Association of Oil Pipe Lines

Federal Energy Regulatory Commission

Washington, D.C.

April, 2004
2

Pipeline Infrastructure Critical to Balance 

Energy Supply and Demand

Crude oil and petroleum products 

are supplied to major demand 

centers in the United States by 

over 200,000 miles of pipelines 

representing a $31 billion 

investment

Pipelines transport over 38 million 

barrels of crude oil, feedstocks 

and petroleum products each day

17% of the nation’s freight is 

transported via pipelines for only 

2% of the nation’s freight bill
3

Oil Pipeline Infrastructure

Crude oil

– Transport crude oils from major producing basins and ports to 

various refining centers and/or supply hubs

Refined products

– Transport refined petroleum products, including gasoline, diesel, 

jet fuel and LPGs, from refineries and ports to end user markets

Other liquids

– Energy related petrochemical feedstocks transported between 

supply chain points
4

Key Industry Challenges

Changes in supply and distribution patterns challenge 

existing industry infrastructure

Substantial investment required to meet logistics and 

safety requirements

Increased competition from alternate logistics providers 

Need regulatory environment that continues to attract 

investment capital
5

Industry Organization

Major integrated oil companies

– Primarily focused on assets that support their proprietary operations

– Have recently divested significant number of “non-strategic” assets

Independent refiners and producers

– Primarily invest in infrastructure directly upstream and downstream of 

their operations

Joint ventures

– Most are formed to share investment costs of major construction 

initiatives

Independent pipelines

– Proliferation of master limited partnerships reflects the need for new 

sources of capital 

Regardless of organizational structure, most pipelines are governed 

under the Interstate Commerce Act
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Independent Pipeline Ownership

Pipelines traditionally owned by large integrated 

companies

Congress provided tax incentives in mid-1980’s to 

stimulate energy infrastructure investment 

Formation of MLPs has provided new sources of capital 

for energy infrastructure development

– MLPs primarily owned by individual investors

MLPs solely focused on increasing throughput and 

capacity 

– Benefits consumers by increasing transportation options and 

supply to regional markets
7

Supply and Demand Regions

Anacortes

Billings

Casper

Salt

Lake

City

Portland

Houston

Beaumont

LOOP

Patoka

Chicago Wood

River

Minneapolis

Cushing
8

East Coast (PADD 1)

Highest petroleum consumption 

rates in the United States

Highly dependent on imports for 

both crude oil and refined 

products supply – ~100% crude oil – 24% of refined products – Largest recipient of supplies from 

other regions

South Atlantic region experiencing 

higher population growth rates 

than the slower growth New 

England region

Largest concentration of oil-

heated homes
9

Midwest (PADD 2)

Dependent on crude oil 

imports (mostly Canadian) and 

refined products supplies from 

other regions

2

nd highest crude oil demand 

region in the U.S.

Chronically short market due to 

combination of demand growth 

and refinery closures
10

Gulf Coast (PADD 3)

PADD 3 is the origin of 90% of 

crude oil and 80% of the refined 

products shipped between U.S. 

regions

Largest crude oil and refined 

products supply region in the U.S. – Only two OPEC nations (Saudi 

Arabia and Iran) have higher 

crude oil production than PADD 3

– No foreign nation has higher 

refined product output than PADD 3

Pipeline and terminal capacity in 

the Houston refining center 

constrained
11

Rocky Mountains (PADD 4)

PADD II and III have 

historically supplied market to 

augment local production

Small, but growing market

Minimal demand for specialty 

products 

Infrastructure not well 

developed due to long 

distances, limited markets and 

high costs
12

West Coast (PADD 5)

West Coast traditionally 

isolated from other U.S. supply 

regions

Growing population continues 

to increase demand for 

products

Alaska North Slope crude oil 

an important source of supply 

for West Coast refineries

CARB rules isolate market, 

limiting supply options
13

Supply and Demand Overview

Over 50% of all U.S. crude oil 

demand exists in the Gulf Coast 

region

Production from the Gulf Coast 

region supplies the majority of 

Midwest and East Coast refined 

products deficit – New England region becoming 

increasingly dependent on foreign 

imports as South Atlantic region 

continues to grow

– Midwest deficit expected to grow 

as regional refineries struggle to 

keep up with demand

West Coast and Rockies regions 

fairly well balanced between 

regional refined products supply 

and demand 0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

West Coast Rockies Gulf Coast Midwest East Coast MBD

Crude Production Refinery Runs Refined Products Demand
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Vancouver

Anacortes

Billings

Casper

Salt

Lake

City

Montreal

Portland

Cushing

Houston

Beaumont

LOOP

State shading shows Petroleum Administration 

for Defense Districts (PADDs)

For Canadian Crude

For Other Imports

From a Domestic Origin

Minneapolis Sarnia

Chicago

Wood

River

Major Crude Oil Trunklines

Patoka
15

Crude Oil Supply Challenges

Declining production of domestic on-shore crude oil

Increased production from U.S. OCS, Canada, and other 

foreign countries

Changing refinery crude slates and some refinery 

closures

Adaptation of infrastructure to accommodate supply 

changes
16

Vancouver

Anacortes

Billings

Casper

Salt

Lake

City

Guernsey

Minneapolis

Chicago

New York

Cushing

Houston

Beaumont

Wood

River

LOOP

Patoka

Major Refined Product Pipelines
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Product Supply Challenges

Demand growth resulting in “tight” pipeline capacity in 

the Midwest and Gulf Coast markets

Proliferation of fuel grades straining pipeline and terminal 

infrastructure

Lack of capacity tempers market liquidity resulting in fuel 

shortages and retail price spikes
18

Pipeline Industry Economic Challenges

Aging and limited logistics infrastructure

Challenging environment for permitting

Soaring expenditures for pipeline integrity programs

Competition from non-regulated entities

– Refiners

– Barges, trucks, and rail cars
19

Summary

The oil pipeline industry has responded well to supply and 

distribution challenges and integrity management issues

Future challenges will require significant investment in 

pipeline infrastructure

Continued rate flexibility will be paramount to attracting the 

capital necessary to successfully meet these challenges