Michael Gillard, 29 November 2004
A SpinWatch investigation
How BP tried to cover-up up its flawed operations in the Caspian that could lead to an environmental disaster. The investigation also reveals breaking news that the first bank consortium led by Italy’s largest bank, Banca Intesa, has pulled out over concerns about safety flaws and reputation risk.
THE CON-TRACT OF THE CENTURY
A special investigation for Spinwatch
by Michael Gillard
Tenth Anniversary
President George W. Bush broke from the campaign trail in
October to send a congratulatory message to his counterpart, Ilham Aliyev, in Azerbaijan.
The occasion was the tenth anniversary of the signing of
the so-called ‘Contract of the Century’ - a giant deal opening landlocked oil
fields in the Caspian Sea to western companies
and markets.
Central to the deal is the construction of a 1000-mile oil
pipeline from Azerbaijan’s
coastal capital through Georgia
to the Turkish Mediterranean.
The Baku-Tblisi-Ceyhan (BTC)
pipeline is intended to reduce Western reliance on Middle
East oil and the vagaries of Opec.
It is also part of a geopolitical struggle between Presidents Bush and Putin for control of the former soviet republics.
BP is leading the oil rush as pipeline operator and main
shareholder in the BTC consortium of eleven international companies.
BP chief executive Lord Browne told the Financial Times in 1998 there would be
no pipeline without ‘free money’. Government export credit agencies from the UK, US, France,
Italy and Japan responded.
They now form part of an international loan syndicate providing 70% of the
almost US$3 billion construction costs.
This ‘lenders group’ insist BP and its contractors are
working to the ‘highest standards’ and operate under an unprecedented ‘nine
layers’ of independent and rigorous scrutiny.
Publicly, BP says it is on target to start delivering oil
next spring. The pipeline, it claims, is 99% completed. The presidents of Georgia and Azerbaijan met recently to
celebrate the joining of a ‘golden weld’ at their shared border.
But a SpinWatch investigation has uncovered evidence of a BP
cover-up that reaches into the world’s leading banks and the heart of New
Labour.
Behind closed doors BP is at war with itself over the
safety of the BTC pipeline. A concerned group of managers and consultants in Baku fear the pipeline
has a major design flaw around the weld area, which if uncorrected could lead
to rapid corrosion and ruptures.
A special anti-corrosion sealant, supposed to last forty
years, is already cracking and peeling off. But internal reports, surveys and
laboratory tests suggest some BP mangers in London are pushing to bury the pipeline, and
with it persistent allegations of negligence and procurement fraud around how
the sealant was chosen.
The powerful House of Commons Trade and Industry Select
Committee recently concluded hearings on the affair and is
due to report early next year.
MPs have received disturbing evidence from senior industry
insiders and one of the most important whistleblowers to emerge from within
BP’s Caspian operation.
The ramifications of the parliamentary inquiry go beyond
British politics. Twenty nations have a direct involvement in the BTC project
and any delay would also have serious financial consequences for BP and its
much-vaunted reputation as a model of corporate social responsibility.
What follows is the story of how the oil giant tried to
spin its way out of the scandal with the help of international bankers,
politicians and the mainstream media.
Confidential Reports
The crisis
currently engulfing BP has its roots in a confidential lab report, one of
several key documents the oil giant has not disclosed to its lenders, the host
governments and the parliamentary inquiry.
It was early summer 2002 when a two-page memo landed on
the desk of Paul Stretch, BP’s technical manager in Baku. The memo was an assessment by the BP
projects team in London
of preliminary test results from Advantica
Technologies.
The
British laboratory was performance-testing anti-corrosion coatings supplied by
four companies from Canada, Germany and Britain. At stake was a
multi-million dollar deal to coat the 150,000 field joints on the BTC pipeline.
Every
section of steel pipe comes pre-wrapped in a plastic ‘jacket’ to protect it
from external corrosion. After the steel ends are welded together on site, this
so-called field joint, the most vulnerable point on any pipeline, is coated to
also seal the weld from corrosion.
To
ensure full protection, the field joint coating must adhere to both the steel
and its plastic jacket for the entire design life. In this case, forty years
underground.
The
BTC pipeline is certainly BP’s most challenging in engineering terms. It will
snake through densely populated areas, archaeological sites, nature reserves,
the Caucasus Mountains and major earthquake zones in Turkey before reaching a new marine
terminal at Ceyhan.
Paul
Stretch and Rod Hensman, BP’s senior project
engineer, were alarmed at what appeared to be a strong push in the memo for a
liquid epoxy paint manufactured by the Canadian firm, Speciality Polymer
Coatings (SPC). It had no track record on a plastic coated pipeline.
The
two BP managers contacted a leading pipeline corrosion engineer for a second
opinion. Derek Mortimore was already advising BP on
its $3.2 billion offshore Azeri-Chriag-Guneshli
field, which the BTC pipeline is intended to connect to European markets by
2005.
A
pugnacious and compact man, Mortimore is one of a
handful of world experts called on when pipelines fail. ‘We are the real
environmentalists. We try to stop pipelines from rupturing. The most frequent
cause is external corrosion, mostly down to the coating,’ says the
sixty-year-old Liverpudlian.
In
his time, he has advised Saudi Aramco, the world’s
largest oil producer, and Gazprom, the world’s
largest gas producer. But his experience in the Caspian would eventually lead
him, albeit reluctantly, to speak out to MPs.
‘I told Stretch the
basic premise for using that type of coating on the BTC pipeline was wrong,’ says
Mortimore. ‘Liquid epoxy paints have very limited
flexibility and adhesion when applied to plastic-coated pipeline and would not
protect the field joint from rapid corrosion. I felt BP would be burying
thousands of environmental time bombs.’
Hensman took heed. On 27 July he wrote urgently to
materials consultant Trevor Osborne, who was driving the selection process from
London. ‘We
should not be a testing ground for new materials…the selection of the field
joint coating is one of the most important technical decisions on the project,’
Hensman wrote.
Osborne is a key member of the projects team BP had set up
after awarding Bechtel and John Brown Hydrocarbons the $150 million engineering
and procurement contract for the Azeri and Georgian sections of the pipeline in
June 2001.
The projects team dismissed the concerns of the BP men in Baku, without showing
them the final results of the confidential Advantica
report.
This concluded that the preferred sealant, called SPC
2888, had failed to consistently perform well in all ten tests and had actually
performed ‘poorly’ on certain key ones like impact resistance and flexibility.
Adhesion is another watershed test that any field joint
coating must pass. The memo attached to the confidential Advantica
report recognised there was a ‘question’ over SPC 2888’s ability to stick to
the plastic coated pipeline. This bond ‘dramatically reduced’ in cold weather,
it said.
The memo also reveals that the BP projects team simply ‘omitted’
from the ranking table the results of these tests and others like drying time
and water absorption, where SPC 2888 had also performed badly. This meant it
came first.
The
apparent push for SPC was supported by a BP peer review whose two members did
see the controversial Advantica report and then met
with the projects team on 5 September 2002.
The
minutes show construction consultant Jim Mooney from the Upstream Technology
Group, and Kevin Muller, BP’s global integrity assurance manager, recognised
SPC 2888 was ‘unproven’ on plastic-coated pipeline and marked ‘a step change in
present industry practise, both technically and commercially.’
They
recommended a full field trial ‘to ensure repeatable performance’ before
selecting it as the field joint coating. Further tests on alternative coatings
were also recommended as a ‘fall back’ in case SPC 2888 failed during the
construction phase.
It
looked like BP’s much-vaunted management culture had caught the problem before
it was too late. But documents seen by SpinWatch suggest neither recommendation was implemented.
Instead,
on 2 October the projects team issued an extraordinary field joint coating
specification prepared by Osborne.
This
is the legally binding instruction to the contractor responsible for buying and
then applying the coating on site. In it, BP took the highly unusual step of
nominating SPC 2888 as the only sealant to be used on the 60,000 field joints
in the Azeri and Georgian sections of the oil pipeline.
The
exclusive nomination, based entirely on the undisclosed Advantica
report, was worth many millions of dollars to the Canadian firm.
SPC
2888 would also be the sole coating used on a parallel gas pipeline BP is
building from its Shah Deniz field in the Caspian to Turkey. This is
due for completion by 2006.
The specification appears to violate the spirit if not the
letter of BP’s own ‘Corrosion Control and Monitoring Philosophy’, a document
ironically also written by Osborne. It stressed that the main pipeline and
field joint coatings must be ‘proven’ and ‘compatible’ with each other.
Stretch
immediately asked Mortimore to review the
specification. The consultant’s seven-page report, dated 10 November 2002, was
highly critical. Mortimore described the
specification as ‘utterly inappropriate to protect the pipeline’, and the
selection process he said was ‘seriously flawed’.
Mortimore concluded that a single source nomination would leave BP legally and
financially exposed to massive damages and ‘astronomical’ repair costs when SPC
2888 failed to adhere to the plastic. He also predicted the sealant would crack
in the colder months because it had known drying problems.
Mortimore
had previously arranged for four international companies to demonstrate
state-of-the-art, proven field joint coating systems on plastic-coated
pipeline. But this was cancelled under pressure from the projects team he told
the parliamentary inquiry.
Death Warrant
The
three coating firms that lost to SPC were all suspicious of the selection
process. Their willingness to do something about it was unusual for an industry
where small firms are wary of upsetting major oil companies.
Canadian
firm, ShawCor, which makes a field joint sealant
known as a shrink sleeve, was so alarmed that it commissioned the same Advantica scientists to retest for adhesion and flexibility
on plastic coated pipe using the rigorous British Transco CW6 standard and a
Canadian standard. The results, also dated July 2002, were extraordinary.
ShawCor’s
product passed well. But SPC 2888 ‘failed’ all tests very badly. The liquid
epoxy coating came off the pipe in large pieces and showed very poor
flexibility – it snapped at three times below the minimum requirement. Either
failure would have disqualified its use in the UK.
Meanwhile,
British firm E.Wood Ltd adopted a more direct
approach, conscious of the effect on future relations with BP. In October 2002,
managing director, Chris McDonnell wrote to the oil company alleging the
selection process had been improperly manipulated or ‘slanted’ towards SPC.
In
a heated exchange of letters with Jim Mooney and David Winter, BP’s compliance
manager, McDonnell further alleged there was ‘a very close association’ between
Osborne and SPC. This was a reference to a corrosion consultancy and materials
supply company Osborne had tried to set up in 2001 with SPC’s
UK
agent Mike Bird before the selection process was completed.
It
also emerged that Bird had previously been sacked from a British coatings firm
over allegations that he’d leaked commercially sensitive information to a
foreign competitor.
In
November 2002, Mooney launched an internal probe into what BP was now calling
the ‘procurement fraud allegations’ surrounding the selection of SPC.
Mortimore
provided two BP auditors with a dossier of evidence, including the second Advantica report commissioned by ShawCor.
He
also gave them a technical report from energy giant TransCanada,
which operates a network of 38,000 kms of pipeline in
North America. Its senior scientist had
concluded back in the late nineties that liquid epoxies were ‘not compatible’
with plastic coated pipe after they failed all performance tests.
BP
ignored all this evidence and sacked Mortimore
shortly after he’d submitted his dossier. ‘I think what signed my death warrant
was my review of Osborne’s specification,’ he says. He told the committee that Winter had threatened to bankrupt him if he blew the
whistle.
The
following month the internal probe cleared BP and its contractors of any
unethical behaviour. However SpinWatch has learned that the auditors did not follow up
important evidence and witnesses. BP has refused to comment on this.
Furthermore,
the oil company refuses to release the auditors report. Neither
the lenders group, the parliamentary inquiry or government ministers
have seen it.
Chris
McDonnell of E.Wood recently told MPs that BP is
still trying to cover up a ‘highly questionable’ selection process that he
fears will lead to an ‘environmental disaster.’
E.Wood
did try to alert the BP board, including making a direct approach to deputy
chairman Sir Ian Prosser, who sits on the audit committee. But he says, ‘[They]
didn’t move an inch.’
And
what about the third coating manufacturer involved in the original Advantica test? Their story raises further question marks
over the long-term safety of the BTC pipeline.
Goldschmidt,
the materials division of German chemical giant Degussa,
manufactures Protegal 3210. It came last in the
original Advantica test.
The
result made Goldschmidt suspicious, especially because BP and Bechtel were
already using their product on a plastic-coated pipeline in Algeria.
Privately,
the firm felt ‘the selected system (SPC 2888) had been established before any
testing was completed,’ a senior Goldschmidt source revealed.
But
for one very good commercial reason they stayed silent: Botas,
the Turkish state oil and gas firm, BP’s primary contractor for this longest
section of the BTC pipeline, had selected Protegal to
coat the remaining 90,000 field joints.
Botasconfirms that
Bechtel and BP, which have an overall engineering assurance role across the
three countries, did not disclose the Advantica
report.
GokemCologlu, deputy project manager for Botas
said BP should have disclosed the negative test results. But he said Botas would still have gone for Protegal
over SPC because it had ‘a traceable application.’
BP has declined to comment on why it would allow the
Turkish section of the pipeline to be coated with a product it disqualified as
unsuitable for Azerbaijan
and Georgia.
The oil giant’s silence on this issue is deafening given that it is SPC’s coating that went on to fail so badly in the field.
The Cracks Appear
The
first field joint was coated with SPC 2888 in August 2003. Work progressed well
in Georgia
during the summer months. But by mid-November what Mortimore
had predicted a year earlier came true. BP contractors discovered the field
joint coating was cracking and failing to adhere to the pipeline’s plastic
jacket.
Twelve
international pipeline firms, corrosion consultants, coating forms and industry
bodies consulted by SpinWatch
all expressed concerns about the selection process and the use of a liquid
epoxy on plastic coated pipeline.
‘I
was extremely surprised to find the selection process had been incomplete and
some of the major testing regimes weren’t carried out until joint coating work
was progressing,’ says former head of corrosion at British Gas, David Norman.
He’d help write the CW6 pipeline industry coating
performance standard in 1977 and is the current UK expert on the International Standards
Organisation pipe joint coating work group.
'Allowing
only one protective material to be used, particularly on such a large and
important project, is very uncommon. I’ve never seen a single sourced large
diameter pipeline coating anywhere in 40 years,’ he added. ‘The known lack of
flexibility [of liquid epoxy coatings] and lack of ability to adhere directly
to polyethylene (plastic) coated pipe gives extra concern.’
In
November 2003, BP secretly suspended coating work on the BTC pipeline for ten
weeks. The Georgian Government confirms it was not aware of the reasons behind
the stoppage. Meanwhile BP briefed the local media and oil correspondents that
it was due to ‘bad weather’.
During
tense secret meetings in Tblisi and London the BP projects team tried to blame
the cracking on contractors Spie Capag
and Consolidated Contractors Company who are responsible for the Georgian and
Azeri sections respectively.
BP
claimed British firm, Pipeline Induction Heating (PIH), had misapplied the SPC
coating. The contractors have never accepted this. And PIH maintains that the
specification was ‘incomplete’ and BP had forced them to use the ‘wrong’
coating.
BP
compliance manager, David Winter, apparently warned contractors against leaking
to the media during what David Norman describes as a ‘very acrimonious’ meeting
on 5 January 2004 at Heathrow Airport. By this time PIH had hired Norman as a consultant.
Winter
declined to comment. Certainly the timing of the cracking could not have been
worse for BP. It was in the middle of negotiating massive loans from the
International Finance Corporation (IFC), the private sector arm of the World
Bank, and the European Bank of Reconstruction and Development (EBRD) worth $500
million.
The
British government’s Export Credits Guarantee Department (ECGD) had also just
pledged $106 million cover for a syndicate of fifteen international commercial
banks, including the Royal Bank of Scotland, BNP Paribas, ABN Amro and Banca Intesa.
However,
BP kept the field joint coating failure from the lenders group and from an US engineering
firm the group was using to monitor the BTC project.
The
firm, WorleyParsons, had raised with BP in early 2003
‘the possibility of [coating] failure’ and recommended further trials given ‘concerns’
over ‘the compatibility of the field joint coating with the pipe coating’ and
its ‘ability to maintain its integrity for the 40 year design life.’
BP
had assured WorleyParsons that SPC 2888 was properly
selected and claimed the Advantica test proved this. WorleyParsons took this false assertion on trust. But BP
didn’t disclose the test results or Mortimore’s
critical reports to it.
So
it was that on 3 February 2004, BP secured the full $2.6 billion multilateral
loan at a glitzy ceremony in the presidential palace in Baku packed with well-oiled international
energy correspondents who lapped up the spin.
Cover Up
The
presidents of Azerbaijan, Georgia and Turkey had no idea BP was covering-up the
cracked field joint coating until the Sunday
Times revealed it twelve days after the financial ceremony.
Trade
minister Mike O’Brien was put into bat for the British government. His
insistence that the pipeline was still safe gave the expression Blair Petroleum
a greater air of authenticity.
Weeks before the newspaper expose, O’Brien had recommended
the BTC pipeline to Parliament in these terms: He said the decision to
underwrite the project with $106 million of public money was made after ‘a
rigorous assessment of the risks and a thorough review of the environmental,
social and human rights impacts.’
Under
the loan agreement, BP is obliged to make the lenders aware of any issues that
might affect the integrity of the pipeline. Despite BP’s non-disclosure of the Mortimore report or the failing field joints, O’Brien
refused to accept the oil giant had transgressed. Nor would the minister accept
there had been any due diligence failures by his own officials at the ECGD.
In
fact, the ECGD officials maintained that the cracking problems were ‘routine’
and suggested BP was correcting it, so the pipeline remained ‘on budget and on
schedule.’ They declined to meet Mortimore.
BP
refuses to say how much of the pipeline was welded, coated or buried by
February 2004. An independent audit of the failed coating, pipeline experts and
campaigners argued, was the only socially and environmentally responsible
course of action. But BP convinced the government and other members of the
lenders group that this was unnecessary.
Instead,
the oil company spun its line through the ECGD press office that the cracking
was an ‘application problem’ caused by its contractors, which the oil company
had resolved by using extra heat to dry the coating on the field joint.
But
the experts counter that this disingenuously conflates two separate problems –
the cracking and the lack of adhesion. The extra heating will help the SPC
coating dry on application, but this does not change its chemistry to make it
adhere to plastic.
TransCanada’s
senior scientist, Robert Bauer, put it simply in a document given to BP’s
auditors back in 2002. ‘The coating may be applied and [dry] to look
acceptable, but once [buried] and operation of the pipeline is started, the
coating will fail.’
According
to Dr John Leeds, a world expert in the problems of protective coating systems,
‘the chemistry is totally wrong.’ Unless the coating is replaced with a field
joint system that works on plastic the cracking and flaking will continue while
underground, leaving the steel dangerously exposed to rapid corrosion, he
warned in a submission to the select committee.
PIH
is unhappy at being publicly blamed in Parliament for the failed SPC 2888 field
joint coating. The company’s position is strengthened because BP has
exclusively nominated SPC 2888 as the only product the contractors can use.
Consequently, financial liability for delays and repairs will in large part be
down to the oil company. This helps explains why to date PIH has not incurred
any financial penalty for its alleged misapplication of the coating.
Nevertheless,
the lenders group propagated the spin that it was the contractors’ fault, and
in March 2004 allowed BP to draw down on the first tranch
of the $2.6 billion loan. The BTC consortium partners used this to immediately
recoup most of their constructions costs.
In
April, BP went on a PR offensive to steady other investors’ nerves. The banks
were invited to a presentation in London
by BP spin doctors Clare Bebbington and Toby Odone entitled ‘Reputation and Communication Issues’.
One
of the issues was ‘NGO monitoring.’ This apparently involved a plan to split
more radical critics from perceived mainstreamers like the World Wildlife Fund.
The
only consortium member unwilling to swallow outright BP’s spin was Banca Intesa, Italy’s
largest bank, which had invested $60 million in the BTC project. It was already
under domestic pressure to withdraw from controversial projects after a stormy
AGM following the Parmalat scandal.
Before
attending the BP presentation Intesa executives
sought a secret meeting with Derek Mortimore. A
senior Banca Intesa source
said they were ‘very disturbed’ and ‘staggered’ by the scale of the problem and
the lack of due diligence.
The
Italian bank had only agreed to invest because of the involvement of the World
Bank, said the source. After the London
meetings Banca Intesa chief
executive Corrado Passara
received a report in which Mortimore was described as
someone whose argument deserved ‘great consideration.’
Over
the summer of 2004 the bank’s project finance team were given the green light
to quietly sell its entire holding in the BTC pipeline. So far it has only
managed to offload a third. Sources close to the bank say this was sold at a
loss. Intesa said on Friday it is currently ‘negotiating
with several parties the complete sale of our position.’
Confidence
in such mega project is essential and the pull out of such a major bank is a
major blow to BP’s position. A second crack in the BTC project has opened up.
MPs Investigate
The
Trade and Industry Select Committee was already investigating
ECGD performance when the BTC scandal erupted.
MPs became sufficiently convinced there was a prima facie case of due diligence failure that in May 2004 it announced a separate inquiry into the field joint coating. Committee chairman, Martin O’Neill MP described the matter as a ‘cause celebre.’ The Labour backbencher and his committee had in the past played a major role in exposing concerns over the contentious Ilisu Dam project.
When the Financial Times made inquiries, BP’s oleaginous spin doctor Toby Odone tried to claim the parliamentary inquiry had nothing to do with the oil company.
The lenders group had already commissioned a report by WorleyParsons into the Sunday Times allegations. It was ready by May but the report was not presented to the committee until late July; too late for MPs to hold a hearing before the long summer break. This had the coincidental effect of allowing BP to continue building the flawed pipeline with increased urgency.
The pipeline is expected to start pumping in mid-2005. BP is expecting to more than double production in its ACG field. And together with deepwater activity in the Gulf of Mexico, the increased crude moving through the BTC pipeline is expected to drive the BP group’s oil production to between 3 and 4 per cent next year. Any delay would also affect BP’s project partners, the Azeri government and global oil markets.
The WorleyParsons report exonerated the lenders and BP. It said the selection of SPC 2888 was ‘very thorough.’ But once again this was not the real picture.
The WorleyParsons report was billed as ‘independent’ but it was wholly reliant on documents provided by BP and SPC. Furthermore, it admits that nothing was done to ‘independently verify’ any of this information was ‘comprehensive, complete, accurate or up to date.’
Nevertheless, BP and the lenders seized on the conclusions, as if they were a finding of fact, to counter the growing clamour for a truly independent audit.
WorleyParsons had also failed to interview any of the critics of the selection process and wasn’t given all of Mortimore’s reports. Similarly, BP did not disclose the two Advantica reports.
Jim Powers of WorleyParsons counters that the lenders group limited the remit to a desktop study. ‘We did what we were instructed to do. And you can call [the lenders group] to find out why they didn’t go into it further or want it gone into further.’
Powers admits that not only had the BTC consortium paid for the study but also BP had vetted the report before it was sent to the select committee. ‘I’m sure that there were some things that were taken out. Probably names that might have been embarrassing to people or any confidential information…[The lenders group] asked for input on what might be embarrassing to individuals.’ He didn’t name them.
BP wouldn’t say who in the oil company had vetted the report. But leaked documents show that the same BP projects team who selected the faulty field joint coating are now in charge of determining the remedial work and are still insisting on using SPC 2888 to recoat or repair any cracked or otherwise failing field joints.
Trevor Osborne and David Fairhurst, BP’s corrosion engineer consultant, carried out a limited inspection between March and June this year on a small section of pipe in one region of Georgia. Even so, they calculated that 1400 field joints in a 16-kilometre section needed to stripped and recoated. Over one quarter of all field joints in Georgia, it was conceded, were unsafe.
The admission makes a mockery of trade minister Mike O’Brien’s earlier claim that the cracking was routine and did not represent a materially adverse effect to the integrity of the pipeline.
More remarkably, the Osborne report, dated 18 June, reveals a secret plan to bury the 1000-mile pipeline without fully testing whether all welds are properly sealed to prevent leaks. BP withheld this from the lenders group and from the parliamentary inquiry.
The report states that a simple test on the field joint to see if SPC is bonding properly has been ‘limited’ because of a ‘desire to reduce repair frequency.’
The report also reveals an intention to bury without repair any crack in the SPC coating of six inches or less. Dr Leeds condemned this as ‘disgraceful’ in his submission to the parliamentary inquiry.
One of the main concerns is it makes the parallel oil and gas pipelines susceptible to stress corrosion cracking. A rupture and explosion in one buried pipeline would seriously damage the other and have ‘a high prospect of significant environmental contamination’, says Dr Leeds. David Norman maintains he raised stress corrosion cracking with BP earlier in the year but felt his concern fell on deaf ears.
Farmers in Georgia interviewed by SpinWatch are already fearful that the parallel oil and gas pipelines are being built too close to their village.
The Osborne/Fairhurst report also reveals that the coating problems extend to the pipeline’s plastic jacket. This too was kept from the lenders group and the select committee.
The report says: ‘Many of the joints inspected were contaminated or showed signs of damage other than the cracking phenomenon.’ These include:
• The plastic jacket has come away from ‘a large proportion’ of steel pipes at the field joint interface.
• Damage to the plastic jacket on the overlap area where it is covered with SPC 2888.
• Damage also caused by the welding and field joint coating processes.
• Damage caused where the plastic coating is resting on large rocks prior to burial.
In May, BP commissioned a survey of the buried pipeline in Azerbaijan and Georgia to locate cracks and holes using a special technology known as DCVG. It is on this basis that the oil company will decide what to dig up.
The report suggested there are 23 ‘anomalies’ classified as small and therefore not worthy of repair. But Dr Leeds, a world expert on DCVG surveys, has told the parliamentary inquiry that it was ‘very selective’ in its scope and the equipment calibrated to ensure ‘minimum coating problems’ were picked up. He says the survey should be redone on the whole pipeline.
Internal BP documents show the BP commissioning and operations team in Baku share his concerns. They will take over the completed pipelines from the project team but operations are already worried about the continued use of SPC 2888.
They feel the projects team did the DCVG survey to ‘prove’ everything is fine, and not to appraise the true scale of the coating failing. They point out that the survey doesn’t deal with the integrity of the buried field joints – the very point it was commissioned to address.
BP operations believe all small defects in the coating are potentially significant. They wanted to independently review the field joint coating issue but were over-ruled by London.
The documents show that on routine pipeline patrols BP operations staff discovered cracked field joints with ‘rust seeping through the coating indicating disbonding.’
Operations managers are not convinced that all joints coated before the stoppage in November 2003 have been properly surveyed and a proper remedial strategy is in place. They are also concerned about welding and the corrosion damage caused where unburied pipe had been allowed to gather water.
The leaked documents reveal a major schism within BP, which has come a full circle since Stretch, Hensman and Mortimore stood up to the projects team in 2002 and were slapped down.
Unless operations managers certify the pipeline as safe, BP cannot offload onto the consortium of commercial banks the enormous financial liability it carries.
It remains to be seen who will win the battle inside BP between those who built the pipeline and those who must operate it safely.
Chief executive Lord Browne and the BP board show no sign of intervening. Browne, who New Labour made a so-called People’s Peer in 2001, rebuffed Mortimore’s direct plea to intervene when he wrote to him this March.
The letter said: ‘I have never before witnessed a situation where the client proceeded with construction when he knew that a significant element of the works was going to fail and had evidence in his hand of such failure a year before construction started.’ BTC chief executive Michael Townshend replied for Browne saying he could see no value in a meeting.
Ignored warnings
When three very grey ECGD officials appeared in front of the select committee on November 16 they were forced to admit for the first time that the vital field joint coating system had no track record, contrary to past assurances.
David Allwood, ECGD business principles adviser, offered the committee this startling insight into their thinking. ‘Expecting the BTC pipeline to operate safely without interventions for its forty year life span would be remarkably optimistic,’ he said.
‘No it wouldn’t,’ counters an industry expert who asked to remain anonymous. ‘What would be remarkable was if they have to intervene during its working life. We are engineers not soothsayers. Pipelines are designed on proven evidence to work. But in the case of BTC it has an in-built flaw and will eventually fail.’
Part of the problem, says Mortimore, is the outsourcing of engineering experience by major oil companies over the last decade. Like many industries, the energy sector was caught up in the cost-cutting trend in the 1990s that saw core operations, such as corrosion, inspection and procurement, outsourced. This created a boon for oil consulting houses, but gave rise to potential conflicts of interest as the number of clients dwindled following the mega-mergers in the same period.
All eyes are now on the committee’s report, which is due in the New Year. MPs could recommend an independent audit and suggest referring the procurement fraud allegations to the police.
Nick Hildyard from campaigning group The Corner House issued a stark warning to the ECGD. He promised to drag BP executives and government officials into court if the pipeline leaks and people and the environment are harmed. ‘There is a paper trail showing they were warned.’
Ends.
Anyone with further information can contact Michael Gillard on 07949 964354 or email
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