Carrier’s Liability – Kinder Morgan’s Achilles Heal

By July 22, 2014Issues

By Glen Thompson. At the last two information events, Kinder Morgan brought to Chilliwack a large team of professionals and specialized aids to cover an exhaustive range of issues. Resembling a Royal Commission, everything concerning the proposed pipeline was in the tow of a Subject Matter Expert and neatly secured in a rolling briefcase. The first audience was the full Board of the Fraser Valley Regional District (FVRD) and the second, an invited group of government regulatory officials, community leaders and representatives of major environmental organizations. Audiences with a formidable amount of assembled oversight.

The new pipeline, it seems, is as complicated as the first mission to the moon, with a robust 15,000 page draft plan, guiding a small army of civil engineers, scientists, and project leads. It took no less than nine expert presenters with technical analysts standing by, to present an hour and a half project overview to the FVRD Board. Sitting two rows deep, the project leads extolled advanced science and gleaned wisdom distilled from forensic analysis of past catastrophes. The presentation team successfully stickhandled their way through the Boards member’s queries; air quality, the depth of the pipeline in deep rooted agricultural crops, financial compensation capacity and riparian protection.

The second event was a long afternoon of Kinder Morgan being slow cooked by fully qualified, and at times pointed, questions from a highly informed group of community leaders, advocates and government agency analysts. Kinder Morgan walked away roughed up, limping a bit, but uninjured. Every concern it seemed, had a graph, a published opinion or a mitigation plan and supposedly every bit of it, was reasonable, given the daunting task of moving extremely heavy oil, over mountains, in February.

At the FVRD meeting, a single phrase, made by the pipeline’s head director, hung in the air like a high fly ball, I’ll never forget the finality in his voice, “Once the oil leaves the dock, Kinder Morgan holds no obligation or responsibility, even 10 metres out – that’s the carrier’s liability.” Nobody caught the ball.

The oil cargo that was loaded into the Exxon Valdez traveled safely through the supply pipeline from Prudhoe Bay without incident. The Alaska coast disaster had nothing to do with the pipeline, and everything to do with the carrier. The Kinder Morgan director’s sharp statement pulls the sheet off the question; Who will take Kinder Morgan’s oil out of the Port of Vancouver? West Coast oil tankers are a critical link in the supply chain between the Alberta Rigs and the far off Chinese refineries. The little known outcome from the Exxon Valdez case is worth considering when examining the full supply route.

The Exxon Valdez ran aground on Bligh Reef in 1989 dumping hundreds of thousands of barrels of oil into Prince William Sound. The ship’s Captain Joseph Hazelwood, an alcoholic, was reported to be intoxicated and had stepped away from the bridge at a critical moment. A lawsuit alleged Exxon negligently allowed a known alcoholic to be in charge of a vessel and failed to maintain a collision avoidance system that, if functioning, would have warned the crew. The system had been broken for over a year.

In 1994, International media outlets hammered out stories when a jury’s verdict announced Exxon would have to pay a massive $5.3 billion dollar fine. This was enough to pay for the cleanup, compensate 38,000 economic victims and punitively punish the corporation firmly enough to prevent it from ever happening again. The public was satisfied in the justice system and the media moved on.

IN 2002, Exxon appealed. The case was heard by the Ninth Circuit Court of Appeals and the fine was dropped to $4 billion. Exxon appealed. The fine was raised to 4.5 billion. Exxon appealed. The 2nd appeal ruling was struck down and the fine was reduced to $2.5 billion. Exxon petitioned for a rehearing but failed, the $2.5 billion fine was upheld.

After the accident, Exxon towed its ripped up vessel to California for repair. The cost of putting her back in service, $30 million dollars. In 1990 the US Congress passed a law (375 – 5) that prohibits a tanker that has spilled more than one million gallons of oil from entering Prince William Sound. In 1998 Exxon launched a legal action against the law and tried to return the ship to service on the Alaskan coast. They claimed the law unfairly targeted Exxon, and argued past incidents are not an indicator of an increased likelihood of a future accident. In 2002 Exxon lost the case and by that time the law had prevented 18 ships from entering the sound.

In 2007, Exxon filed a fourth appeal of the fine, this time in the US Supreme Court. Using past case settlements Exxon lawyers argued that a punitive judgement in a maritime case based on reckless behavior should not impose a fine greater than the amount of compensation damages. In 90 minutes Exxon’s lawyers reduced the fine by 2 billion dollars from $2.5 billion to $500 million. The 5 – 3 decision was supported by (former Monsanto attorney) Justice Clarence Thomas. Exxon paid what amounts to 10% of the original fine.

Exxon is based in New York. It is the world’s third largest company by revenue (est. $420 billion annually). It is readily subject to, and bound by, American law; but despite this, the prosecution of Exxon was largely unsuccessful. If a US Court has difficulty prosecuting a US company, how would a Canadian court fair prosecuting a Chinese company? The lesson of the Valdez is that petroleum exporting ports such as the Port of Vancouver need solid legal protection and regulations in place prior to spills. A Chinese Oil conglomerate is likely to be even more challenging to fine or regulate than Exxon. Who will ship oil to China, state-run China Shipping, Exxon’s shipping subsidiary, Liberian Oil Tankers?

The Kinder Morgan pipeline approval must include a regulatory mechanism for preventing any flavour of Liberian Oil Tankers, a financial bond formula to cover spills, and a double hull safe shipping certification, like the one in place in the Mediterranean. The pipeline should not be considered without these controls. The current pipeline approval system is as irresponsible as licencing a pub without a drunk driver law. Kinder Morgan needs to serve its oil responsibly. It is not reasonable or logical to separate a pipeline approval from tanker regulation.

The Exxon Valdez was renamed several times by Exxon and eventually sold to a Hong Kong company. She collided with another ship in 2010 and sent to ship breakers for scrap. Under her final name Oriental Nicety, she was the subject of a case in the Indian Supreme Court, beached and dismantled at Alang, India in 2012.

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