New Technology Could End the Debate Over Pipeline Safety

The surge in North American oil and gas production is arguably the most important development in energy over the last decade. That’s the good news. The not so good news is that North America doesn’t have nearly enough oil and gas pipelines to accommodate its 11-million-barrel-a-day output level.

Aug 28, 2014 at 9:37AM

This article was written by, the leading provider of energy news in the world.

Who could have ever imagined that North America would surpass Saudi Arabia as the world's largest producer of oil and natural gas liquids? A decade ago, that would have seemed laughable.

Yet that's exactly what has happened; and it's not just Saudi Arabia that has been left in North America's dust -- Russia has, too.

The surge in North American oil and gas production is arguably the most important development in energy over the last decade. That's the good news. The not so good news is that North America doesn't have nearly enough oil and gas pipelines to accommodate its 11-million-barrel-a-day output level.

The famously unresolved proposed Keystone XL pipeline would carry oil from Canada to the U.S. Gulf Coast, but its future is in legal and political limbo. The controversial Northern Gateway pipeline, proposed as an alternative to Keystone XL, would connect Canada's oil sands to the Pacific Coast, allowing greater volumes of oil to be shipped to Asia, but it, too, is still on the drawing board.

Both are good examples of how pipelines – considered the safest way to move oil and gas – have become politicized and scrutinized, and not without reason. Despite their reliability, pipelines still lead to an unacceptable rate of safety mishaps. They corrode and rupture, which threatens workers and nearby communities. In 2013 alone, over 119,000 barrels of oil were spilled in 623 incidents.

America's existing pipelines are getting older and more prone to corrosion, and over the next five to 10 years, there will be a significant increase in the number of new pipelines.

And that is creating a huge opportunity for better pipeline safety technology.

Monitoring and detecting corrosion in pipelines is still a crude affair (no pun intended). Pipeline companies tend to underspend on safety, concerned only with meeting the minimum regulatory requirements.

One of the major ways pipeline operators detect corrosion is with a "pig," a machine that travels down the inside of a pipeline looking for problems.

Pigs are not new -- the industry has long relied heavily on them—and the newest generation of pigs, known as "smart pigs," is considered an improvement over the pigs of yesterday. Smart pigs give a read on the state of the pipeline, such as cracks, corrosion, and metal loss. Operators receive this information in a control room and can then dispatch crews to fix the problem. As of 2012, 93 percent of pipeline inspections were conducted using smart pigs.

But smart pigs might not be enough. Enbridge (NYSE:ENB), a major Canadian pipeline company, has spent over $4.4 billion to upgrade pipeline safety. It is spending big bucks after one of its pipelines spilled oil into the Kalamazoo River in 2010 – a corrosion breach that Enbridge's smart pigs failed to detect ahead of time.

And that's the problem: despite recent advances, smart pigs aren't terribly accurate. They also require pipeline operations to shut down (you can't pump oil through a pipeline if there is a machine in the way), and analyzing the data smart pigs gather can take some time. The Wall Street Journal ran an article last year that talked about the pitfalls of smart pigs, even as pipeline companies continue to depend heavily on them.

So alternative methods to detect trouble spots are needed. One method for detecting corrosion uses a device from outside the pipeline. A series of sensors placed on the outside of the pipeline can search for corrosion without interfering in operations.

Pipeline safety company Fox-Tek, a subsidiary of Augusta Industries, uses such a system to detect corrosion, as well as a fiber optic system to detect bends, strains and stress in pipelines.

But the real innovation in Fox-Tek's system is its data analytics package. Companies that use smart pigs usually need to spend months doing post-inspection analysis, but Fox-Tek has developed proprietary software that does continuous and automatic analysis.

Fox-Tek's sensors gather information and automatically send back confidential reports on everything the company needs to know – temperature, pressure, strain, rates of corrosion, etc. in the form of handy graphs, charts and diagrams. It eliminates the need for an army of people to go out and inspect pipelines and then come back to do the analysis.

The pipeline safety market is massive and growing, but one of the major hurdles for new technologies like advanced sensors and software will be reluctance by pipeline companies to proactively invest in corrosion management and maintenance. In the past, they have largely focused on the bare minimum and viewed safety as a regulatory requirement.

However, there seems to be a sea change in the pipeline industry, particularly since operators are running into an environmental backlash. The blocking of several high-profile pipelines may have finally gotten the attention of the industry. Bringing local communities onboard and acquiring permits from regulators will require pipeline operators to demonstrate improved safety throughout their networks.

But above all, pipeline companies will see dollars saved by using cost-effective monitoring systems to reduce pipeline leaks. Enbridge has been forced to spend around $1 billion to clean up its mess in the Kalamazoo River, which was the result of a corrosion breach. It could spend a fraction of that to have better information on pipeline corrosion to prevent a growing problem from getting worse. That could reduce the frequency of future pipeline spills.

This could be a game changer in terms of how oil and gas pipelines are viewed in North America. If operators use smart software to catch small problems before they can turn into big ones, the common view of pipelines as accidents waiting to happen could be erased. Instead of seeing them as an environmental risk, the public may grow to see them as just another piece of modern infrastructure that facilitates commerce.

Do you know this energy tax "loophole"?

You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


By James Stafford at

The Motley Fool has no position in any of the stocks mentioned. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information