Dean Barber

No News is Good News for Pipelines

In Corporate Site Selection and Economic Development on September 25, 2016 at 10:53 am

Energy pipelines have been in the news lately and all for the wrong reasons if you are in the oil and gas business.

Colonial Pipeline Company’s main gasoline line was returned to service last week after its biggest leak in nearly two decades squeezed supply and led to long lines and increased prices at the pump in states across the Southeast.

The damaged section of the 1.3 million-barrel-a-day line that connects the refining hub of the Gulf Coast to the East Coast had been shut down for more than 12 days.

Also, Native American tribes took their fight to Washington last week to stop development of a $3.7 billion oil pipeline. U.S. Rep. Raul Grijalva, the senior Democrat on the House of Representatives Natural Resources Committee, called on the U.S. Army Corp of Engineers “to withdraw the existing permits for Dakota Access pipeline.”

Thousands of activists, including the Standing Rock Sioux of North Dakota, have been protesting the 1,100-mile project being developed by Energy Transfer Partners LP, arguing it poses an environmental risk to the tribe’s water supply and would violate sacred sites.

If completed, the underground pipeline would traverse both federally-managed and private lands in North Dakota, South Dakota, Iowa and Illinois. It is the largest Native American protest in decades.

Unseen and unknown by most, petroleum pipelines have a long history of making some people mad. Read this and, who knows, you just might get mad, too.

The U.S. Has the Most

There are about 2.5 million miles of oil, gas, and refined products pipelines crisscrossing the country, about 50 times the total length of the U.S. interstate highway system.

The best data, in 2014, gives a total of slightly less than 3.5 million km of pipeline in 120 countries of the world. The U.S. had 65 percent, Russia had 8 percent, and Canada had 3 percent. In short, 75 percent of all pipeline was in three countries, according to the CIA’s World FactBook.

In this country, energy pipeline comes in three types: gathering systems, crude oil pipeline systems, and refined products pipeline systems. Gathering pipeline systems gather crude oil from production wells.

Crude oil pipeline systems transport crude oil from the gathering systems to refineries. Crude oil systems can be tens to hundreds of miles in length and cross state and continental borders.

Refined products pipeline systems, which includes the Colonial Pipeline that failed in Alabama, transport refined products such as gasoline, kerosene and many industrial feedstock petrochemicals from refineries to the end user or to storage and distribution terminals.

Refined products pipelines can extend tens to thousands of miles and cross state and continental borders. The Colonial Pipeline runs from Houston to Linden, New Jersey, traversing 11 states. Colonial’s 5,500-mile system transports more than 100 million gallons per day of refined products, or approximately 50 percent of the fuel consumed on the East Coast.

To find out if a transmission pipeline is located near you, you can visit the National Pipeline Mapping System (NPMS) and search by your county or zip code.

Early Opponents

Soon after the first oil wells were drilled in Pennsylvania in the mid 19th century, the economic advantages to moving oil via pipeline was recognized. And early on, there were opponents to the construction of pipelines.

Principally, the aggrieved parties were angry because they were being cut out of making money in the burgeoning petroleum industry.

When the earliest oil wells were drilled in Pennsylvania, teamsters came by the thousands, hauling the oil in barrels to various destinations by wagons. A colorful and profane bunch, the teamsters not only carried the oil, but they were mostly independent business owners, their wagon seats serving as their offices.

An estimated 300 to 400 teamsters would abandon the oil region each time a new pipeline opened, many stayed on. Gone were the days of carrying oil by barrels, but the teamsters adapted, hauling pipe to the pipelines’ right-of-ways then being built.

Railroads, which initially controlled the shipment of oil and dictated prices to oil producers and shippers, also felt threatened by early oil pipelines, even if they started to build their own.

The railroads often refused to allow privately owned pipelines to cross their railroad rights-of-ways. Later, laws would come into being granting the power of eminent domain to common carrier pipelines. This led to the establishment of oil trunk lines connecting the wellhead areas to refineries, resulting in predictable, consistent and cost-effective delivery.

The point is, pipelines have a long history of irking people, for various reasons. They have just changed some over time.

Vulnerability Revealed

Now I will admit that I was surprised to learn how vulnerable we were to   the brief disruption to a single pipe, albeit it was a main artery that carried 1.3 million barrels per day of fuel.

The Colonial Pipeline breach south of Birmingham, Ala., in Shelby County, sure opened my eyes.

U.S. benchmark gasoline futures spiked nearly as much as 10 percent on the supply disruption, and prices at the pump jumped in Alabama, Georgia, and Tennessee, where states of emergency were declared in the wake of the fuel line’s rupture.

In Georgia, for example, gasoline rose by more than 30 cents a gallon in the wake of the leak, according to motorist advocacy group AAA.

Colonial currently supplies about a third of the 3.2 million bpd of gasoline consumed on the East Coast, according to the U.S. Energy Department. Colonial’s 5,500-mile system transports more than 100 million gallons per day of refined products, primarily gasoline, diesel and jet fuel, or approximately 50 percent of the fuel consumed on the East Coast.

“When you’re very dependent upon one source and that source has problems, it can lend itself to supply problems,” John Mays, director of special studies for Turner Mason & Co, a Dallas-based consultancy, told Reuters.

The East Coast has become increasingly dependent upon the Colonial pipeline as oil companies have shuttered refineries in New Jersey, Pennsylvania, Virginia, St. Croix and Aruba, cutting off more than  800,000 barrels per day of refining capacity that previously served the region.

Colonial has acknowledged that hundreds of thousands of gallons of gasoline poured out of the broken line since the leak was first discovered on Sept. 9. It’s fixed now, but serves as a reminder of just how dependent we are on this single pipeline.

Not sure I like that.

Work Halted in North Dakota

Completion of the Dakota Access oil pipeline was viewed by most industry analysts as a done deal. But the Obama administration threw a curve ball, offering a respite to the variety of groups that opposed it.

Work has halted on a pivotal section of the 1,172-mile pipeline in North Dakota as the Department of Justice, the Department of the Army and the Department of the Interior are all now questioning how the Army Corps of Engineers approved most of the project in July.

Critics, who say the pipeline could pollute drinking water from the Missouri River and destroy land that is culturally important to Native Americans, applauded the move. They contend the pipeline should have been vetted through a more rigorous environmental impact statement.

Many also object to the energy company acquiring land from family farmers in Iowa via eminent domain.

The controversy, which resulted in thousands of people demonstrating and dozens arrested near the Standing Rock Sioux’s reservation, stems from Dallas-based Energy Transfer Partners’ announced 2014 plan to carry 570,000 barrels of crude per day from the Bakken oil fields in North Dakota to existing infrastructure in Illinois.

Apart from a section near an encampment of hundreds of Native American protesters, the pipeline is about 60 percent complete, according to a memo from Energy Transfer Partners CEO Kelcy Warren to employees this month.

Warren wrote that multiple archaeological studies “found no sacred items along the route.” Environmental worries are likewise overhyped too, he wrote, as other pipelines crisscross the region. There are 25 crude oil and natural gas pipelines in North Dakota, according to the state’s pipeline authority.

President Barack Obama is set to meet with Native American tribal leaders this coming week at the White House. How this will all play out is anybody’s guess. But three federal agencies piling on the Corp and a White House meeting may indicate the opponents are getting traction.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-890-3733. Mr. Barber is available as a keynote speaker.

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