The Truth About Leaky Pipelines

There is a lot of animosity toward pipelines lately, and not just in the United States. Canada is fighting its own battle against new midstream infrastructure. In the case of both TransCanada's Keystone XL and Enbridge's (NYSE: ENB  ) Northern Gateway, citizens on both sides of the border are up in arms about the environmental risks of developing Alberta's oil sands and the potential catastrophes associated with a pipeline leak. I'm not going to touch the oil sands fiasco today, but I do want to break down pipeline spills. When it comes down to it, how often do our pipelines really leak?

Ripped from the headlines
To gain a familiar understanding of what entails a pipeline leak or spill, let's take a look at a few incidents that have occurred over the past few months:

NuStar Energy (NYSE: NS  )
NuStar discovered a leak in one of its South Dakota diesel pipelines during the last week of February. The company shut down the pipeline and worked to contain the leak. The company's estimates for the spill ballparked the amount spilled at less than 500 barrels of diesel.

Royal Dutch Shell (NYSE: RDS-B  )
Shell's problems in Nigeria continue. In early January, the company reported a second leak in as many weeks on its Nembe Creek pipeline. The company is unclear about just how much oil spilled, but announced it had recovered more than 200 barrels. Upon hearing the news, cynics everywhere rejoiced, "Good on you, Shell!"

The government said the leak was caused by thieves. A few days prior to that leak, one of Shell's pipelines off the shore of Nigeria ruptured, spilling 40,000 barrels into the Atlantic Ocean.

Enbridge
Last week, an Enbridge pipeline burst when two vehicles crashed through a chain-link fence and into an aboveground section of pipeline. The incident serves as a reminder that a variety of factors can contribute to pipeline leaks, and even the most fastidious of maintenance programs cannot prevent disaster. The spill leaked an estimated 476 barrels of oil, or 20,000 gallons.

The leak is more of the same for Enbridge, which is still working with the EPA to clean up more than 1.1 million gallons of oil from a spill in Michigan from 2010 -- all while trying to gain approval in Canada for its Northern Gateway pipeline project.

The statistics
As we all know, what shows up in the media is not necessarily representative of the situation at large. For a clearer picture, we turn to the Pipeline & Hazardous Materials Safety Administration.

This subdivision of the U.S. Department of Transportation is responsible for "ensuring safe, reliable, and environmentally sound operations" of our domestic pipeline system. It operates completely independently from FERC, the body that regulates pipeline markets and rates of transmission.

According to the PHMSA, there were 603 reported pipeline incidents last year, resulting in 17 deaths, 70 injuries, and just shy of $326 million in property damage. Approximately 139,000 barrels of hazardous liquid spilled over the course of the year.

Over the course of the last five years, those numbers are more or less average.  If you go back a little further, the number of incidents has increased over the last 10 years, though the statistics for all other categories remain essentially the same.

An imperfect system
The pipeline incident numbers aren't the stuff nightmares are made of, but what is incredibly concerning is that our infrastructure is aging, and the oversight, by both operator and government, is minimal at best.

Of the 2.6 million miles of pipeline that crisscross the U.S., most carry natural gas -- and these pipelines are no spring chickens. More than 60% of natural gas lines were laid before 1970, while 37% are from the 1950s or earlier. The steel pipes are safe as long as they are inspected and maintained regularly. Unfortunately, that is not always the case.

The city of San Francisco is suing the PHMSA for doing an inadequate job enforcing the federal Pipeline Safety Act. The suit is part of the fallout over a 2010 accident in California, where a PG&E pipeline exploded and killed eight people and incinerated nearby houses. San Francisco's lawsuit follows a report by the National Transportation Safety Board that faulted the agency for having blind faith in pipeline operators and failing to identify and correct problems at PG&E for decades.

The accident occurred because welding defects weakened the pipeline's constitution, but by most accounts, PG&E and the federal government are both to blame for improper oversight.

Going forward
Our midstream infrastructure is only going to grow in the coming years. The consulting firm ICF recently estimated that we will need to add more than 43 billion cubic feet of capacity to our midstream network in the next 25 years, at a cost of roughly $5.7 billion annually. If you'd like to count gathering and processing systems in that total (and who wouldn't), you can add $2.6 billion a year on top of that number. If we want to reduce pipeline incidents and related injuries in the future, we must improve both our infrastructure and our commitment to operational safety.

As midstream advances bring more gas to market, tangential plays will become more and more popular. Get a head start on the market with a small company Fool analysts recommend for interested investors.

Fool contributor Aimee Duffy doesn't own shares of the companies mentioned in this article. If you have the energy, check out what she's keeping an eye on by following her on Twitter, where she goes by @TMFDuffy.

 Motley Fool newsletter services have recommended buying shares of TransCanada. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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