Environmental Risk

Severe Weather Imperils Fuel Pipelines

Severe weather incidents are increasing pipeline loss frequency, especially in places where environmental risk was not previously a problem.
By: | April 3, 2017 • 3 min read

April showers bring peril to pipelines.

The hurricane season does not start officially until June 1, but spring rains and snowmelt highlight the growing peril to the aging energy infrastructure in the U.S. from severe weather. In most cases the leaks are small and contained locally, but underwriters see the emerging risk as one of frequency as much as severity.

In late October, the Associated Press reported that a “freak storm” around Williamsport, Pa., “caused a Sunoco Logistics gasoline pipeline to rupture, spilling an estimated 54,600 gallons into a tributary of the Loyalsock Creek that flows into the Susquehanna River at Montoursville.

John O’Brien, energy practice leader, Ironshore

The storm dumped as much as seven inches of rain on Western and Central Pennsylvania, triggering mudslides, turning roads into rivers and sweeping away at least two homes.

“The energy industry has environmental risks because their assets are set in places that have exposed named perils,” said John O’Brien, energy practice leader at underwriters Ironshore.

“These perils are not new. What is new is the greater awareness of weather events. Pipeline losses in particular seem to have greater frequencies. At least they are being reported more frequently and the losses seem to be bigger.”

Advertisement




O’Brien noted that weather is not the only variable in the equation.

“Part of the perception is that there is more material in storage than ever. Both crude oil and refined products. The tanks and terminals are full. Storage capacity is at an all time high.” When weather comes in, it takes longer to drain tanks, and fewer options on where to put displaced material.

“Pipeline people understand the issues,” said O’Brien. “In the past they mostly focused on system integrity [from an operational and maintenance perspective]. Now issues like ground subsidence are being discussed more and more. There is definitely heightened awareness.”

Marcel Ricciardelli, senior vice president, environmental division, Allied World, corroborated that, “yes, the experts in weather tell us that, yes, we are in a cycle of more, and more severe weather incidents. And that has affected our industry and the industries we cover.”

“When much of the energy infrastructure now in place was installed, that was based on past weather incidents and experience to that time. As a result, today, we are not just seeing more and more severe incidents; we are seeing severity in new regions.”

Marcel Ricciardelli, Senior Vice President, Environmental Division, Allied World

That has led to some underwriters changing the way they run their business from underwriting to capacity deployment.

“The property and casualty guys can give you a thesis on this,” said Ricciardelli. “On the environmental side things are more nuanced. I can tell you some of the things we are starting to look more at are things like above-ground tanks that are below grade, such as in a parking structure.

“We are alert to concentrations of things like that in urban areas. That goes for smaller tanks to larger bulk storage. Overall there are clearly shifting considerations for our industry.”

“One of the best things about environmental coverage is that it includes recovery services.” — Marcel Ricciardelli, senior vice president, environmental division, Allied World

Traditionally property policies do not include much environmental coverage, Ricciardelli explained. “Environmental tends to come in at two spots: a time element within the casualty tower, and also within pollution. For those, the event is not really the issue. The trigger is simply a release.”

After a release from any cause, Ricciardelli added that “the most important thing is access for recovery. If the release was caused by a mudslide from heavy rains, is there flooding? Is the area stable enough to begin recovery? Or was the landslide from seismic activity?

“One of the best things about environmental coverage is that it includes recovery services. Most of the big pipelines have their own, but for smaller operators the access to equipment and expertise is important.”

Advertisement




Recovery assets and preparation brings Ricciardelli back to the challenge of worse weather in new places. “There are landfills that were sited in places that were considered safe and are now flood zones.”

There are also environmental hazards that are not weather-related. Earthquakes associated with underground injection of wastewater have been a serious concern.

“The attention has been on homes and buildings with cracks,” said Ricciardelli, “but this comes back on the energy industry. There are pipelines and storage terminals in places like Oklahoma that have documented increased seismicity, and those facilities are not built to withstand earthquakes.”

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2017 RIMS

Cyber Threat Will Get More Difficult

Companies should focus on response, resiliency and recovery when it comes to cyber risks.
By: | April 19, 2017 • 2 min read
Topics: Cyber Risks | RIMS

“The sky is not falling” when it comes to cyber security, but the threat is a growing challenge for companies.

“I am not a cyber apocalyptic kind of guy,” said Gen. Michael Hayden, former head of the Central Intelligence Agency and National Security Agency, who currently is a principal at the Chertoff Group, a security consultancy.

Gen. Michael Hayden, former head of the CIA and NSA, and principal, The Chertoff Group

“There are lots of things to worry about in the cyber domain and you don’t have to be apocalyptic to be concerned,” said Hayden prior to his presentation at a Global Risk Forum sponsored by Lockton on Sunday afternoon on the geopolitical threats facing the United States.

“We have only begun to consider the threat as it currently exists in the cyber domain.”

Hayden said cyber risk is equal to the threat times your vulnerability to the threat, times the consequences of a successful attack.

At present, companies are focusing on the vulnerability aspect, and responding by building “high walls and deep moats” to keep attackers out, he said. If you do that successfully, it will prevent 80 percent of the attackers.

“It’s all about making yourself a tougher target than the next like target,” he said.

But that still leaves 20 percent vulnerability, so companies need to focus on the consequences: It’s about response, resiliency and recovery, he said.

The range of attackers is vast, including nations that have used cyber attacks to disrupt Sony (the North Koreans angry about a movie), the Sands Casino (Iranians angry about the owner’s comments about their country), and U.S. banks (Iranians seeking to disrupt iconic U.S. institutions after the Stuxnet attack on their nuclear program), he said.

“You don’t have to offend anybody to be a target,” he said. “It may be enough to be iconic.”

The world order that has existed for the past 75 years “is melting away” and the world is less stable.

And no matter how much private companies do, it may not be enough.

“The big questions in cyber now are law and policy,” Hayden said. “We have not yet decided as a people what we want or will allow our government to do to keep us safe in the cyber domain.”

The U.S. government defends the country’s land, sea and air, but when it comes to cyber, defenses have been mostly left to private enterprises, he said.

“I don’t know that we have quite decided the balance between the government’s role and the private sector’s role,” he said.

As for the government’s role in the geopolitical challenges facing it, Hayden said he has seen times that were more dangerous, but never more complicated.

The world order that has existed for the past 75 years “is melting away” and the world is less stable, he said.

Nations such as North Korea, Iran, Russia and Pakistan are “ambitious, brittle and nuclear.” The Islamic world is in a clash between secular and religious governance, and China, which he said is “competitive and occasionally confrontational” is facing its own demographic and economic challenges.

“It’s going to be a tough century,” Hayden said.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]