a company only after a catastrophe like the one in 2010 in Kalamazoo, Mich. It’s also a major practical challenge. Imagine Ford being required to hire a third party to inspect each and every one of its cars as it builds them. Oh, and the PHMSA gets the final OK on this chaperone.
Now, before anyone howls “here we go again” about regulators sticking it to business, consider the source (the PHMSA is hardly an activist agency), and consider a sample of what the PHMSA called TransCanada out on.
“From the start of welding,” the PHMSA wrote in a Sept. 26, 2013, letter (PDF), “TransCanada experienced a high weld rejection rate.” (That is, ultrasonic testing on the welds holding the pipes together determined they were not up to snuff.) “During the first week 26.8 percent of the welds required repairs, 32.0 percent the second week, 72.2 percent the third week, and 45.0 percent the fourth week. On September 25, 2012, TransCanada stopped the Spread 3 welding after 205 of the 425 welds, or 48.2 percent required repairs.”
Let that register.
During one week in September, 72 percent, or almost three-quarters, of the welds on the “safest pipeline in the world” required redoing. (TransCanada, for its part, says it has addressed the PHMSA’s concerns, and you can read its response in writing here [PDF].) Throughout the Keystone XL fight, TransCanada has maintained that the chance of a spill is remote, and that its pipelines are state-of-the-art. But the implications of TransCanada’s inferior welding on its Southern leg are precisely why the Keystone XL has met with such fierce resistance on the ground in Nebraska. It’s there the planned pipe will pass over the Ogallala aquifer, which irrigates much of the Great Plains, and directly and indirectly supports millions of American jobs—and that’s not counting all the drinking water.
Philips is an associate editor for Bloomberg Businessweek in New York. Follow him on Twitter @matthewaphilips.

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