SIC 4612 Pipelines, Crude Petroleum

 
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SIC 4612

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.

NAICS CODE(S)

486110

Pipeline Transportation of Crude Oil

INDUSTRY SNAPSHOT

In the mid-2000s about 300 establishments were 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 2000s, production had declined to 4.8 million barrels per day. As a result, U.S. pipelines declined from almost 226,000 miles in 1975 to approximately 200,000 miles of pipelines in the mid-2000s. Total revenues were estimated at $6.3 billion, and the value of the pipeline infrastructure was estimated at $31 billion.

Although crude oil production declined, 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), and water carriers transported 301.3 ton miles (the small remaining 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). Thus, although crude oil production ton miles dropped over 40 percent, pipeline ton miles declined just 17 percent.

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 impact crude petroleum pipeline establishments since the demand for pipelines to transport crude oil is a derived demand. In the mid-2000s U.S. and global demand for crude oil was growing rapidly, driving prices above $50 per barrel in 2005.

The crude petroleum pipeline industry was confronted by several challenges in the mid-2000s. 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 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 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 just 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, 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...

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