Chapter 7

Pipelines
 Brief History
Played an important role in the
transportation industry in the post-World
War II era.
Early in the twentieth century, the oil
companies operated the pipelines as
integrated subsidiaries and often used them
to control the oil industry by not providing
needed transportation service to new
producers.
 Significance of Pipelines
Pipelines are limited in the markets they
serve and very limited in the commodities
they can haul.
The only mode with no backhaul,;i.e., they
are unidirectional with products that only
move in one direction through the line.
 Significance of Pipelines
More than 57.5 percent of the total intercity
ton-miles shipped in the US in 1995.
They are virtually unknown to the general
public but represent a key component in our
transportation system.
P.195. Pipeline diameters have increased in
recent years, and the larger diameters have
increased capacity significantly because of
the increased volume that can move through
the pipeline.
Types of Carriers & Ownership
Although some private carriers exist today,
the for-hire carriers dominate the industry
as so called common carriers.
Oil companies have been the principal
owners of pipelines.
 Number of Carriers
Like the railroad industry, the pipeline has a
small number of very large carriers that
dominate the industry.
20 major integrated oil companies control
control about two-thirds of the crude oil
pipeline mileage.
 Number of Carriers
Reasons for the limited number of pipeline
companies.
Start-up costs are high.
Like railroads and public utilities, the
economies of scale are such that duplication or
parallel competing lines would be uneconomic
A 12-inch pipeline operating at capacity can
transport three times as much oil as an
eight-inch pipeline.
 Oil Carriers
P.197. Intercity ton-miles increased to 628
billion in 1997. The reported operating
revenue decreased from 1985 to 1992 by
almost 4 percent. However, oil pipelines
play a major role in our transportation
network, because they transport more than
20 percent of the total intercity ton-miles.
 Natural Gas Carriers
The movement data for natural gas are
presented in cubic feet, rather than ton-
miles.
P.197. Shows that operating revenues also
decreased in 1985 with the decline of the
volume moved.
 Commodities Hauled
Very specialized carrier in that they
transport a very limited variety of products.
Four main commodities hauled are
Oil and oil products
Natural gas
Coal
chemicals
 Oil and Oil Products
1994, crude oil and oil products accounted for
approximately 57 percent of total pipeline use.(Table
7.6)
The split by modes between pipeline and water carrier
has changed for several reasons.
Alaskan => Panama => Atlantic Coast
West Coast To Midwest
Length of haul is medium compared to other modes.
Crude oil movements average about 800 miles per
shipment, and product lines average about 400 miles per
movement. Buy size is large.
 Natural Gas
Account for the second largest number of
miles of intercity pipelines – 266,900 miles.
(Table 7.7, Page 199)
The natural gas companies produce about
10 percent of the gas they transport.
Independent companies produce the
remaining 90 percent.
 Coal
Coal pipelines are frequently called slurry lines
because the coal is moved in a pulverized form in
water (one-to-one ratio by weight)
Remove the water once it arrived and the coal is
ready to use.
Primarily used for transporting coal to utility
companies for generating electricity.
Use enormous quantities of water
Some states are a scarcity of water
The water is not reusable ( no backhaul)
 Chemicals
A limited number of different types of
chemicals are carried by pipelines.
Three major chemicals are
Anhydrous( 無水的 ) ammonia – for fertilizer
Propylene( 丙烯 ) – used for manufacturing
detergents
Ethylene ( 乙烯 ) – used for making antifreeze
( 防凍劑 )
 Relative Advantages
Low rates
Average revenues for pipeline companies are
below one-half of a cent per ton-mile
Have a very good loss and damage record
Types of products transported
Underground and completely encased movement
Provide a warehousing function because their
service is slow(an average of three to five miles
per hour )
 Relative Disadvantages
Although its slow speed can be considered
an advantage due to its use as a free form of
warehousing, in some instances the
pipeline’s slow speed can be considered a
disadvantage. Like sometimes need to hold
higher levels of inventory to compensate for
possible shortages because the pipeline will
not be able to deliver an extra amount of the
product in a short period of time.
 Relative Disadvantages
Offer a relatively fixed route of service that
cannot be easily extended to complete door-
to-door service -- limited accessibility.
May not be a critical problem because the
source of the pipelines and the location of
the refineries are known and are fixed for a
long period of time.
Frequently, pipelines depend on railroads
and motor carriers to complete delivery,
which adds to user costs.
 Relative Disadvantages
Limited to a rather select number of products: crude
oil, oil products, natural gas, coal, and a limited
number of chemicals.
There is interest in using pipelines for other
products but the technology has not yet been fully
developed.
Capsule( 膠囊 )&pneumatic( 有氣腔的 )pipelines
Frequency of Service
Large tenders (shipment size requirements) and slow
speed of pipelines reduces the frequency
On the other hand, service is offered 24 hours a day,
seven days a week.
 Competition
Intramodal competition is limited by a
number of factors
Small number of companies – limited price
competition
The economies of scale and high fixed costs
have led to joint ownership of large-diameter
pipelines because the construction of smaller
parallel lines is not very efficient.
High capital costs preclude duplication of
facilities to a large extent
 Intermodal
Compete with railroads, water carriers, and
motor carriers, however, the level of
competition is limited.
The most serious competition is water, or
tanker, operations.
Truck service complements rather then
competes with the pipeline, because trucks
perform a distribution function for pipelines
(i.e., delivery).
 Intermodal
Once a pipeline has been constructed between two
points, it is difficult for other modes to compete.
Costs are extremely low
Dependability is quite high
Limited risk of damage to the product being transported
Only exception is probably coal slurry pipelines
because of the need to move the pulverized coal in
water can make the costs comparable to rail movements
Water carriers come closest to matching pipeline costs
and rates.
 Equipment
Total pipeline investment is in excess of
$21 billion, it would cost about $70 billion
to replace the system at today’s costs.
共通管道
 Commodity Movement
Gathering lines bring oil from fields to a
gathering station, where the oil is stored in
sufficient quantity to ship by trunk line to a
refinery.
After refined, the various products are
stored at a tank farm before they are
shipped via product line to another tank
farm. A motor carrier most frequently
makes the last segment of the trip, to the
distributor or ultimate customer.
 Commodity Movement
Trunk lines are usually more than 30 inches
in diameter and are the major component of
the pipeline system.
Stations that provide the power to push the
commodities.
For oil movements, pumps are located at the
stations, which vary in distance from 20 to
100 miles, depending on the viscosity of the
oil and the terrain.
 Commodity Movement
Pumping stations for large-diameter
pipelines can provide 3,000-6,000 horse-
power.
Compressors are used for natural gas and
pumps are used for the liquid items.
Pipes are constructed of special high-quality
alloy steel with a life expectancy of 50
years or more.
 Commodity Movement
Safety
Requiring pipeline operators to identify facilities
located in unusually sensitive areas and high density
population areas
Maintain maps and records detailing that information
Provide those maps to federal and state officials upon
request
Pipeline is coated with protective paints and resins, and
special techniques are used to control corrosion after
the pipeline is in the ground.
 Commodity Movement
Computers at the pumping stations continually monitor
the flow and pressure of the oil system. Any change
indicating a leak is easily detected.
Routine visual checks and searches by airplane are
sometimes used to located leaks.
15 grades of crude oil and a range of products including
jet fuel, kerosene, and aviation fuel.
Usually, products are scheduled one month in advance
with kerosene moving first, then high-grade gasoline,
then medium-grade gasoline, then various other
products, then with home heating oil last.
 Fixed V.S. Variable Cost
Components
High proportion of fixed costs with low
capital turnover.
Own right-of-way by purchasing or leasing
land and constructing the pipeline and
pumping stations along the right-of-way.
Property taxes, amortization of
depreciation, the return to investors, and
preventative maintenance all contribute to
the high ratio of fixed to variable expenses.
 Fixed V.S. Variable Cost
Components
The terminal facilities of pipelines
contribute to the high level of fixed costs.
No vehicle helps to explain the low variable
costs, because vehicles are frequently a
major source of variable expense.
Labor costs are very low in the pipeline
industry because of the high level of
automation.
 Rates
Pricing is unique
The nature of operation (one-way
movement, limited geographic coverage of
points, limited products, etc.) provides little
opportunity to provide differential pricing
practices.
Minimum shipment sizes, usually called
tenders, are required; these range from 500
barrels to 10,000 barrels(one barrel equals
42 gallons).
 Rates
Pipeline rates are very low, which is reflected in
the fact that they carry more than 20 percent of the
total intercity ton-miles and receive only about two
percent of the total revenues. One gallon of crude
oil can be sent from Texas to New York for only
1.8 cents.
Water carrier costs come closest to pipeline costs,
in fact, international supertankers have lower costs
than most pipelines. When considering pipelines
with diameters of 30 inches or more, even ocean
carriers have difficulty matching pipeline costs.
 Current Issues
Can have a powerful impact on the
environment and the people who live in it.
A leak of oil products and chemicals could
have disastrous effects.
Increases in housing needs could create a
situation in which people would live close
to the pipelines and be exposed to the
effects of a potentially harmful product leak
(such as oil or gasoline).
 Current Issues
Even when people would not be directly
affected by a leak, a leak could have a
serious impact on wildlife living around the
pipeline.
However, the overall record of the industry
in this area is outstanding. There is a much
higher risk of product leakage/damage with
oil tankers as evidenced by the number of
spills in recent years.