Transporting Oil and Gas: U.S. Infrastructure Challenges

• Author: Alexandra B. Klass & Danielle Meinhardt
• Position: Distinguished McKnight University Professor, University of Minnesota Law School/J.D. Candidate, University of Minnesota Law School, 2015
• Pages: 947-1053

947

Transporting Oil and Gas:

U.S. Infrastructure Challenges

Alexandra B. Klass & Danielle Meinhardt

I. INTRODUCTION ............................................................................. 948

II. THE OIL TRANSPORTATION NETWORK: HISTORY, REGULATION, AND

CURRENT CHALLENGES ................................................................. 953

A. HISTORY OF OIL USE, PRODUCTION, DISTRIBUTION, AND

REGULATION ........................................................................... 953

1. Early Oil Production, Transportation, and Pipeline

Regulation...................................................................... 953

2. Industry Expansion and the Rise of Federal Regulation

of Oil Pipelines .............................................................. 958

3. 20th Century Oil Pipeline Expansions ........................ 961

B. MODERN OIL PRODUCTION, INFRASTRUCTURE, AND

TRANSPORTATION ................................................................... 965

1. Hydraulic Fracturing and 21st Century U.S. Oil

Production ..................................................................... 965

2. Existing Oil Pipeline Infrastructure and Future

Needs .............................................................................. 968

3. The Keystone XL Pipeline ............................................ 975

C. FEDERAL REGULATION OF OIL PIPELINES .................................. 980

D. STATE REGULATION OF OIL PIPELINES AND EMINENT DOMAIN .. 982

E. SUMMARY ............................................................................... 988

III. THE NATURAL GAS TRANSPORTATION NETWORK: HISTORY,

REGULATION, AND CURRENT CHALLENGES .................................. 989

A. HISTORY OF NATURAL GAS PRODUCTION, USE, AND

TRANSPORT ............................................................................ 990

 Professor of Law, University of Minnesota Law School. We received extreme ly helpful

comments from David Adelman, James Coleman, Joel Eisen, Daniel Farber, Robert Glicksman,

Uma Outka, John Moot, Richard Pierce, Troy Rule, David Spence, Joseph Tomain, Hannah

Wiseman, and Joel Zipp on earlier drafts of this Article.

 J.D. Candidate, University of Minnesota Law School, 2015.

948 IOWA LAW REVIEW [Vol. 100:947

B. MODERN NATURAL GAS DEVELOPMENT AND INFRASTRUCTURE

NEEDS ..................................................................................... 999

C. NATURAL-GAS PIPELINE SITING, EMINENT DOMAIN, AND

CONSTRUCTION ..................................................................... 1006

D. GAS FLARING IN NORTH DAKOTA ........................................... 1009

E. SUMMARY ............................................................................. 1015

IV. MOVING FORWARD: ADDRESSING CURRENT ENERGY

TRANSPORTATION CHALLENGES FOR OIL AND NATURAL GAS .... 1015

A. OIL AND GAS PIPELINE SITING AUTHORITY ............................. 1015

B. GAS FLARING, PHYSICAL WASTE, AND CREATING INCENTIVES FOR

NEW INFRASTRUCTURE .......................................................... 1016

C. TRANSPORTING OIL BY RAIL: CURRENT CONCERNS ................. 1019

V. CONCLUSION .............................................................................. 1025

APPENDIX: EMINENT DOMAIN AUTHORITY & SITING PROCEDURES

FOR OIL PIPELINES ...................................................................... 1027

I. INTRODUCTION

This Article explores the history and geography of oil and natural gas to

help explain why U.S. regulation of the infrastructure for transporting these

two similar types of energy resources to markets developed so differently.

Notably, while interstate natural gas pipelines are reviewed and permitted at

the federal level by the Federal Energy Regulatory Commission (“FERC”),

interstate oil pipelines are reviewed and permitted almost exclusively at the

state level. This Article traces how these regulatory differences, along with

differences in the physical properties of the two energy resources, have

resulted in very different energy transportation infrastructures and challenges

for each resource.

This Article considers whether changes in the regulatory regimes for oil

or natural gas transportation are now warranted to promote more effective

cross-country transportation of new sources of shale oil and gas made available

by hydraulic fracturing technologies. It concludes that the regulatory siting

regime for oil pipelines at the state level and gas pipelines at the federal level

are both sufficient in their respective arenas to facilitate construction of new

oil and gas pipelines when market forces allow. It also concludes, however,

that the economic and physical realities of today’s onshore oil and gas

transportation systems have resulted in (1) excessive flaring of natural gas in

some areas of the country due to lack of infrastructure and (2) too much oil

traveling by rail, instead of by pipeline, leading to unacceptable accidents and

safety risks. Both of these problems require additional regulations at the state

and federal levels to create a national onshore oil and gas transportation

2015] TRANSPORTING OIL AND GAS 949

system that reflects the significant changes that have occurred in the scale and

geography of today’s oil and natural gas production and use.

This Article starts from the premise that the nation’s oil and gas

transportation infrastructure has historically been invisible to the public at

large. While the public generally knows that oil and gas are produced from

oil wells and gas wells, until recently, there was much less general knowledge

about how these energy resources make their way to heat our homes, fuel our

cars, and light our lights. Most Americans know that oil and gas travel

primarily through pipelines, but they may not know where these pipelines are,

who owns them, or how they operate. Indeed, Americans often pay little

attention at all to the nation’s energy infrastructure until they face a nearby

pipeline leak, rail accident, or other natural or man-made disaster.

Recent oil and natural gas transportation accidents resulting in deaths

and significant environmental damage have brought new attention to both

the existence and the limitations of U.S. oil and gas transportation systems.

For instance, the Enbridge oil pipeline spill in 2010 that released nearly

820,000 gallons of crude oil into a tributary of the Kalamazoo River in

Michigan, and the 2010 natural gas pipeline explosion in San Bruno,

California that killed eight people and injured many more, raised new

questions regarding the vulnerability of the nation’s energy transportation

infrastructure.1 Moreover, the July 2013 deadly runaway oil train in Quebec,

Canada, which carried tanker cars full of crude oil from the now-booming

North Dakota Bakken shale region, cast a spotlight on the previously little-

known fact that massive volumes of oil are now traveling by train instead of by

pipeline for the first time in decades.2 The crash highlighted how the shale

oil and gas “revolution”3 brought about by hydraulic fracturing and

directional drilling has created an abundance of energy resources in new

locations, and the need to transport those resources across the country.

Indeed, in the past year, rail became the primary means of transporting oil

from the newly-crowned number two oil-producing state in the country

1. See, e.g., PAUL W. PARFOMAK, CONG. RESEARCH SERV., R41536, KEEPING AMERICA’S

PIPELINES SAFE AND SECURE: KEY ISSUES FOR CONGRESS 3 (2013); Dan Frosch, Pipeline Spills Stir

New Criticism of Keystone Plan, N.Y. TIMES (Apr. 2, 2013), http://www.nytimes.com/2013/

04/03/us/pipeline-spills-stir-new-criticism-of-keystone-proposal.html (reporting on a major spill

from Exxon Mobil’s Pegasus Pipeline in Arkansas carrying heavy crude from Western Canada,

raising questions about the proposed Keystone XL Pipeline designed to carry similar materials,

and citing concerns over the lack of sufficient regulation of pipelines).

2. See, e.g., Matthew Daly, Quebec Explosion Highlights Risk of Oil Transport, ASSOCIATED PRESS

(July 8, 2013, 6:40 PM), http://www.apnewsarchive.com/2013/Quebec_explosion_highlights_

risk_of_oil_transport/id-1a969d0b7b9b44ceb51650ccd69f4a42.

3. For discussion of the various legal and policy issues surrounding hydraulic fracturing

and the rapid rise of U.S. oil and gas production, see Thomas W. Merrill & David M. Schizer, The

Shale Oil and Gas Revolution, Hydraulic Fracturing, and Water Cont amination: A Regulatory Strategy, 98

MINN. L. REV. 145 (2013); Symposium, The Law and Policy of Hydraulic Fracturing: Addressing the

Issues of the Natural Gas Boom, 63 CASE W. RES. L. REV. 965 (2013).