Case Study 1: Pipelines

David Levinson

Regional Petroleum balances

Terminal Restrictions

• Oil Pipelines are Common Carriers• FERC Regulates Rates and

Conditions of Service

Market ShareTotal Crude and Product Pipeline Market

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1980 1985 1990 1995 2000 2005

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Ton Miles

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Total Crude and Products Ton Miles Product Ton Miles Crude Ton Miles

Pipelines Water Carriers Motor Carriers

Railroads

Where People Stay

Supplying Refugees

US Crude Oil and Product Pipeline Network

Refined Products Oil Pipelines

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Crude Products Oil Pipelines

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Natural Gas Pipeline

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Natural Gas System in US

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Wolverine Pipe Line System Map

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Successor companies to Standard Oil:

• Standard Oil of Ohio - or Sohio now part of BP• Standard Oil of Indiana - or Stanolind, renamed Amoco - now part of BP• Standard Oil of New York - or Socony, merged with Vacuum - renamed Mobil, now part of

ExxonMobil• Standard Oil of New Jersey - or Esso (S.O.) - renamed Exxon, now part of ExxonMobil• Standard Oil of California - or Socal - renamed Chevron• Atlantic and Richfield - merged to form Atlantic Richfield or Arco - now part of BP - Atlantic

operations spun off and bought by Sunoco• Standard Oil of Kentucky - or Kyso was acquired by Standard Oil of California - now part of

Chevron• Continental Oil Company - or Conoco now part of ConocoPhillips

• Standard Oil of Iowa - pre 1911 - became Standard Oil of California• Standard Oil of Minnesota - pre 1911 - bought by Standard Oil of Indiana• Standard Oil of Illinois - pre 1911 - bought by Standard Oil of Indiana• Standard Oil of Kansas - refining only, eventually bought by Indiana Standard• Standard Oil of Missouri - pre 1911 - dissolved• Standard Oil of Nebraska - eventually bought by Indiana Standard• Standard Oil of Louisiana - always owned by Standard Oil of New Jersey (Esso)• Standard Oil of Brazil - always owned by Standard Oil of New Jersey (now Esso)• Standard Oil of Colorado - a scam to cash in on the Standard Oil brand in the 1930s• Standard Oil of Connecticut - A fuel oil marketer in Connecticut not related to the Rockefeller companies

Pipeline Timeline (19th Century)

• 1859: Colonel Edwin Drake Strikes Oil in Titusville, Pennsylvania• 1863: The Teamsters- Oil initially transported by horse to rail terminals

by Teamsters using whiskey barrels, giving the Teamsters a local spatial monopoly on delivery. The price to move a barrel of oil 5 miles by horse was greater than the charge to move from Pennsylvania to New York City.

• 1865: the first wooden oil pipeline built, about 9 miles long bypassing the teamsters.

• 1870: Standard Oil Company formed by John D. Rockefeller, largely produces kerosene for lighting and oil for heating

• 1879: Tidewater - The First Crude Oil Trunkline (built by competitors to Standard Oil, soon acquired by Standard Oil interests, extended to Buffalo, Philadelphia, Cleveland, New York)

• 1880s: The Rise of Russian (now Azerbaijani) Oil - Marcus Samuel developed the first organized kerosene shipping enterprise to compete with Rockefeller and send kerosene to Europe and the Far East.

• 1880-1905: Oil discovered in Ohio, Oklahoma, Kansas, and Spindletop, Texas

Pipeline Timeline (20th Century)

• 1905: Crude Oil Pipelines built from the fields in Texas, Oklahoma and Kansas to Eastern refineries.

• 1908: Henry Ford develops Automobile assembly line, gasoline becomes primary customer of oil, electricity continues to replace kerosene oil lamps.

• 1912: Sherman Anti-trust act finalized and Standard Oil dissolved.• 1913: the Valuation Act was the first attempt at Federal involvement in US pipeline

ratemaking.• 1917: Crude Oil Pipelines• 1920s: Pipeline Mileage Triples• 1935: The first product pipelines where built from Whiting, St. Louis and Kansas City to the

west.• 1945: Product Lines Grow During World War II (oil tankers were sunk frequently, pipelines

seen as more reliable).• 1944: pipeline regulation became the responsibility of the US Interstate Commerce

Commission who introduced the notion of reasonable returns in the 8 percent to 10 percent range.

• 1954: Stanolind, the Indiana Standard pipeline company, became the largest liquid pipeline carrier in North America. A position it held until the most recent Enbridge expansion.

• 1968: import refineries on the US Gulf Coast led to the construction of Colonial pipeline to supply the eastern seaboard. Colonial was the largest privately financed undertaking in US history in 1968.

• 1970 - 1977: The Trans Alaska Pipeline System (TAPS)

Fact Sheet PipelinesFACILITIES• Mileage of Oil Pipelines – 1998

– Crude trunk and gathering lines 114,000

– Product trunk lines 86,500– Total 200,500

• States in which pipelines operate 50

PERFORMANCE• Total ton-miles of crude and

products, 1998 619.8 billion• Percent of total intercity freight

(ton-miles) carried by pipelines, 1998 17.3%

• Percent of all crude oil and refined products transported (ton-miles) carried by pipelines, 1998 66.6%

FINANCIAL• Capital investment in oil pipelines,

1998 $ 30.2 billion• Operating revenues, 1998 6.9 billion• Oil pipelines’ share of national freight

bill, 1998 1.6%SAFETY• Total transportation fatalities in 1998

43,920• Number of liquid pipeline fatalities in

1998 1REGULATION AND EMPLOYMENT• Number of oil pipeline companies

regulated by the Federal Energy Regulatory Commission, 2000 183

• Total employees in oil pipeline industry, 1998 16,000

How Petroleum Pipelines Work