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Expert voices fears over oil-spill liability

Expert voices fears over oil-spill liability

By Peter O'Neil, Postmedia News July 6, 2012

Canadian and especially B.C. taxpayers are not adequately protected if Enbridge Inc.'s proposed Northern Gateway oilsands pipeline suffers the same kind of catastrophic failure that resulted in a $765 million US spill in Michigan two years ago, a former senior insurance executive says.

Robyn Allan, former chief executive of Insurance Corp. of B.C., said the 2010 U.S. disaster proves Enbridge is underestimating the potential of human error turning a relatively minor spill into a major one.

She made the assertions in a submission filed last month at the request of the Joint Review Panel, established under the authority of the National Energy Board and the Canadian Environmental Assessment Act.

The panel has sent written questions to Enbridge as well as to Allan about the company's ability to cover costs if there is a massive spill. It is due to release its findings next year.

The panel was established by the Harper government to consider the economic, social and environmental consequences of the proposed $5.5 billion megaproject.

Enbridge told the panel this year that if insurance does not cover damages in the event of a spill, the money could be raised from the company's cash reserves, by borrowing, or even by selling assets.

"Regardless of whether or not insurance covers losses and liabilities of Northern Gateway and/or third parties, Northern Gateway would make good the damages which it has caused," the company said.

But in her submission, Allan pointed to the corporate entity that will own and operate the Alberta-to-B.C. pipeline - the Northern Gateway Pipelines Limited Partnership - will be distinct from the Calgary based corporate giant Enbridge Inc.

"The purpose of the structure Enbridge has chosen - a limited partnership - is to limit the exposure investors have for liabilities of the company, not to 'make good' on [a] catastrophic spill event," she told the panel. "Enbridge is claiming something it cannot guarantee the limited partnership will deliver."

She said a major spill that resulted in an extensive shutdown of the pipeline operation would compromise the economic viability of the project, limiting its ability to generate sufficient cash flow to repair damage and satisfy claims.

The ability to cover costs would be made worse if economic conditions, such as lower world oil prices, and the higher cost to run the pipeline made it more attractive for shippers to seek alternative ways to get oilsands crude to market.

She mentioned in an interview this week options such as the Kinder Morgan pipeline from Alberta to Burnaby, which will undergo a major capacity expansion if the company gets its proposal approved by the Harper government.

Allan also challenged the company's claim that it could sell assets, given that the two pipelines and the marine terminal in Kitimat are the only significant assets of a single industrial megaproject.

"The sale of assets on a single integrated system is a form of cannibalization."

Allan said the company should be required to purchase a dedicated insurance policy that would cover at least $1 billion in claims.

She also urged the panel to consider ways to make Enbridge Inc. liable for damages if the limited partnership falls short.

Enbridge, asked by Postmedia News to respond to Allan's assertions, said a statement: "As a responsible company, we assess exposures to risks on an ongoing basis to identify, control and mitigate potential impacts to the public and to Enbridge."

While insurance is "one strategy" to manage risk, "commenting on what insurance coverage will be available in the global insurance market when a given proposed project is complete is speculation." Enbridge said it "will not compare past events with possible speculative future events, projects or economic situations that cannot be known."

Allan said in her submission to the panel that Enbridge is basing its risk assessment in B.C. and Alberta on the company being able to detect and deal with leaks within minutes. She pointed out that it took 17 hours before the company reacted to the Michigan spill of more than 20,000 barrels of bitumen crude.

That 17-hour delay after the first alarm warning was sounded was cited repeatedly in the U.S. government's explanation earlier this week of a $3.7 million US fine.

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