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Sinopec Warned Urbanization Threatened Pipeline Repairs

China Petroleum & Chemical Corp. (386) warned authorities in China two years ago that urbanization was hampering repair work on a crude oil pipeline in the eastern city of Qingdao. A blast last week at the pipe killed 55 people.

The pipeline had “several safety hazards,” Beijing-based Sinopec, as the company is known, said in a September 2011 report, submitted to the Environmental Protection Bureau in Weifang, a city near Qingdao. The report describes the 27-year-old pipeline as originally built in a sparsely populated suburb, now crowded by construction and a rising population. Qingdao is home to 7.66 million people.

The Nov. 22 crude oil spill and blast, the deadliest since at least 2005 according to the official Xinhua News Agency, highlights the challenges facing China in balancing safety with urbanization, as it rushes to add apartments, railways and factories. Premier Li Keqiang has championed urbanization as a “huge engine” of future economic expansion to revive slowing growth.

“On paper more urbanization is good, but it ignores the lack of government oversight and poor construction quality,” said Ding Xueliang, a professor who studies China’s modernization at Hong Kong University of Science and Technology. “The explosion in Qingdao is a huge lesson for the entire country.”

An oil slick is seen on the river of Jiaozhou Bay after an oil pipeline exploded, ripping roads apart, turning cars over and sending thick black smoke billowing over the city of Qingdao. Photograph:AFP/Getty Images Close

An oil slick is seen on the river of Jiaozhou Bay after an oil pipeline exploded,... Read More

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An oil slick is seen on the river of Jiaozhou Bay after an oil pipeline exploded, ripping roads apart, turning cars over and sending thick black smoke billowing over the city of Qingdao. Photograph:AFP/Getty Images

Sinopec fell 0.8 percent to HK$6.66 at the close of trade in Hong Kong. The stock has declined 5 percent since the accident.

Repair Impediments

“Originally the pipeline was located on the outskirts and it has now become a bustling downtown district,” Sinopec wrote in its September 2011 report. The company cited “many buildings” and a “densely populated” area as impediments to conducting pipeline repairs.

Sinopec stopped 306 cases, including building projects, that illegally interfered with its nationwide pipeline operations in the first nine months, one of the company’s pipeline units said in an October report.

China’s urban population growth is projected to accelerate to 33 million people a year moving to cities, according to a UBS AG report this month. That compares with 18.7 million people a year during 2001 to 2012. More than half of China’s population lives in cities, and urban dwellers surpassed rural residents for the first time in 2011, according to the National Bureau of Statistics.

The National Development and Reform Commission, China’s top economic planner, in September 2012 approved 2,018 kilometers (1,254 miles) of roads, 25 subway and inter-city rail projects and nine sewage-treatment plants. The rail projects alone are worth more than 800 billion yuan ($131 billion), according to HSBC Holdings Plc.

Serious Response

“The government has been at pains to ensure that it is seen as responding seriously to this incident,” Olivia Boyd, an energy analyst at IHS Global Insight, said in an e-mail. “We may see stronger policy action on industrial safety in industries beyond oil and gas pipelines going forward.”

Chinese President Xi Jinping has vowed to boost work safety and increase inspections in the wake of the disaster.

“A large-scale work safety check should be launched, with inspectors going deep into the production sites anonymously and unannounced,” Xi said, according to Xinhua.

In a separate incident, a crane at a high-speed rail construction site fell and caused a gasoline spill at a Sinopec pipeline in Guizhou province in southern China on Nov. 26, Xinhua reported yesterday. All residents within 2 kilometers of the leak were evacuated and the spill is being investigated, it said.

Increasing Urbanization

Sinopec operates 6,132 kilometers of pipelines throughout China, according to its website. PetroChina Co., the nation’s biggest energy company, operates the largest network with a total length of 66,776 kilometers as of 2012, according to its annual report of that year.

“A lot of the pipeline network needs to be redesigned to cope with increasing urbanization,” Lin Boqiang, director of Energy Economics Research Center at Xiamen University, said by phone. “There needs to be better government and company oversight and more disclosure so residents know what’s going on underneath their homes.”

Separating the pipeline business from the production and refining parts of the company would improve safety inspections and oversight, Lin said. China has announced it aims to increase competition in the energy sector, specifically targeting monopolistic companies.

“There’ll be a reassessment of pipelines and a move towards opening up pipelines to third-party participation and this will accelerate that kind of move,” Michal Meidan, a London-based analyst with Eurasia Group, said by phone.

Early Morning

Three calls to the office line and mobile phone of Lv Dapeng, Sinopec’s Beijing-based spokesman, weren’t answered during normal business hours today. Questions sent by text message seeking comment weren’t answered yesterday. Two calls each to the Qingdao and Weifang environmental protection bureaus went unanswered.

The explosion in Qingdao’s Huangdao Economic Development Zone highlights the problems posed by urbanization. The 249-kilometer pipeline began leaking oil in the early morning and emergency crews were dispatched to conduct repairs, according to a Xinhua report on Nov. 22. A fire subsequently broke out, causing the deadly blast, which also interrupted electricity and water supplies in the nearby area, the Qingdao government said. About 18,000 people were evacuated.

Employees Detained

Nine people have been detained in the wake of the incident, including seven Sinopec employees, the Huangdao district government said Nov. 25. The company suspended two senior officials in its pipeline unit, Sinopec said today in a statement. The employees, Party Secretary Tian Yimin and General Manager Qian Jianhua, had “direct leadership responsibility” for the explosion and will continue to help in the investigation, it said.

Sinopec warned authorities in the document submitted to Weifang, which is home to a section of the pipeline, that the “unceasing expansion” of the Huangdao zone impeded the company’s ability to make repairs. A second report last year reiterated the difficulties of repairing the pipeline amid rapidly growing cities.

Another section of the pipeline passing through Gaomi city, 63 kilometers north of the site of the explosion, had to be moved 21 kilometers because of the expanding conurbation, according to a statement published in the official Gaomi Daily newspaper in 2013. That section was also mentioned in a list of danger areas in Sinopec’s 2011 report to Weifang’s authorities.

“There is tension between industrial development and urbanization in China to a degree that there has not been previously,” IHS’s Boyd said. “Concern has shifted to the quality of China’s growth, rather than growth as an end in itself.”

To contact the reporters on this story: Benjamin Haas in Hong Kong at bhaas7@bloomberg.net; Aibing Guo in Hong Kong at aguo10@bloomberg.net; Rakteem Katakey in New Delhi at rkatakey@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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