Crude Petroleum Pipelines

SIC 4612

Companies in this industry

Industry report:

This category covers establishments primarily engaged in the pipeline transportation of crude petroleum. Field gathering lines are classified in oil and gas extraction industry sections. This major group includes establishments primarily engaged in the pipeline transportation of petroleum and other commodities, except natural gas. Pipelines operated by petroleum producing or refining companies and separately reported are included. Establishments primarily engaged in natural gas transmission are classified under SIC 4922: Natural Gas Transmission.

Industry Snapshot

In the early 2010s, there were approximately 337 establishments involved in transportation of crude oil by pipeline across the United States. Crude oil production in the United States peaked during the 1970s when daily output reached 9.4 million barrels per day. By the first decade of the 2000s, production had declined significantly, and in 2008 oil production was just under 5 million barrels per day. As a result, U.S. pipelines declined from almost 226,000 miles of pipelines in 1975 to approximately 215,000 miles in 2008. By 2010 U.S. firms in the industry operated a network of approximately 168,000 miles of pipeline, according to the Association of Oil Pipe Lines. Refined petroleum products accounted for about 47 percent of liquids transfer, while crude oil accounted for 52 percent. In 2009 total revenue for the establishments providing pipeline transportation of crude oil was estimated at $3 billion by the U.S. Census Bureau.

Notwithstanding the dependence of the world's economy on crude oil as a fundamental source of energy, the crude petroleum pipelines industry experienced limited growth, stemming from profound structural changes in both the global market for crude oil and the world economic order. Changes in factors affecting the consumption and production of crude oil affects crude petroleum pipeline establishments since the demand for pipelines to transport crude oil is a derived demand. In the middle of the first decade of the 2000s, U.S. and global demand for crude oil was growing rapidly, driving prices above $94 per barrel in 2009. Prices continued to climb, and by November 2011 had exceeded $106 per barrel, according to the Energy Information Administration (EIA).

The crude petroleum pipeline industry faced several challenges at the end of the first decade of the 2000s and early 2010s. These challenges include increasingly stricter environmental protection regulations, the development of natural gas as a substitute for crude oil-based energy products, the depletion of crude oil reserves, and the difficulty in securing right-of-way access for pipeline production.

Organization and Structure

The crude petroleum pipeline industry consists of capital-intensive companies. As start-up costs for capital-intensive organizations are high, entry into the industry is restrictive, as indicated by the relatively small number of firms operating with headquarters in the United States. However, the day-to-day maintenance of capital-intensive industries tends to be relatively moderate, enabling successful companies within the industry to take advantage of economies of scale.

The overwhelming majority of crude petroleum pipeline companies with corporate offices in the United States operated as subsidiaries of other corporations. Of the companies headquartered in the United States, only a few were independently listed on any stock exchange. Many of the subsidiary companies were affiliated with the major oil company giants. Examples include ExxonMobil Pipeline Company and Chevron Pipe Line Company. The maintenance of a vertically integrated relationship between the oil industry and the crude petroleum pipeline industry indicates a desire on the part of the giant oil companies to control the entire process of production and the natural economies that emerge from capital-intensive industries.

In addition, the Federal Energy Regulatory Commission (FERC) oversees the liquids pipeline industries, legislating and monitoring them. The FERC strives to make pipeline transportation an equitable means of shipping petroleum products rather than regulate the construction of pipelines and crude petroleum prices. Through the FERC, shippers can gain fair access to pipeline transportation, have fair service conditions on a pipeline, and have reasonable rates for transporting petroleum products via pipelines.

Background and Development

The concept of using pipelines to transport liquids can be traced to the ancient Romans and Chinese, who developed systems of pipelines and viaducts, using gravity as the mechanism for transporting water. Such early pipeline transportation systems were limited by the terrain of the surrounding countryside due to the lack of an effective lift mechanism.

The discovery and subsequent drilling of crude oil in Pennsylvania by Col. E. L. Drake in 1859 created the need for a cost-effective method to transport the crude to market. Drake laid a two-inch cast-iron pipeline about 6.2 miles long, and the crude petroleum pipeline industry was born. However, the operation of the pipeline was short-lived because a group of local teamsters, fearing the elimination of their jobs, destroyed the pipeline soon after it began operation. Nonetheless, pipeline transportation of crude petroleum proved to be both viable and cost-effective, and the industry grew concurrently with the nation's expanding oil industry.

Until World War I, crude pipelines were made almost exclusively from wrought or cast iron. After the war, steel became the primary material used to construct pipelines because of improvements in steel quality. When steel was used, pipe diameter could be increased from 8 to 26 inches. Furthermore, the introduction of electric arc welding in the 1930s eliminated the "weak link" of screwed couplings.

During the 1930s and through World War II, significant developments occurred in the crude oil pipeline industry. The use of the "spread" method of pipeline construction lowered construction costs and made the use of pipelines to transport crude oil more competitive. Moreover, the size of pipeline projects grew in the United States as well as internationally. In 1934 a 12-inch pipeline was constructed over the 620 miles from Kirkuk, Iraq, to the Mediterranean Sea. During World War II, a 24-inch crude petroleum pipeline 1,240 miles long was laid from Texas to New York. Advances in the materials used in the construction of pipeline and in the construction techniques allowed for the development of pipeline that could withstand greater pressure per square inch and that could transport more crude in less time.

Crude petroleum pipeline construction reached its peak after World War II. Driven by a demand for oil that doubled roughly every 10 years, "Big-Inch" pipelining became prevalent on a worldwide scale. Pipe size increased from 24 inches to 56 inches in diameter, expanding the capacity to transport crude oil. A better understanding of corrosion led to the development of pipe coatings of bitumen or coal tar enamel over glass-fiber wrappings. With the development of X-ray scanning technology, pipeline could be examined for weaknesses that otherwise would have been undetected. During the 1960s, construction of crude petroleum pipelines moved offshore with discovery of oil in the Gulf of Mexico, the Arabian Gulf, and the North Sea.

From 1970 through the 1990s, growth in the crude petroleum pipeline industry became stagnant domestically as well as internationally. While interstate liquid pipeline mileage totaled 173,532 miles in 1972, that figure had dropped to 168,364 by 1990. Construction of new domestic crude oil pipelines dropped from 1,966 miles in 1980 to 240 miles in 1990. In the United States, retirement of old pipelines outpaced the construction of new pipeline, following a worldwide trend. World totals of new construction in 1980 were 8,129 miles. New construction was 652 miles in 1990.

Although crude oil production decreased, the use of pipelines to transport crude oil increased, as compared to other forms of transportation. According to the Association of Oil Pipelines, in 1992 crude oil production equaled 647.1 billion ton miles. Of that total, pipelines carried 343.3 billion ton miles (53 percent), water carriers transported 301.3 ton miles, and the remaining small amount was transported by truck or railroad. By 2002 crude oil production had fallen to 384 billion ton miles, but pipelines carried 286.6 billion ton miles (74.7 percent), and crude transported by water had dropped to 95.7 billion ton miles (24.9 percent). Therefore, although crude oil production ton miles dropped more than 40 percent, pipeline ton miles declined just 17 percent for that 10-year period. By 2004 crude oil production had fallen further to 374.1 billion ton miles, with pipelines carrying 283.7 billion ton miles (75.9 percent), and crude transported by water further dropped to 88.7 billion ton miles, or 23.7 percent, representing nearly a 1 percent increase in pipeline transport and a 1 percent decrease in water transport from 2003.

This trend of stagnant growth in the crude petroleum pipeline industry was attributed to several events. Low oil prices, caused by a surplus or glut in the market for crude oil, had a significant influence on the market for crude oil pipelines. In addition, stagnant domestic and world economies caused uncertainty and increased risk, especially for industries in which the time between project development and project completion was measured over several years. Furthermore, political instability led to a restructuring as markets adjusted to events such as the end of the Cold War, the aftermath of the first Gulf War, and the amalgamation of European countries in the European Community. Finally, preservation of the environment became a global concern, and the world's industrialized nations adopted a more active role in regulating the environmental impact of most industrial activities.

The primary players in the crude petroleum pipeline industry continued to be the giant multinational or state-owned oil companies. Given the commitment of the multinational companies to maintain control over the entire process of production, capital maintenance and development of crude pipeline were expected to continue at a pace calculated to maximize return on investment. Similarly, state-owned oil companies have the ability to take advantage of large-scale operations and can utilize their unique position to expand operations. Furthermore, multinational and state-owned oil entities are able to absorb short-term market irregularities and capitalize on their tremendous market power. About 80 percent of the crude petroleum pipeline companies with corporate headquarters in the United States operated as subsidiaries of other corporations. The majority of these were affiliated in some manner with the large oil companies.

When the impact of industry on the environment became a global issue, domestic as well as international organizations became politically active in attempts to protect the environment from the excesses of industrialization. In the United States, the Environmental Protection Agency (EPA) was given broad powers to oversee and regulate industrial activities in order to control environmental pollution. Legislation affecting the crude petroleum pipeline industry included the Oil Pollution Liability Act of 1990. The crude petroleum pipeline industry continued to feel the effects of this trend toward increased regulation in the form of increased risk of litigation and higher operation costs into the first decade of the 2000s.

Projections for domestic and world crude oil consumption reflected modest increases of 5 to 10 percent in the late 1990s. Although the industry showed signs of recovery, given the maturity of the crude petroleum pipeline industry and the relative longevity of pipeline once constructed, increases in sales revenue, profits, and new construction were expected to become stagnant again after a few years. Consequently, intriguing new uses for old pipeline systems were explored, including the use of existing pipeline to encase fiber-optic lines used in the telecommunications industry. Williams Telecommunication, the sister company of Williams Pipe Line Company of Tulsa, Oklahoma, was regarded as an innovator in this field. As new technologies were developed, the crude petroleum pipeline industry had the opportunity to respond in unique and innovative ways.

In 1998 crude oil prices dropped to the lowest they had been since 1973. However, in late 1999 OPEC gained control of its production quotas again, and prices increased more than $10 per barrel. The volatile market again caused global uneasiness and heightened interest in alternative markets and sources.

To that end, the November 1999 agreement between Turkey, Georgia, and Azerbaijan to build a 1,100-mile pipeline from the Caspian Sea to the Mediterranean was especially important. Several multinational corporations and U.S. companies, including ExxonMobil, Chevron, Texaco, and the newly merged BP-Amoco, contributed $50 billion to the project. The new pipeline bypassed Iran and Russia, securing U.S. access to the Caspian basin. It also had the secondary effect of enhancing the presence of American political and commercial interests in Central Asia. The Caspian basin deposits were believed to be second in size only to the Persian Gulf, but later seismic results indicated that they were substantially smaller, about the size of those in the North Sea. The so-called Baku-Tbilisi-Ceyhan (BTC) pipeline began operations in 2005.

Crude oil production in the United States increased from 4.8 million barrels a day in 2001 to 4.95 million barrels in 2008, but industry experts predicted it would decline to 4.2 million barrels a day by 2025. Increased production was targeted to occur primarily offshore. In the middle of the first decade of the 2000s, demand for crude oil globally and within the United States reached record highs. While the rapid industrialization of China and India stressed global output capacities to their limits, the petroleum-thirsty United States increased supply demand as well.

According to the Association of Oil Pipe Lines, Texas, Alaska, California, Louisiana, and Oklahoma were the top crude oil-producing states in the mid-2000s. The United States accounted for approximately 8 percent of the world's production of crude oil yet consumed 25 percent. At the end of the first decade of the 2000s, interstate pipelines carried over 13 billion barrels of petroleum products annually, about 59 percent of which was crude oil, or 7.6 billion barrels. One barrel of crude oil could be refined into over 19 gallons of gasoline, along with smaller amounts of other petroleum products. The cost of transporting one barrel of petroleum product from a Houston refinery to a consumer in New York was about $1, or 2.5 cents per gallon of gasoline.

Despite the growing demand for crude oil in the early years of the twenty-first century, the pipeline industry in the United States remained stagnant as supplies of easy-to-extract crude oil were diminishing. For example, production at Alaska's largest oil field was falling 3.5 percent annually, and in 2005 the Trans-Alaska Pipeline transported about half of what it did in the 1980s. In 2005 it carried about 900,000 barrels a day, compared to 2 million barrels a day in 1988. In 200, it was averaging about 600,000 barrels per day. Capital investments needed to explore, drill, and transport harder to reach supplies prohibited expansion in the industry. For pipeline operations alone, regulatory requirements, construction, and implementation of a new pipeline take between 4 and 15 years to complete.

Record high prices for oil, along with encouragement from the federal government to expand U.S. production as a means to limit dependence on foreign supply, motivated some oil companies to consider expanding operations. Such plans remained a point of contention among political parties and others at the end of the first decade of the 2000s. At that time, U.S. oil production was almost 5 million barrels per day, much of which traveled along 168,000 miles of pipelines. The value of the pipeline infrastructure was estimated at $35 billion.

Current Conditions

Pipelines continued to be the most important way to transport crude oil in the early 2010s, following a trend that had begun in the late twentieth century. According to statistics reported in 2011 by the Association of Oil Pipe Lines, "Pipelines transported 12.9 percent more crude oil and petroleum products in 2008 than in 2007." Overall, 83 percent of crude oil transported in the United States traveled by pipeline, up from 1990 when this figure was only 54 percent. Actual production of crude oil in the United States, however, was on the decline, whereas natural gas and unconventional resource production was expected to grow. According to the EIA, by 2035 China and India will account for about 30 percent of the world's total energy use, with China using 68 percent more energy than the United States. Such figures encouraged investigation of alternative sources of energy, although the EIA predicted that fossil fuels would continue to meet a majority (78 percent) of the world's energy demand in 2035.

A 2011 report by IBISWorld forecast a dismal future for the crude oil pipeline industry, noting that "Crude oil transport by ships and tankers has become cheaper as crude oil prices have dropped with respect to their relative highs before the recession." In addition, according to the report, "Domestic crude oil production is also in decline, limiting opportunities for U.S. pipeline construction."

Industry Leaders

The leading U.S. liquid pipeline companies in the early 2010s included Houston-based Shell Pipeline Company LP, which operated more than 10,000 miles of pipeline across 21 states, carrying 2 billion gallons of petroleum products annually. The company also managed more than 1,200 miles of offshore pipelines and 600 miles of onshore pipelines. A subsidiary of Shell Oil Products, Shell Pipeline employed 540 people and had estimated revenues of $116.2 million in 2008.

Enbridge (U.S.), a subsidiary of Canadian-based Enbridge, Inc., was also based in Houston, Texas. Enbridge maintained an interest in numerous pipeline operations, including Alliance Pipeline, Enbridge Pipelines (in Toledo, Ohio), Mustang Pipe Line Partners, and Vector Pipeline. Enbridge moved more than 2 billion barrels of crude oil a day. In 2005 Enbridge bought Shell's Gulf of Mexico natural gas pipeline system. Enbridge (U.S.) garnered $62 million in revenues in 2011 with about 1,000 employees. Sister company Enbridge Energy Partners LLP owned 1,900 miles of the world's longest liquid petroleum pipeline, the Lakehead System and had 6,200 miles of crude oil pipeline. Sales in 2011 reached $7.7 billion. Its parent company, Enbridge Inc. of Canada, reported annual sales of more than $15 billion.

ExxonMobil Pipeline, a subsidiary of ExxonMobil, which posted revenue of more than $383 billion in 2011, moved 2.7 million barrels of crude oil and other petroleum and chemical products through 8,000 miles of pipeline running through 23 states, in addition to Canada and the Gulf of Mexico.

The Alyseska Pipeline Service Company was owned by a consortium of oil companies including BP (47 percent) ConocoPhillips (28 percent), and ExxonMobil (20 percent). The 800-mile pipeline, constructed in 1977, serves Alaska's oil field, carrying crude oil from Alaska's North Slope to Prince William Sound. Marathon Petroleum, which was spun off by Marathon Oil Corp. in 2011, recorded sales of $2.5 billion that year. The company operated about 4,500 miles of pipeline in 20 states.

Workforce

At the end of the first decade of the 2000s, control of the domestic pipeline industry was in the hands of between 25 and 40 companies, with approximately 16,000 employees. The relatively small number of employees in the industry reflects the capital-intensive nature of crude petroleum pipeline companies. Employment trends in the crude petroleum pipeline industry, which is the major segment of the industry in which establishments are primarily engaged in the transportation of petroleum and other commodities (except natural gas), reflect a trend toward downsizing labor.

Research and Technology

The basis for technological advances in the crude petroleum pipeline industry centers on the search for improved materials, the development of improved methods of welding or "jointing" the pipe, the refinement of specialty pipe for use under extreme environmental conditions, and the investigation of new applications and alternative uses for the pipeline.

Refined steel pipe remains the industry mainstay, allowing for pipe sizes up to 56 inches in diameter. The utilization of new industrial processes permitting refinement of the alloying process remains the most promising area of technological advance in this area. The fatigue life of "Big-Inch" pipe is also affected by conventional arc welding and jointing techniques. Arc welding makes steel pipe susceptible to hairline cracks and hardening in the areas of the pipe close to the welds. Alternative methods indicating the most promise include flash butt welding, friction welding, electron beam welding, screwed and bonded coupling, and cold forging.

The materials used to construct the pipe and the jointing technique used to bond pipe together are determined in large part by the environmental conditions at the site of the pipeline. Therefore, research and development centered on creating pipe resilient to temperature extremes and able to withstand the pressures of offshore and underwater.

Alternative applications of crude petroleum pipelines include using the lines to transport other materials, as well as use of retired pipeline to encapsulate fiber-optic communication lines. Coal slurry is regarded as a primary alternative for transport using the lines, as both domestic and international analysts maintained that coal reserves may constitute as much as four times the amount of oil available. Research to find ways to modify existing pipeline for such use continued, and such innovations may pave the way for extensive changes in the crude petroleum pipeline industry.

In the early twenty-first century, pipelines were monitored 24 hours a day, 365 days a year using real-time data regarding the rate of flow and speed of transport. Advances in safety design and monitoring helped reduce the number of spill incidences and the volume of product lost per accident 60 percent since the 1970s.

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