The Oil Patch

Trans-Alaska Pipeline System: Economics

[Trans-Alaska Pipeline System: Environment]

Reports and Research Memoranda


Richard A. Fineberg

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Trans-Alaska Pipeline System: Environment


Background Report:
TAPS Lease Renewal — Opportunity Lost

August 2004

After an expensive and lengthy review process culminating in perfunctory public hearings during the summer of 2002, state and federal officials renewed the Trans-Alaska Pipeline System (TAPS) right-of-way operating agreements without modification for 30 years. (1) In granting renewal until 2034, government officials failed to modify lease terms to deal with (1) more than two decades of operating experience, (2) technological developments, (3) current pipeline problems, (4) citizen concerns about TAPS operations and (5) the pipeline owners' plans for massive personnel reductions and hardware changes.

The right-of-way review process was spearheaded by the Joint Pipeline Office (JPO), an umbrella group of state and federal agencies headed by the federal Bureau of Land Management and the Alaska Department of Natural Resources. At public hearings during July-August 2002, residents of the pipeline corridor, other concerned citizens, Native leaders and environmental organizations sought changes to the right-of-way terms to deal with concerns regarding the condition of TAPS itself and the management practices of pipeline operator Alyeska Pipeline Service Company, whose three major owners control more than 90 percent of North Slope oil production and own a roughly similar share of TAPS.

During the review process, critical input from concerned citizens centered on three kinds of problems: operating procedures, such as the recurrence of problems restarting the pipeline after maintenance shutdowns; physical problems, characterized by slow identification and repair of deteriorated facilities; and management issues that included the efficacy of risk analysis and maintenance procedures, as well as the failure to provide adequate training for oil spill response. A wide array of identified problems on TAPS were united by the common concern that extended delays between the occurrence and the resolution of problems on TAPS put Alaska's environment and a major portion of the West Coast oil supply at needless risk. Some who testified (this writer included) suggested two principal causes of problems on TAPS: (1) the drive to cut costs, leading to a chronic discrepancy between promise and practice; and (2) JPO's failure to require Alyeska to correct operational and management shortcomings in a timely manner. On a wide array of issues, facts buried in JPO's documentary record frequently refuted the agency's own reports endorsing the industry's performance on TAPS. (2)

To deal with these concerns, many who testified at the hearings joined the Alaska Forum for Environmental Responsibility (AFER) and more than a dozen other environmental, Native and public interest groups in seeking implementation of the following six measures on TAPS:

  • 1. The Grant and Lease should establish a Citizens' Oversight Group (COG), funded by the TAPS Owners through the Department of the Interior, to ensure, through community involvement, that the pipeline is maintained and operated in a manner that safeguards the natural resources of Alaska and ensures the safety of continued oil shipment. In the process of developing the expertise to evaluate the efforts and accomplishments of the TAPS Owners and their monitors, it is anticipated that the COG would help combat the complacency that inevitably sets in after a long period without a major spill or accident.
  • 2. The TAPS Owners have collected funds for the future dismantling, removal and restoration of TAPS (DR&R) from shippers on an accelerated basis. Instead of being placed in an escrow account, these funds were passed through to the parent companies of the TAPS Owners, resulting in ongoing windfall profits of extraordinary proportions. To provide funds to ensure the safe and environmentally sound operation of TAPS and promote continued North Slope development, the TAPS Owners should be required to (a) place funds necessary for dismantling in an escrow account and (b) contribute a small portion of the excess income that they will earn from past DR&R collections to establish a fund that would generate $3 million per year to finance the TAPS COG. Additionally, as part of the review of Grant and Lease renewal, reviewers should convene an advisory panel to consider whether a mechanism can be established to return all or a significant portion of the excess income earned annually from prior DR&R collections to TAPS to shippers in the form of reduced tariffs.
  • 3. Due to aging of pipeline equipment, possible effects of changing climate conditions and technological development, Grant and Lease renewal should be made conditional on satisfactory completion of an evaluation, including a technical review and audit every five years, to assure that the operators of TAPS employ best available technology and have the fiscal and management systems in place to address any problems that may be encountered expeditiously and competently. The Grant and Lease terms should specify that this mandatory, periodic review shall be conducted by a respected independent body such as the National Academy of Sciences.
  • 4. The economic and management framework in which TAPS operates has had a pernicious effect on operations that has led to the chronic failure to remedy problems in a timely manner. The fiscal pressures that constrain TAPS operations are liable to increase as throughput and the prospective life of the line decline. AFER therefore recommends that, as part of the review of the application for Grant and Lease renewal, the reviewers should convene an advisory panel to consider how best to provide a single, responsible managing party and a stable source of funding for TAPS. One possible solution is the transfer of TAPS to a single owner with no North Slope production.
  • 5. To ensure that Alyeska continues its efforts to establish an open work environment, and that the benefits of that open work environment remain in place throughout the period of proposed lease renewal, provisions establishing and ensuring a viable Employee Concerns Program on TAPS should be incorporated into lease and right-of-way renewal. These requirements should include penalties if a certain percentage of workers report, in an annual survey that protects the identity of responders, that they fear harassment, intimidation or retaliation for disclosing problems on TAPS.
  • 6. The stipulations attached to the federal and state Grant and Lease agreements should be thoroughly reviewed to assure they reflect (a) scientific and technological advances during last three decades in the disciplines relevant to the safe transport of crude oil across Alaska and (b) experience with the operation of TAPS. (3)

This suite of procedural recommendations could have put pipeline oversight back on track, thereby enhancing the safety of one of the nation's vital energy supply lines. But government officials declined to adopt any of these recommendations. Nor did they make any other changes to the original lease terms or the technical stipulations drafted three decades ago. While each of the six recommendations would have made a significant contribution to safe oil transport, many who testified regarded the Citizens' Oversight Group (COG) as the most important proposed addition to the right-of-way framework. In addition to support from the environmental community and concerned residents of the pipeline corridor, the COG proposal was endorsed by Native leaders at both ends of the pipeline, including North Slope Borough Mayor George Ahmaogak and Eyak Native Village President Bob Henrichs from Prince William Sound. (4)

A supplementary report on the government failure to investigate examines how government officials dropped the ball on proposed reforms of the TAPS oversight system. In summary form, this is what happened: The renewal package was released for review in early July 2002. The documents - a draft Environmental Impact Statement (EIS) and supporting reports - added up to more than 1,700 pages. At the height of a busy summer season, Alaskans were supposed to review these materials prior to public hearings scheduled to begin three weeks later, with final comments due August 20. Agency intent to fast-track right-of-way renewal hung over the public hearings like a shadowy wraith. Nevertheless, concerned individuals and groups (including this writer, testifying on behalf of AFER and other environmental groups) prepared and presented their arguments for modification of the right-of-way terms, hoping that public officials would listen with open minds to the concerns of the citizens they were supposed to represent. In the end, although the hearing officer listened attentively, Argonne and JPO failed to investigate. Instead, the government reviewers built a mountain of paperwork that obscured a flawed, circular result. The circle began with JPO failures to correct chronic shortcomings in Alyeska's performance in a timely manner and the agency refusal to acknowledge its own failures; next, the EIS relied on JPO's self-serving conclusions to dismiss public concerns; finally, state and federal authorities used on the EIS findings to validate their decision to renew the right-of-way agreements without considering the case against the status quo. The result of the failure to investigate challenges to JPO's paperwork conclusions on TAPS was that the right-of-way renewal process ended up exactly where it began. (See link to examples of testimony, news reports and commentary for additional information regarding the right-of-way renewal process.)

In the aftermath of lease renewal, ongoing problems resulting from chronic cost-cutting and deferred maintenance now exacerbate the difficulties of implementing the major hardware and operational changes known as strategic reconfiguration. (5) Alyeska announced its intention to implement strategic reconfiguration prior to the 2002 hearings on right-of-way renewal. (6) The pipeline company says the makeover will enable TAPS to continue to operate for another three decades while reducing personnel by closing pump stations and cutting operating costs. (7) This is precisely the kind of major change that government officials should have considered carefully during lease renewal. (8) Nevertheless, during the environmental review the government EIS portrayed the plan as an hypothetical possibility and omitted consideration of critical factors, such as effects of the management change on oil spill response, which is dependent on human resources. (9)

The full consequences of the government agency failure to look clearly at TAPS operating and management problems during lease renewal are liable to remain unrecognized unless and until a major oil spill or some other catastrophic accident occurs on the pipeline. By then, of course, it will be too late for the corrective actions that might have identified and resolved the issue in a timely manner. In the end, the right-of-way renewal process, on which authorities spent upwards of $30 million, squandered the opportunity to establish procedures that would ensure safe operations on TAPS for the next three decades.


Notes to "Background Report: TAPS Lease Renewal -- Opportunity Lost "


1. State renewal of its right-of-way lease agreement was formally issued on Nov. 26, 2002; one week before outgoing Alaska Governor Tony Knowles left office; the federal grant was renewed six weeks later. The formal renewal documents are available at federal renewal documents and state renewal documents.

2. Richard A. Fineberg, The Emperor's New Hose: How Big Oil Gets Rich Gambling with Alaska's Environment (Alaska Forum for Environmental Responsibility [AFER], June 2002), ch. 3 and ch. 6.

3. AFER originally presented five of these six recommendations to the BLM at scoping hearings prior to preparation of the Draft Environmental Impact Statement (Sept. 20, 2001). AFER added the sixth recommendation prior to public hearings on the impact statement during July-August 2002.

4. See: U.S. Department of the Interior, Renewal of the Federal Grant for the Trans-Alaska Pipeline System Right-of-Way, Bureau of Land Management (BLMAK/PT-03/005+2880+990), Nov. 2002, Vol. 6 (Comment Documents), Parts 1 - 4 (Ahmaogak, Part 1, p. 179; Henrichs, Part 2, pp. 758, 1082).

5. One veteran TAPS employee is so concerned with the decline in operating procedures and construction standards on TAPS that he has filed a series of Employee Concerns Program (ECP) complaints with the Alaska Joint Pipeline Office (for additional information see Jim Carlton, "Alyeska Plan May Increase Chance of Spills," Wall Street Journal, Dec. 24, 2003, p. A2 [via Dow-Jones wire]).

6. See, for example, "Alyeska sees restructuring as opportunity: President plans pipeline, company updates to keep operations competitive for next 25 years," Alaska Oil & Gas Reporter, June 15, 2002, p. 6.

7. See: Tim Bradner, "Alyeska plans to automate pump stations," Alaska Oil & Gas Reporter, Nov. 2, 2003, p. B1, and "Face to Face with John Barrett, Strategic Reconfiguration Program Manager," Alyeska Monthly, September 2003, p. 3.

8. BLM reported that the agency was supposed to address a number of considerations in reviewing the renewal application , including regulations promulgated in accord with the provisions of this section of the Trans-Alaska Pipeline Authorization Act) regarding operation, maintenance, use, and termination. U.S. Bureau of Land Management (Anchorage), Regulatory Evaluation of the Request for Renewal of the Federal Grant of Right-of-Way for the Trans-Alaska Pipeline System (TAPAA Report), July 2002 (revised December 2002. p. 3 (on-line at ).

9. Renewal of the Federal Grant for the Trans-Alaska Pipeline System Right-of-Way (TAPS Renewal Final EIS), Vol. 3, Sec. (Planned Pump Station Upgrades and Valdez Marine Terminal Modifications), p. 4.2 - 11.

Reports & Research Memoranda