Title PagePipelines Are Key to Meeting U.S. Oil Demand RequirementsIntroductionWhy Pipelines?Chart: Domestic Shipments of Petroleum, 1999Pipeline Movements Help Balance the Oil MarketThe Oil Market Dictates Pipeline Flow from Region to RegionChart: Balancing Regional Supply and DemandChart: Regional Petroleum Balances, 2000Patterns of Pipeline FlowLogistics Hubs Allow the Market to Work, and Pipelines Allow Hubs to WorkCrude Oil FlowsMap: Selected Crude Oil Trunkline SystemsRefined Products FlowsMap: Major Refined Product PipelinesHow Oil Pipelines WorkDifferent Operations for Different RolesManaging Oil Pipeline FlowMoving the OilSequencing Product FlowIllustration: Typical Sequence of Petroleum Products Flow through a PipelineScheduling Product FlowProduct Quality Mandates Reduce FlexibilityIllustration: How Terminal Restrictions Can Slow A PipelineText Box: The Rapidity of ULSD Contamination at the InterfaceOil Pipeline Rates Are RegulatedOil Pipelines Are Common CarriersFERC Regulates Rates and Conditions of ServicePipeline Rates Are a Tiny Share of Consumer Prices and Independent of Oil PricesSummaryFor Further InformationAllegro Allegro Allegro Allegro ENERGY GROUP P.O. BOX 230592 NEW YORK, NY 10023 CHERYL J. TRENCH PRESIDENT Phone: (212) 787-6923 Fax: (212) 721-9028 e-mail: [email protected] How Pipelines Make the Oil Market Work – Their Networks, Operation and Regulation A Memorandum Prepared for the Association of Oil Pipe Lines And the American Petroleum Institute's Pipeline Committee December 2001 Cheryl J. Trench, 2001Table of Contents Pipelines Are Key to Meeting U.S. Oil Demand Requirements.................................... 1 Introduction ...........................................................................................................................1 Why Pipelines?.......................................................................................................................1 Pipeline Movements Help Balance the Oil Market...................................................... 4 The Oil Market Dictates Pipeline Flow from Region to Region .............................................4 Patterns of Pipeline Flow .......................................................................................................6 Logistics Hubs Allow the Market to Work, and Pipelines Allow Hubs to Work ..................7 Crude Oil Flows .................................................................................................................8 Refined Products Flows.......................................................................................................9 How Oil Pipelines Work........................................................................................... 11 Different Operations for Different Roles.............................................................................11 Managing Oil Pipeline Flow.................................................................................................11 Moving the Oil ................................................................................................................. 11 Sequencing Product Flow .................................................................................................12 Scheduling Product Flow ..................................................................................................13 Product Quality Mandates Reduce Flexibility......................................................................14 Oil Pipeline Rates Are Regulated .............................................................................. 18 Oil Pipelines Are Common Carriers.....................................................................................18 FERC Regulates Rates and Conditions of Service .................................................................18 Pipeline Rates Are a Tiny Share of Consumer Prices and Independent of Oil Prices ..........19 Summary .................................................................................................................. 20 For Further Information.......................................................................................................20How Pipelines Make the Oil Market Work: Pipelines are Key to Meeting U.S. Oil Demand Requirements Allegro Energy GroupAllegro Energy GroupAllegro Energy GroupAllegro Energy Group 1 Pipelines Are Key to Meeting U.S. Oil Demand Requirements Introduction The U.S. consumes about 19.5 million barrels per day (b/d) of petroleum products. A complex and carefully choreographed network is in place to move the raw materials, which are mainly crude oils, from where they are produced to where they are processed, and the refined products1 from where they are processed to where they are consumed. Distances involved can be enormous: crude and products arriving from the Middle East have already traveled more than 10,000 miles, and may be shipped thousands more across the U.S. This vast logistical ballet is the key to the oil market, and an outgrowth of the basic shape of the oil market. Areas that are relatively resource-rich supply areas that are relatively demand-hungry but resource-poor. This interplay of resource versus demand regions is a characteristic of world markets, where producing countries supply consuming countries, and of regional markets in the United States, where producing and refining areas supply consuming areas. Each part of oil’s journey from producer to consumer involves a special set of players. This memo focuses on the primary player or transportation mode in the United States: pipelines. It describes the pipeline networks for crude and products, how they operate and how they are regulated. Why Pipelines? The outbreak of World War II engendered a watershed event in petroleum transportation. Reflecting historical demographic and economic factors, the East Coast was the largest consuming region in the U.S. (as it remains, but less dominantly so), but it relied on tanker shipments to supply its regional refineries and to move refined petroleum products from the U.S. Gulf Coast. With the involvement of the U.S. in the War, German submarines began sinking tankers along the Gulf and Atlantic Coasts and in the Caribbean, thus disrupting the flow of oil. A joint industry-government effort found alternative transportation in the form of a technological breakthrough: long distance, large
View Full Document