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.
486110 (Pipeline Transportation of Crude Oil)
According to the U.S. Census Bureau's Statistical Abstract of the United States, in 2000 there were 307 firms involved in crude oil pipeline transportation, with revenues totaling $4.4 billion. According to U.S. Department of Transportation statistics, in 1999 there were 177,463 miles of pipelines transporting crude oil throughout the country, reflecting a slow, steady decline since 1975 when crude oil pipeline totaled 225,889 miles.
Notwithstanding the dependence of the world's economy on crude oil as a fundamental source of energy, the crude petroleum pipelines industry has experienced stagnant 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 impact crude petroleum pipeline establishments since the demand for pipelines to transport crude oil is a derived demand. The change in the global supply of oil from a shortage situation in the early 1970s to a surplus situation in the latter 1990s characterizes the general economic environment that crude petroleum pipeline establishments face.
In addition to an uncertain economic climate, the crude petroleum pipeline industry is confronted by several challenges at the start of the twenty-first century. These challenges include increasingly stricter environmental protection regulations, the development of natural gas as a substitute for crude oil-based energy products, and the depletion of crude oil reserves. Because companies have explored and produced more crude petroleum, they have also increased capital spending on pipelines.
The crude petroleum pipeline industry consists of companies that are capital-intensive. As start-up costs for capital-intensive organizations are high, entry into the industry is restrictive, as is indicated by the relatively small number of firms operating with headquarters in the United States. On the other hand, 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 corporate entities. 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 Exxon Pipeline Company, Mobil 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 does not regulate the construction of pipelines and crude petroleum prices; rather it strives to make pipeline transportation an equitable means of shipping petroleum products. Through the FERC, shippers can gain fair access to pipeline transportation, just service conditions on a pipeline, and reasonable rates for transporting petroleum products via pipelines.
The concept of using pipelines to transport liquids can be traced to both the ancient Romans and Chinese, who developed systems of pipelines and viaducts, utilizing 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, roughly 6.2 miles long, and the crude petroleum pipeline industry was born. However, the operation of the pipeline was short-lived. A group of local teamsters, fearing the elimination of their jobs, destroyed the pipeline soon after its operation began. Even so, pipeline transportation of crude petroleum proved to be both viable and cost-effective, and the industry grew concurrent 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, improvements in steel quality led to its utilization as the primary material used in the construction of pipeline. Pipe diameter could be increased from 8 to 26 inches using steel. Also, 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 took place in the crude oil pipeline industry. The utilization of the "spread" method of pipeline construction lowered construction costs and made the use of pipelines as a method of transporting crude oil more competitive. Furthermore, the size of pipeline projects grew, both in the United States and internationally. In 1934, a 12-inch pipeline over 620 miles long was constructed 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 both 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.
The post-World War II era witnessed the peak of crude petroleum pipeline construction. 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 glassfiber wrappings. With the development of X-ray scanning technology, pipeline could be examined for weaknesses that would have gone undetected in the past. During the 1960s, construction of crude petroleum pipelines moved offshore with discoveries of oil in the Gulf of Mexico, the Arabian Gulf, and the North Sea.
From 1970 through the 1990s, the crude petroleum pipeline industry experienced a period of stagnant growth, both domestically and internationally. While interstate liquid pipeline mileage totaled 173,532 miles in 1972, the total mileage had dropped to 168,364 by 1990. New construction of domestic crude oil pipelines dropped from 1,966 miles in 1980 to 240 miles in 1990. In the United States, retirement of old pipeline had outpaced the construction of new pipeline, and this trend was also evident on a worldwide scale. World totals of new construction in 1980 equaled 8,129 miles. New constructions totaled 652 miles in 1990.
This trend of stagnant growth in the crude petroleum pipeline industry has been 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. Also, stagnation in the domestic and world economies caused uncertainty and increased risk, especially for industries in which the time between project development and project completion is measured over a period of years. Furthermore, political instability led to a period of restructuring, as markets adjusted to such events as the end of the Cold War, the aftermath of the Gulf War, and the amalgamation of European countries in the European Community. Finally, preservation of the environment has become a global concern, and the world's industrialized nations have adopted a more active role in regulating the environmental impact of most industrial activities.
The primary players in the crude petroleum pipeline industry continue to be the giant, multinational or state-owned oil companies. Given the commitment of the multinational companies to maintaining control over the entire process of production, capital maintenance and development of crude pipeline are likely to continue at a pace calculated to maximize return on investment. Similarly, state-owned oil companies possess the capability to take advantage of large-scale operations and are able to utilize their unique position to expand operations. Furthermore, multinational and state-owned oil entities are able to absorb short-term market irregularities and to capitalize on their tremendous market power. Of the crude petroleum pipeline companies operating with corporate headquarters in the United States, about 80 percent operated as subsidiaries of other corporate entities. The majority of these were in some manner affiliated with the large oil companies.
With the impact of industry on the environment becoming a global issue, both domestic and international organizations have become politically active in attempting to protect the environment from the excesses of industrialization. In the United States the Environmental Protection Agency (EPA) has been given broad powers to oversee and regulate industrial activities in order to control environmental pollution. Legislation affecting the crude petroleum pipeline industry includes the Oil Pollution Liability Act of 1990. The crude petroleum pipeline industry may continue to feel the effects of this trend toward increased regulation in the form of increased risk of litigation and higher operation costs.
Projections for domestic and world crude oil consumption reflect modest increases of 5 to 10 percent. Though the industry has shown 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 may become stagnant again after a few years. Consequently, intriguing new uses for old pipeline systems are being 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, is regarded as an innovator in this field. As new technologies are developed, the crude petroleum pipeline industry has 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 the latter months of 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, of key import was the November 1999 agreement between Turkey, Georgia, and Azerbaijan to build a 1,080-mile pipeline from the Caspian Sea to the Mediterranean. Several multinational corporations and U.S. companies, including the new BP-Amoco, Exxon, Chevron, and Texaco, contributed $50 billion to the project. The new pipeline would bypass Iran and Russia, and secure U.S. access to the Caspian basin. It would also have 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 more recent seismic results indicate that they are substantially smaller, about the size of those in the North Sea.
On the domestic scene, Pacific & Texas Pipeline and Transport Company entered into a joint venture agreement in November 1999 to build and operate a 1,075-mile, 42-inch crude oil pipeline and fiber-optic system which would run from the Port of Los Angeles to Midland, Texas. (The fiber-optic system will be entrenched alongside the pipeline, thus contributing to cost-sharing and environmental conservation. The other party to the joint venture is Pan Kai Development USA, Inc. Bethlehem Steel, Ingersoll Rand, and Westinghouse are involved in the actual construction of the pipeline.
Total crude oil production in the United States is expected to increase from 4.8 million barrels a day in 2001 to 5.3 million barrels a day in 2007, before declining to 4.2 million barrels a day by 2025. Increased production is targeted to occur primarily on offshore sights. In 2002 pipelines transported 66 percent of all U.S. oil production, totaling over 600 billion ton-miles per year. Water transportation carried 28 percent; trucks, 4 percent; and rail, 2 percent. Total crude oil delivered via U.S. pipelines was 7.9 billion barrels.
The leading U.S. liquid pipeline companies in 2003 included Shell Pipeline Company LP (formerly Equilon Pipeline Company LLC); Enbridge Energy Partners (formerly Lakehead Pipe Line Company); Williams Pipe Line; Alyeska Pipeline Service Company; and Marathon Ashland Pipe Line LLC.
In the early 2000s, control of the domestic pipeline industry was in the hands of between 25 and 40 companies, employing approximately 14,000 persons. (The U.S. Department of Labor, Bureau of Labor Statistics counted 13,680 workers in 2001.) The relatively small number of persons employed in the industry reflects the capital-intensive nature of crude petroleum pipeline companies, where the emphasis is on capital rather than labor. Employment trends in industries wherein establishments are primarily engaged in the pipeline transportation of petroleum and other commodities (except natural gas), of which the crude petroleum pipeline industry constitutes the major segment, reflect a trend toward downsizing in regard to the labor force.
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 will be determined in large part by the environmental conditions at the site of the pipeline. Thus, innovation in creating pipe resilient to temperature extremes and able to withstand the pressures of offshore and underwater operations will continue to drive research and development.
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 maintain that coal reserves may constitute as much as four times the amount of oil available. Research continues on finding ways to modify existing pipeline for such use, and such innovations may provide extensive changes in the crude petroleum pipeline industry.
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