A Crude Liability

On Friday March 29th, 2013 … The central Arkansas spill caused by Exxon’s aging Pegasus pipeline released barrels of Canadian heavy crude, but a technicality says it’s not oil – letting the energy giant off the hook from paying into a national cleanup fund.

Legally speaking, diluted bitumen like the heavy crude that’s overrun Mayflower, Arkansas, is not classified as ‘oil’.

It is that very distinction that exempts Exxon from contributing to the government’s oil spillage cleanup fund.

“Our focus is to protect the community,” said Karen Tyrone, Vice President of Operations for ExxonMobil Pipeline Co. “We have air monitoring going on seven days a week, 24 hours a day … and to date, we have no indication that there’s a health impact on the community.”

ExxonMobil has already confirmed that the compromised pipeline was transporting “low-quality Wabasca Heavy crude” from Canada’s Alberta region. That particular form of crude contains large quantities of bitumen – a “thick, sticky, black semi-solid form of petroleum which is transported in a diluted form (dilbit) as it makes its way from Canada to US refineries,” explains Oil Change International, which has brought attention on the strange legal exemption.

“We live five miles out in the country and we’ve had the smell out there,” Karen Lewis, 54, said outside a local grocery store. Its parking lot, like much of this small city, is teeming with cleanup crews and their trucks.

Companies that transport oil are required to pay $.08 per barrel into the Oil Spill Liability Trust Fund (OSLTF). The cash is used by the US government to respond to oil spills. But there’s a catch – Exxon is exempt from paying into the fund for its Pegasus pipeline, because it carries tar sands oil, not “conventional oil.”

“The IRS has classified tar sands as different from conventional oil, and thus the tax levied to fill the liability trust fund is not levied on tar sands crude. It’s a loophole that should be closed, as it doesn’t line up with the actual intent of the tax or the fund,” campaigns director for Oil Change International, David Turnbull, told RT.

ExxonMobil stated they are paying for all costs related to the spill. However, the company didn’t reveal how much it contributes to the OSLTF, or the value of the company’s crude which is not taxed by the law.

Exxon media relations manager Alan Jeffers told RT that teams are working directly with residents of Mayflower and are “paying all valid claims relating to the spill and providing interim housing for people from the homes which the city of Mayflower recommended be evacuated following Friday’s spill.

“An influx of tar sands on the U.S. pipeline network poses greater risks to pipeline integrity, challenges for leak detection systems and significantly increased impacts to sensitive water resources,” Natural Resources Defense Council Official Statement

The strange exemption of heavy bitumen crude from classification as oil dates back to a time when the extraction of tar sands on a large scale was thought improbable with technology available at the time. However, while oil companies developed the means to transform Canadian tar sands into a booming energy sector, the legal definition of oil remained the same.

“Given how toxic and dangerous tar sands oil – or bitumen – is, it’s entirely irrational that this oil would be exempt from being taxed in order to pay for the Oil Spill Liability Trust Fund. As these sorts of heavy oils that are exempt from this tax continue to make up a larger percentage of oil transported in the US, it will only serve to stretch the fund even further, while putting families, communities, and ecosystems at greater risk,” Turnbull explained.

The burst comes in the midst of a heated debate surrounding the controversial Keystone pipeline. If the plan goes through, the pipeline would carry up to 590,000 barrels per day, some of which would include the same type of dilbit, from the same region in Canada. This has sparked concern surrounding just how much of the pipeline’s oil will be exempt from paying tax to the Oil Spill Liability Trust Fund, in the same way that the Mayflower pipeline has been.

Money from the Oil Spill Liability Trust Fund has already helped to clean up another spill caused by a ruptured pipeline. In 2010, more than 1 million barrels of diluted bitumen (crude oil) were spilled into the Kalamazoo River. To make matters worse, unlike conventional crude oil, bitumen heavy crude sinks. The ensuing environmental impact has made that Michigan spill the most expensive in US history, as toxic substances seeped into the surrounding soil.

Spilling the facts on the Top 5 Things You Should Know About Transporting Tar Sands Crude…
1) When spilled, tar sands diluted bitumen is significantly more damaging and difficult to clean than conventional crude, particularly in water bodies.

After nearly three years and a billion dollars have been spent on cleaning the Kalamazoo tar sands spills and over 38 miles of that river are still contaminated by submerged tar sands bitumen. Spill responders found that conventional spill response equipment and methods proved ineffective for containing and cleaning tar sands.

2) Tar sands pipelines operate at higher temperatures than conventional crude pipelines.

Moving thick tar sands diluted bitumen through a pipeline requires enormous energy and creates significant frictional heating for pipelines. Studies of California’s pipeline system show that pipelines that operate at temperatures above 100 degrees Fahrenheit spill due to external corrosion up to 23 times more often due to external corrosion than conventional pipelines. The State Department’s draft SEIS estimated that the proposed Keystone XL tar sands pipeline would operate at between 130 to 150 degrees.

3) Tar sands pipelines have greater risk of corrosion than conventional pipelines.

The Enbridge mainline, the first pipeline system to move significant volumes of tar sands diluted bitumen into the U.S., spilled nearly a million gallons of tar sands into the Kalamazoo River in 2010 after a rupture caused by external corrosion. Internal corrosion caused a spill of nearly 40,000 gallons in December of 2012 on the same tar sands pipeline system in Illinois.

4) The transport of increasing volumes tar sands on the U.S. pipeline system is a recent development.

Thick tar sands diluted bitumen substantially differs from the lighter conventional crudes historically moved on the U.S. pipeline system. The first imports of diluted bitumen came from pipelines in the northern Midwest in the late 90s and have increased exponentially since then. Accident reports from the Pipeline & Hazardous Materials Safety Administration (PHMSA) shows that those northern Midwestern states moving the largest volumes of tar sands diluted bitumen for the longest period of time spilled 3.6 times as much crude per mile as the national average from 2010 to 2012.

5) TransCanada’s Keystone XL tar sands pipeline brings significant risks to American communities and water resources.

TransCanada is currently under a sweeping investigation by Canadian regulators after two whistleblowers have documents repeated violations of pipeline safety regulations by the company. It’s most recently built pipelines – Keystone I and Bison – have had significant problems despite carrying special safety conditions and being pitched as being safer than other pipelines.

Keystone I had 14 leaks in its first year of operation and was the newest pipeline to be forced to shut down by regulators. The Bison pipeline exploded. The ‘conditions’ TransCanada has agreed to for Keystone XL are similar to those agreed to for prior pipelines largely replicate existing requirements.

None address the risks associated with a project that would carry nearly 10 times as much tar sands crude as the Pegasus tar sands pipeline through American communities and water resources on its way to international markets!

Exxon is the World’s Largest Publicly Traded Oil Company

In November 2010, the U.S. Department of Transportation slapped ExxonMobil Pipeline Co with a fine of $26,200 for allegedly allowing more than 5 years to lapse between inspections of a stretch of Pegasus that underlies the Mississippi River, between Missouri and Illinois, last decade.

The Exxon subsidiary did not contest the fine levied by the Office of Pipeline Safety, according to documents on the PHMSA website.

Since 2006, according to PHMSA, “incidents” on pipelines controlled by ExxonMobil Pipeline Co or Mobil Pipeline Co caused more than $147 million in property damage and spilled 6,830 “gross barrels” of hazardous liquids.

Another pipeline company operated by an oil major, Shell Pipeline Co LP, inflicted around $50 million in property damage over the same period, according to PHMSA data, spilling 11,019 gross barrels.

The Pipeline and Hazardous Materials Safety Administration (PHMSA) said in a recent report that more than half of the nation’s pipelines were built in the 1950s and 1960s in response to higher energy demand after World War II.

Some, like Pegasus, were built earlier. Exxon spokesman Charles Engelmann said the ruptured section of the pipeline was installed in the late 1940s.

Nearly two years ago Exxon grappled with another crude oil pipeline rupture that sent 1,500 barrels into the Yellowstone River in Montana.

The 40,000 barrel-per-day Silvertip pipeline ruptured underneath the river in July 2011. It did not fully restart until September that year after Exxon had dug deeper under the riverbed to install the new section. A week ago, PHMSA proposed that Exxon pay a $1.7 million fine over pipeline safety violations stemming from the Silvertip spill.

“As these sorts of heavy oils that are exempt from this tax continue to make up a larger percentage of oil transported in the US, it will only serve to stretch the fund even further, while putting families, communities, and ecosystems at greater risk” – David Turnbull (Campaigns Director for Oil Change International)

References: Reuteurs “Exxon oil spill cleanup ongoing in Arkansas, pipeline shut”

RT Exxon reacts to tax ‘loophole,’ pledges ‘to cover all costs’

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