What’s So Hard About Moving Oil: Red Tape, Bureaucracy, and a Slow Walking President

Talking about the challenges that “Washington faces with its network of infrastructure”, is a reflection of the infrastructure problem. The oil and gas transportation infrastructure is privately owned and operated. It is not Washington’s. Many of the energy problems, as well as other problems, we face could be more easily addressed if there was clarity on the proper role of government and a greater degree of trust by the federal government of the private sector.

Instead of mutually beneficial collaboration, the private sector is too often viewed as the enemy. Regulatory bureaucrats, reflecting the anti-oil sentiment of the Obama Administration, use their authority to impose onerous and costly burdens on the private sector. Instead, they should be working with those who have the expertise and engineering talent to expedite cost-effective oil transportation regulations that reflect a real risk management philosophy.

Whether it is transportation by pipeline, rail or waterborne craft, owner operators have strong incentives to perform at high standards. The cost of accidents and especially the cost of negligence are substantial. Recent accidents should be an serve as incentive for the government and owners to conduct an extensive “Lessons Learned” analysis to determine steps that will make the transportation of oil and gas safer. Some of this is taking place according to the Congressional Research Service. Those efforts should be reassessed to determine if new materials, new technology, or new operating practices are justified.

The oil and gas boom that has taken place in the past 6 or so years has created a number of challenges for both the public and private sectors. The increase in production has been so rapid and significant that it has created infrastructure challenges. Namely, the oil and gas is coming from areas that do not have enough transportation capacity to move them from well-head to processing facilities. This was obvious from the supply built up at Cushing Oklahoma.

Infrastructure improvements and expansion take time and are costly. Rights of way have to be obtained and owners have to comply with both state and federal permitting requirements. In addition, new pipeline construction and upgrades is very expensive. IH Global consulting has estimated that industry will invest almost $900 billion in infrastructure over the next 12 years. Despite the growing use of rail to move crude oil, IH Global concludes that pipelines will remain the primary mover of oil and gas, with investment growing from $1.6 billion annually to almost $7 billion. Investments of that magnitude create good paying jobs and ancillary business investment. The most recent jobs report makes clear that more private investment is essential.

The attention being given to transportation accidents is mainly a result of several recent train accidents. Trains are not the major form of crude oil transportation and the recent increase in their use is undoubtedly the result of the oil boom outstripping increases in pipeline capacity. The network of pipelines in the United States consists of almost 500,000 miles. It’s share of transportation has grown from 48% in the past to 66% while waterborne transportation has shrunk form 48% to 27%. Combined these two modes of transportation account for 93%. That dominance will continue as a result of the sizable investments that are now being made. Although, the media has given much attention to recent accidents involving crude oil, data from the Department of Transportation (DOT) show that pipelines are the safest means to transport crude oil and product. Over the past 10 years, spills have decreased by almost 60%.

The Manhattan Institute published an Issue Brief on crude oil transportation last June–The evidence is clear: transporting oil and natural gas by pipeline is safe. Based on DOT data, it pipeline transportation is safer than transportation its alternatives: by road, rail, or waterborne vessels.

In its brief, the Institute stated, “Rising oil and natural gas production is outpacing the transportation capacity of our… national pipeline infrastructure. The Association of American Railroads reports that between 2008 and 2011 the total share of oil and gas rail shipments grew dramatically, from 2 percent of all carloads to 11 percent…Crude oil shipments via rail have continued to expand at an accelerating rate; as of September 2012, U.S. Class I railroads were on pace to deliver 200,000 carloads of crude for the year, compared to just 66,000 in 2011 and 9,500 in 2008.”

While there can be multiple reasons for the growth in rail transport, a major one surely is the anti-oil philosophy of the Obama Administration. For over five years it has delayed approval of Keystone XL and in doing so has sent a message, a negative one, to other pipeline companies and investors.

The fact that oil and gas are going to be our dominant energy sources for decades to come is beyond dispute. Embracing this reality will create jobs, spur domestic investment, improve safety, and put downward pressure on crude and product prices. Slavish adherence to an off oil ideology has unintended and is a disservice to the people seeking to improve their standard of living.

 

This article appeared on the National Journal website at http://www.nationaljournal.com/policy/insiders/energy/infrastructure-snags-what-s-so-hard-about-moving-energy-20140113

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