Fate of Exxon's Burst Pegasus Pipeline to Be Decided in 2014

Several other major pipelines intended to transport diluted bitumen from Canada's tar sands could be affected by the Pegasus outcome.

Picture of Exxon's burst Pegasus pipeline, courtesy of the Duncan Firm, which conducted a preliminary inspection of the ruptured line on April 10, 2013.

Industry analysts and others who have wondered whether ExxonMobil will restart the broken Pegasus pipeline that leaked Canadian oil across an Arkansas suburb should get their answer in 2014.

The 65-year-old pipeline hasn't shipped any oil since it ruptured on March 29, costing Exxon as much as $450,000 a day in lost revenue, or up to $124 million as of Jan. 1. It's unclear when exactly the company might resume pumping oil through the 858-mile line that crosses dozens of waterways, farms and residential neighborhoods on its way from Illinois to the Texas Gulf Coast—though a decision is underway.

Exxon spokesman David Eglinton said the company "will not restart it until we are satisfied it is safe to do so and have the approval of [federal regulators]."

Several other major pipeline projects could be affected by the Pegasus outcome, because operators are planning to reverse the flow inside older, existing pipelines to carry dilbit from Canada's tar sands. That is exactly what Exxon did to the aging Pegasus in 2006. Some experts believe the extra pressure swings required to move dilbit could have contributed to the line's failure. The Pegasus was already prone to rupture due to a faulty 1940s-era construction technique as well as flawed maintenance and operations.

MORE: Map: Little-Known Pipeline Nearly as Big as Keystone Could Win Race to Gulf

Dilbit is also the same type of oil that would be shipped on the contentious Keystone XL pipeline, whose fate should be determined by the Obama administration this year and will be based partly on spill risks posed by the project.

The federal Pipeline and Hazardous Materials Safety Administration (PHMSA) set conditions for the restart of the Pegasus in a Corrective Action Order (CAO) issued on April 2. It requires the company to identify and fix vulnerable spots along the length of the pipeline. Exxon has already met some of the criteria in the CAO, including metallurgical testing on the ruptured section of the pipe. The company has until Jan. 6 to submit a remedial work plan that explains how it will ensure the pipeline's safety once it's reopened. Another provision of the CAO requires Exxon to file a restart plan that must be approved by PHMSA. The CAO dictates that the plan must include "adequate patrolling" of the pipeline during the restart, and that Exxon needs to notify local emergency personnel before the pipeline is turned back on.

The pipeline's nine-month shutdown is unusually long. When a different Exxon oil pipeline split open on the Yellowstone River in July 2011, the company was able to restart it in less than three months. In 2010, a pipeline owned by Enbridge Inc. was back in service about two months after it spilled more than a million gallons of dilbit into Michigan's Kalamazoo River.

In Arkansas, however, Exxon has been acting with extra caution, conducting additional tests and excavating parts of the pipeline to study its condition. Analysts said the company is proceeding slowly in part because any new leaks could jeopardize the pipeline for good and reduce public support for the Keystone XL and the other proposed dilbit pipelines.

A Fight Over a Fine

Regardless of how Exxon proceeds with the restart, the company will be facing off with federal regulators next year to contest a $2.66 million fine and proposed compliance order for the spill—guaranteeing that the Pegasus case will linger well into 2014, if not later.

The penalties are the result of a PHMSA investigation released in November that cited Exxon for nine probable violations of federal pipeline safety regulations. PHMSA said the company delayed a crucial inspection, postponed important repairs and used skewed risk assessment data that masked problems on the line.

MORE: Exxon Overlooked, Masked Safety Threats in Years Before Pegasus Pipeline Burst

In a response letter to regulators, the company disputed all nine probable violations and argued that the proposed fine is excessive. It has requested a hearing to challenge PHMSA's assertions. PHMSA spokesman Damon Hill said it's unclear when the Pegasus hearing would take place.

Such a challenge is not unusual, especially for Exxon—a company that was still fighting a jury award from the infamous Exxon Valdez oil spill more than 20 years after the accident.

In April, the company challenged PHMSA's findings of probable violations and the proposed $1.7 million fine stemming from its Yellowstone River spill. PHMSA held that hearing in July, but Hill said a ruling is still pending. Exxon earned just under $45 billion in 2012.

At the same time that PHMSA imposed the fine, the agency issued a preliminary compliance order that asks Exxon to revise how it conducts risk assessment, improve its inspection procedures and provide PHMSA with additional documentation on the inspection history of all Exxon pipelines built with the same flawed manufacturing methods as the Pegasus. Hill said the actions are not mandatory because the compliance order hasn't been finalized—which means Exxon could restart the pipeline by meeting the requirements of the April corrective action order, even while the newer compliance order is under debate.

The demands will be discussed at the hearing, and PHMSA will decide which actions become part of the final compliance order.

In addition to the pending actions at PHMSA, Exxon faces at least 17 different lawsuits from Arkansas residents, state and federal regulators. The U.S. Department of Justice and Arkansas attorney general Dustin McDaniel have also filed a joint lawsuit seeking penalties under the federal Clean Water Act and Arkansas environmental laws. That trial is scheduled for Feb. 2015. Meanwhile, Arkansas state officials have asked Exxon to conduct additional environmental testing and analysis, and a local water utility has threatened to sue Exxon to move 13 miles of the Pegasus line out of a vulnerable watershed.

InsideClimate News reporter Elizabeth Douglass contributed to this report.

Facebook Twitter RSS