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EPA Reaches $100 Million Agreement in Olympic - Shell Pipeline Case

Release Date: 12/11/2002
Contact Information: Bill Dunbar
[email protected]
(206) 553-1203

December 11, 2002 Deal includes $87 million in state-of-the-art pipeline safety & spill prevention work in nine states

As part of a settlement of civil and criminal charges against the two companies for their roles in a June 1999 gasoline pipeline explosion in Bellingham, Washington, that killed three, the Olympic Pipe Line Company and the Shell Pipeline Company have tentatively agreed to spend approximately $100 million in civil penalties and measures to dramatically increase the safety of their pipelines in nine states.

While the government and the defendants have agreed in principle to the main terms, a final settlement is still contingent on completion of negotiations regarding language of the settlement documents, and also on court approval of the final settlement after public notice and comment.

The EPA, which led the prosecution of civil claims against Shell and Olympic, pushed pipeline safety and spill mitigation work as a major component of the settlement package. In addition to paying a $15 million federal criminal fine, Shell will pay $10 million in federal and state civil penalties and will spend an estimated $60-72 million on pipeline integrity work for its 2100-plus miles of pipelines in Oklahoma, Texas, Colorado, Kansas, Illinois, Indiana, and Ohio. Olympic will pay $5 million in federal and state civil penalties and spend an estimated $15 million on pipeline integrity efforts in Washington and Oregon. Olympic also will pay $6 million in criminal fines.

“The tragic deaths of Stephen, Wade, and Liam have had a profound impact on our work on this case,” said EPA Regional Administrator L. John Iani. “Their families’ unimaginable losses have been on our minds throughout this case and they have steeled us as we’ve worked to hold the companies accountable for their past failures and their current obligations to keep other American families safe.

“It goes without saying that this is a bittersweet victory for all of us. But it is fair to say that we are pleased to know that families and the environment across America will be better protected because of the over $70 million in pipeline safety upgrades that the companies will conduct.”

Q: What upgrades to pipeline integrity and spill prevention will the companies be conducting?

A: The settlements will require the companies to implement protective measures that go far beyond current legal requirements, and address the main causes of the Bellingham disaster. The plans include a wide range of measures: internal pipeline inspections, monitoring of construction activities near the pipelines, regular pipeline surveys, operator training, and programs to ensure that changes in the pipeline system are analyzed for their effect on the operations and safety of the entire pipeline.

Q: How long will the requirements last, and what pipelines will be affected?

A: The plans will each last for a minimum of five years. They apply to Olympic’s 400-mile main product pipeline system in Western Washington and Oregon, and to Shell’s four main product pipeline systems in Oklahoma, Texas, Kansas, Colorado, Ohio, Illinois, and Indiana.

Q: In what way do the various components of the plans go beyond current legal requirements?

A: The terms of the settlements will be more specific than the general legal requirements. Imposing these requirements in a Consent Decree will make them directly enforceable in court, rather than requiring new enforcement actions. The settlement also will call for independent monitoring contractors to monitor implementation of the settlement’s terms, and to report to EPA.

The internal inspection program will require the use of tools called “smart pigs” that pass through the pipelines and scan them for defects. The companies would be required to perform internal inspections on parts of their pipelines in any event, but this settlement will go beyond existing regulations by requiring internal inspections on the entire pipeline systems – sooner than they would otherwise be required – using specified state-of-the-art tools, and by imposing more stringent repair standards and time-lines for repairs of any pipeline defects detected.

Monitoring of third-party construction activity near the pipelines is required by law generally, but this settlement will have very specific requirements for both companies regarding actual presence of pipeline employees at any construction activity that is close enough to the pipelines to pose a risk of damage.

The settlements will contain requirements concerning regular physical checks of various components of the pipeline systems, analysis of the effects of pipeline system modifications, training of critical employees, more frequent physical surveys of the pipeline right-of-way, more stringent requirements for response to any exposed pipe, and more prompt and specific requirements for inspecting the pipeline’s electrical corrosion-prevention system.

Q: How much will these pipeline integrity programs cost the companies, and how much of that cost is in addition to the legal requirements that would otherwise apply?

A: The total costs to the companies can only be estimated. The estimated cost of the Shell program is between $60 and 72 million. An estimated $40-55 million of that cost represents additional requirements that would not be legally required in the absence of this settlement. The estimated cost of the Olympic program is $15 million, about $5 million of which would not be required in the absence of this settlement.