Challenges for the Pipeline Industry in the United States
North American Pipeline Safety Summit, Duke Energy Chair, INGAA Pipeline Safety Task Force
Fred Fowler
President, Energy Transmission Group
Duke Energy
Hyatt Regency Hotel, Washington, DC
Good morning. Welcome to the Third Annual North American Pipeline Safety Summit. As John said, my name is Fred Fowler, and I am president of the Energy Transmission Group for Duke Energy.
Today, however, I am representing INGAA as chairman of its Pipeline Safety Task Force - a responsibility that I take very seriously.
I have been in—or around—the pipeline business for more than 30 years and I have never seen the intense public interest in our industry as I am seeing today.
Now I am not saying that is bad. Those of us who work in the interstate pipeline industry take our jobs as stewards of public safety and protectors of the environment very seriously and we have an excellent record to prove it.
I believe this renewed public interest in the environment and public safety is enhanced by the high tech world we live in today. With the click of a button, we can join online chat groups, view websites dedicated to specific causes. We can watch breaking news in real-time. There are webcams on line and videocams on site breaking news on all-news/all-night radio and television
It is almost overwhelming to think about the amount of information that is so easily accessible to us.
This technology lets our citizens keep up with their interests and allows them to easily organize with others who support their causes.
But it also gives those of us in the interstate natural gas pipeline industry a forum to tell our story as well. It is a story about an industry that is concerned about public safety, the environment, its employees and the communities it serves.
Interstate natural gas transmission pipelines are by far the safest means of energy transportation. However, when it comes to pipeline safety, there is no “silver bullet” no “one size fits all” solution. It requires due diligence on the part of everyone who works in the industry and those who govern it.
Five years ago, prior to the reauthorization of the pipeline safety bill, George Tenley, the previous Associate Administrator for DOT’s Office of Pipeline Safety, conceptualized - and championed—a risk management approach to pipeline safety.
The concept was fully embraced by the industry since companies ... like Duke Energy had—for several years—utilized a risk management approach that went far beyond prescriptive regulations.
Rich Felder, the current associate administrator who replaced George Tenley, has led a collaborative effort to apply this approach to enhancing pipeline safety.
Rich has been—and continues to be—keenly focused on ensuring that the collaborative process includes all of the relevant stakeholders, including—state and local officials, landowners, residents, the general public, as well as the pipeline industry.
The work that led to the development of the Operator Qualification Rule, as well as the current work on the development of a Pipeline Integrity Rule, are examples of the collaborative application of Risk Management in action.
Through Rich’s leadership, we are now starting to see the positive results of the Risk Management Program that grew out of the 1996 Pipeline Safety Bill.
However, our industry does not rest on its laurels when it comes to safety.
Six months ago, INGAA formed a board level task force to continue—and broaden—the industry focus on risk management and other safety issues.
This task force, which I chair, is examining how we can continue to improve the industry’s already excellent safety record and to assure the public that pipeline construction and operations are safe.
Learning to live with the technology in the “New Economy” is only one challenge we are faced with today. The U.S. economy is thriving and it is providing the energy industry with the longest sustained period of growth that is unprecedented in our lifetime.
However, like all great opportunities, this growth also presents challenges to the interstate natural gas pipeline business.
Today, I would like to tell you what I believe are the top three challenges facing our industry: They are 1) the business arena 2) regulatory environment 3) and industry direction and leadership.
The first challenge for our industry is operating in a business environment that anticipates the annual demand for natural gas to reach almost 30 trillion cubic feet by the year 2010—up from today’s consumption rate of nearly 22 trillion cubic feet.
Driving this growth is increased demand for natural gas fired electric generation, particularly in the Northeast and Southeast where the largest growth is anticipated.
Pipelines that will carry energy to this market will come from several basins, including Western Canada, Eastern Canada and the Gulf of Mexico.
The growth of this particular market segment will impact how interstate pipeline systems are used and how capacity additions will be made in the future.
For instance, here are some of the changes we expect:
- There will be higher pressure requirements at the end of the system.
- There will be larger “swings” as generating plants trip on and off multiple times during the day.
- Storage systems will be dispatched on an economic basis all year, based on gas trading as a commodity - rather than the traditional injections over the summer to meet the high demand for the heating load in the winter.
- Since the bulk of the electric load is summer peak, the utilization of the mainline capacity will dramatically increase, competing with storage fill for utilization of that capacity.
These anticipated changes and growth will open up opportunities for increased efficiency that will lower costs for pipelines and customers alike.
How, then, do we meet this surging and changing demand? I believe the business model will have to change.
The increased competition resulting from the unbundling of the gas industry has allowed new energy merchants to emerge and utilize the capacity much differently than the pipelines’ historical customers.
Competition also has driven pipelines to create new services, modify others and to develop new pricing models to meet the requirements of those new energy merchants. A net result has been a dramatic shortening of pipeline contractual arrangements with those customers.
It is that competition—and the desire to mitigate the economic risks—that will drive projects like the Maritimes and Northeast Pipeline, with its multiple partners, or the 50-50 project Duke Energy has with Williams to develop Buccaneer, the proposed pipeline to serve the Florida market.
Secondly, as we meet this increased and changing demand, there will be more and more public pressure to regulate our industry because of environmental and safety concerns.
This brings me to our next challenge—how to keep our pledge to protect the environment and keep the public safe-yet meet our increased demand obligations.
Safety and environmental issues impact how we do business. Our industry, however, has increased pressure from a concerned public with a growing NIMBY- Not In My Back Yard-attitude. We already abide by strict federal regulations that guide design, construction, maintenance, operation, replacement, inspection and monitoring of our lines.
The Office of Pipeline Safety-the federal agency that oversees our industry-is under constant pressure to impose even stricter regulations and oversight, including turning over interstate regulatory oversight to states.
Two high profile incidents in recent years—a natural gas line in Edison, New Jersey and a petroleum pipeline in Bellingham, Washington—overshadow both the natural gas and liquids industry records.
Keep in mind that over the past 10 years, safety incidents throughout the transmission and distribution system have decreased by 38%. During the same period, the amount of natural gas delivered to our 60 million customers has increased by nearly 25%.
How, then, does the interstate natural gas pipeline industry answer the environmental and safety challenge?
As an industry, the interstate natural gas transmission business spends about $600 million annually on safety activities that range from facilities testing to emergency response training - including research visual inspections public information and education maintenance and construction activities.
As I mentioned earlier, we firmly support risk management plans—such as the DOT Risk Management Demonstration Program currently under way between several interstate pipeline companies—including my company Duke Energy—and the Office of Pipeline Safety.
We feel that risk management plans improve pipeline safety by allocating resources to the areas that will benefit pipeline safety the most.
Risk management plans give pipeline operators—and pipeline regulators alike—the opportunity to closely scrutinize options to improve pipeline safety and custom fit the best solutions to manage those concerns that are specific and unique to each pipeline.
Coupled with standard prescriptive compliance options, this new risk management program will be a win-win solution for industry and residents alike.
In an effort to further improve pipeline safety and bolster public confidence, the industry has been collaborating with the Office of Pipeline Safety to develop an Integrity Program for proposed rulemaking which is based on the concepts developed in the Risk Management program—including the need for increased communication and involvement with the public.
With contributions by the industry—and the public—OPS is expecting to have a proposal in place by October.
Another very important answer to the environmental and safety challenge is support of the reauthorization of the Natural Gas Pipeline Safety Act for two more years, which promotes a risk-based approach to pipeline safety.
Last month, the Senate Commerce Committee held a hearing on the legislation. Sen. John McCain has indicated he wants the committee to report a bill this month that would reauthorize the act through the 2003 fiscal year. We will all be following the progress of the bill and are optimistic that industry and government will continue to work in a collaborative process that will result in a productive bill.
While we should not forget what happened at Edison and Bellingham, we also must not let the two incidents become rallying points for ineffective legislation. We must correct a public misconception of a system that is broken, when in reality, it is not.
Our industry is adamant that operations and safety activities on interstate natural gas transmission pipelines are operated as a system and should remain under the jurisdiction of the DOT—and not transferred to state agencies. We believe separate regulations would result in a less efficient, less safe system.
We are not dismissing state regulators as unimportant to a state’s citizenry.
On the contrary we work closely with state agencies on such programs as one-call centers and on programs to educate the public about pipeline safety.
State regulators currently have jurisdictional oversight over intrastate pipelines and distribution systems—75 percent of all the pipelines in the United States.
We welcome the current role state regulators play in our interstate operations. However, we believe that the DOT should remain solely responsible—through federal regulations—for those pipelines that cut across state borders.
The third and final challenge—direction and leadership—is what we need as an industry in the fields of enhanced pipeline integrity and in research and development to continue to improve our safety record. We need strong direction from industry associations—such as INGAA—and guidance from the leaders in our industry.
We also need to continue and strengthen our efforts to educate the public about our industry. More importantly than ever, our leadership should make public education a top priority. We need continuous promotion of statewide one call programs we need to publicize teaming with other industries to employ safety practices.
As I mentioned earlier, Duke Energy and other companies are proactively working with DOT in innovative programs—such as the risk management demonstration program—to enhance current safety practices.
Duke Energy, and others in the industry, practice pipeline integrity through risk management, regular maintenance and by employing qualified, trained and experienced personnel.
Millions of dollars continue to be invested by the Gas Research Institute and the Pipeline Research Committee International to research and develop improved safety practices. It is an investment in our industry—as well as an investment in enhanced public safety and protection of our environment.
In closing, let me reassure you that our industry sincerely believes that we can meet the three challenges—business, regulatory, and industry direction and leadership—and still meet the country’s growing energy demands with environmentally friendly, clean burning natural gas.
Most importantly, we can deliver this fuel of the future within a transportation system that is safe.
We will not forget the unfortunate incidents that occurred in the past but we also should not let them cast a shadow on the industry, its safety record, and its contribution to the best sustained economy we have had in our lifetimes.
We believe it is important to employ—AND strive to improve—effective safety practices not only because we live, work and play in the communities we serve but because it also is our business.
The interstate transmission of natural gas is not our only business.
So is integrity.
