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involved in the preparation of a case of such magnitude combined with the war frustrate progress in the “Mother Hubbard" case. In 1946, for example, 216 of the defendants filed motions raising numerous pretrial issues requiring extensive court argument and many months of effort.44 The Justice Department finally was forced to conclude that the Mother Hubbard case was an inefficient way to attack oil industry competitive problems and the case was dismissed in 1951.45

The Exxon case 46 currently in adjudication before the FTC provides additional striking evidence of the difficulties of trying to restructure the petroleum industry through antitrust litigation. In July 1973 the FTC issued a complaint charging Exxon and seven other major oil companies with maintaining a noncompetitive market structure in refining in the Southern and Eastern Regions of the United States in violation of section 5 of the FTC Act. The complaint specifically alleged that the respondents were able to maintain their monopoly control over refining through abuse and exploitation of their control over crude oil and petroleum product pipeline transportation in the relevant geographic market. Now, nearly 5 years after the complaint was issued and after countless procedural motions and delays, FTC complaint counsel's first subpenas seeking substantive document discovery have only recently been issued to the respondents. The respondents have moved to quash these subpenas and lengthy Federal court enforcement proceedings may be necessary before complaint counsel's discovery gets underway. FTC staff estimate that document discovery, once it begins, will take 15–20 months to complete.47 Then, literally millions of documents will have to be reviewed by FTC staff in preparation for trial. The actual trial and ensuing appeals are sure to consume several additional years, so that it is unlikely that the case will reach the post-judgment remedial stage before 1990.48

If industrywide antitrust litigation is an inefficient means to accomplish pipeline divestiture on a broad scale, the piecemeal approach of bringing suits limited to individual pipelines appears little more constructive as an alternative. Attacking the overall problem pipeline by pipeline through litigation not only would be fantastically expensive, but could not be completed in the foreseeable future.

Obviously a great deal of attention has been devoted to petroleum pipelines. Regulatory agencies, antitrust agencies, and the Congress all have attempted to implement policies to remove the anticompetitive advantages inherent in oil company ownership of pipelines and to make pipelines more accessible to independent companies. Clearly, efforts thus far have accomplished very little. Pipelines remain overwhelmingly owned or controlled by integrated oil companies. Although rates and minimum tender requirements have been lowered, access to the pipelines is controlled by integrated oil companies and is permitted only in limited instances. Rate regulation has been imperfect, permitting oil companies to reap huge profits from their ownership of the pipelines. Antitrust efforts have been totally ineffectual, with the consent decree providing little solace to the independent segment of the industry. Congressional efforts have been enlightening, leading to some action by the ICC or the antitrust agencies or providing some pressure on the oil companies for a change in operations.

* Id. at 147.

45 Id.

43 In the matter of Erron Corporation, et al., FTC dkt. 8934, filed July 18, 1973.

47 FTC dkt. 8934, Complaint Counsel's Application for Subpoenas Duces Tecum to Respondents, filed Jan. 9, 1978 at 25.

4* See The Wall Street Journal, Jan. 13, 1978, at 6.

But in the long run, neither Congress, the antitrust agencies, nor the ICC have altered the direction of the development of the industry or the modes of operation of the integrated oil companies. The major oil companies have managed the pipelines to their own liking, adjusting to each new threat as it came along and turning it into their advantage. Seventy years of regulation have yielded few benefits.

It is equally clear that corrective measures are required if nonowners are to take advantage of the sizable economies provided by pipeline transportation and if these economies are to be passed along to the consumer in the form of lower prices. Regulation has failed. Antitrust efforts have failed. Congressional oversight has failed. It is essential that a solution be found that will solve this longstanding problem. Severance of the relationship between pipeline owner and pipeline shipper through divorcement of pipelines from the remaining segments of the industry is necessary. Anything short of this solution will be doomed to failure, since the integrated oil companies will adapt it to their goals and use it as a shield to ward off more conclusive attempts to make their pipelines truly available to all potential users.


The development of pipelines in the petroleum industry has brought with it a host of competitive problems ranging from simple outright denials of access to use of more sophisticated means to keep competitors from obtaining the full advantages of pipeline transportation. "The history of the oil industry, from the standpoint of monopolization and restraints on trade, essentially consists of a recital of the efforts to assure equal treatment in, and equal access to, transportation.” 1 The purpose here is to examine pipeline transportation and indicate the nature of the competitive problems and the efforts made to deal with them.

Pipelines are a unique form of transportation. Possessed with tremendous economies of scale, pipelines are a natural monopoly constituting by far the lowest cost overland mode of crude transportation for oil and such lighter petroleum products as gasoline, jet fuel, diesel fuel, kerosene, and distillate fuel oil. For most routes pipelines undercut the cost of waterborne transportation of these products via tanker or barge as well. Further, unlike other transportation modes, pipelines offer a continuous flow and are thus uniquely suited to serving crude oil production and refinery operation. Absent rate regulation, the owners of such pipelines would reap tremendous monopoly profits by charging tariffs equivalent to that of the higher cost modes. Limiting the tariff's which pipelines may charge passes to the shippers the advantages of pipeline transportation. Where such shippers are at the same time the owners of the pipelines, they have the incentive and opportunity to restrict the capacity of the pipelines in order to maintain a high level of crude oil and product prices in the markets served by their pipelines and to limit access to the pipelines as far as possible to owner-shippers.

With control of this essential transportation vehicle in the hands of major integrated petroleum companies, advantages of pipeline transportation may be enjoyed by these owner-shippers without deteriorating the delivered price of the crude oil and petroleum products shipped through the lines. In areas where low-cost large-diameter pipelines have rendered alternative modes of transportation obsolete, inability to secure access to pipelines assures competitive disadvantages and may portend competitive death of independent refiners and marketers. In other areas independents unable to secure access to low cost pipelines will simply incur higher transportation costs while the owner-shippers will price their crude oil and petroleum products to reflect such higher transportation costs while reaping wind fall profits derived from their advantageous transportation costs. In either event, the price-competitive influence of independent refiners and the independent marketers whom they serve is stifled.

1 Consent Decree report at 124.

The role of transportation has not gone unnoticed over the years. As this analysis will indicate, the control over transportation, and especially pipelines, became the central device for achieving control over the industry.

Although the petroleum industry has become increasingly complex over time, pipelines remain a central mechanism for control of the industry. Because of this and the natural monopoly character of crude oil and petroleum product pipelines, governmental agencies have been given the authority to regulate them. Various means have been used over the years to bring the power achieved through their control under the sway of the regulatory and antitrust agencies of the Government, but without much success. The problem persists and will continue to persist unless forceful action is taken to deal effectively with those who control the lifeline of the oil industry.

Mís. Ida Tarbell, an early antitrust observed of the petroleum industry, was wisely prescient when she said:

In spite of the Interstate Commerce Commission, the crucial question is still a transportation question. Until the people of the United States have solved the question of free and equal transportation it is idle to suppose that they will not have a trust question. ... That our first task is to secure free and equal transportation privileges by rail, pipe, and waterway is evident. It is not an easy matter. It is one which may require operations which will seem severe; the whole system of discrimination has been nothing but violence, and those who have profited by it cannot complain if the curing of the evils they have wrought bring hardship in turn on them. At all events, until the transportation matter is settled, and settled right, the monopolistic trust will be with us, a leech on our pockets, a barrier to our free efforts.2

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2 Hearings on H.R. 2318. Oil Marketing Divorcement, before Subcomm. no. 3, of the House Comm. on the Judiciary, 76th. Cong.. 1st sess., 1939, at 374. (hereinafter citeil as Oil Marketing Divorcement] See generally, I, Tarbell, The History of the Standard Oil Company (1904).


A. Structure of Pipeline Systems Pipelines may be categorized into three types of systems: gathering lines, trunk crude lines, and trunk product lines. Gathering lines are small diameter lines that collect the crude produced in a particular field by connecting the lease tanks of the producers and transporting the production through a system of feeder lines to central collecting points. Crude trunklines generally are large diameter lines moving the crude from the central collecting points (tankfarms) to refineries. Refined product trunklines, also large diameter pipelines, move refined products from the refineries to the pipeline marketing terminals for further distribution by other modes to the ultimate consumer.3

Throughout the remainder of this paper, the term pipeline will include both crude and product trunklines, unless specifically referred to as crude pipelines or product pipelines. Gathering lines will be referred to specifically as gathering lines.


The basic structure of the pipeline systems begins at the site of the oil well. Small flow lines, ordinarily owned by the producer, carry the oil from the wellhead to small volume storage tanks. These lease storage tanks accumulate the production of contiguous wells operated by the same producer. Usually located on each lease, such tanks can hold several days production of crude oil. In these tanks, water, sediment and gas are removed from the crude oil. As the crude oil is transferred from the lease tanks to the purchasers' gathering lines it is measured either automatically or by manual gaging. This is the point of first purchase for nearly all crude oil produced domestically. Ordinarily, the purchaser provides for the pipeline connection and bears the transportation cost. Pipeline connection is coincident with execution of the contract of sale, the division order. The initial purchaser is almost always the owner of the gathering system serving the lease, and may be an independent gathering company or, more commonly, the crude purchasing arm of major integrated petroleum company.

1 Consent Decree report at 122 ; "Pipeline Transportation : A Review of the Oil Pipe. line Industry Association of Oil Pipe Lines. Washington, June 4, 1975. Revised by Exxon Pipeline Co., Apr. 1976, at 15. [Hereinafter cited as "AOPL"); Second Report of the Attorney General Pursuant to Section 2 of the Joint Resolution of July 28, 1955, consenting to an Interstate Compact to Conserve Oil & Gas, Sept. 1, 1937. (Hereinafter cited as "2d AG report.")

? Consent Decree report at 122: AOPL at 15: Wolbert at 7: 2d AG report at 69-72.

SAOPL at 15; Hearings on S. Con. Res. 31, et al., Consumer Energy Act of 1974, before the Senate Comm. on Commerce, 93d Cong., 1st sess., ser. no. 93-63 ; pts. 1-4. 1973-74 at 610. (Hereinafter cited as Consumer Energy Act."'] Consent Decree report at 122.


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