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The heart of the pipeline operation is scheduling. Unless all the proper shipper information is fed into the control center and properly translated into an efficient schedule for inputs and deliveries, the pipeline system will lose efficiency and break down. Proper scheduling requires proper notification by shippers. The shipper will notify the pipeline sufficiently in advance of shipment of the type, quantity, source, destination, time of availability, and requested delivery date of each shipment.22 Most pipelines have a scheduling department whose responsibility is to obtain shipping information from shippers. The dispatching department works out the plan for movement. Obviously, closo coordination is required between the two departments.?
Armed with the shipping information from each shipper, the central control sets up a cycle of when each grade of crude or each type of product will be shipped. Within each cycle batches of crude or product will be shipped sequentially. “Batching is the sequential movement of separate identifiable volumes of different products or crudes through a pipeline. An optimum batching sequence schedules all shippers compatible grades adjacent to each other to minimize mixing at batch interfaces." 24
Batching is required whether the pipeline operates on a commonstream basis or on a segregated basis. A commonstream pipeline commingles all the products within each batch. For example, within the batch of regular gasoline, all shippers' regular gasoline is commingled together.25 This requires the pipeline to establish common specifications for each type of product to be shipped within the batch so that the product coming from various shippers will be compatible with product coming from other shippers.26 A segregated pipeline separates each shipment within each batch. Thus, regular gasoline coming from Company A will remain a separate, identifiable shipment, within the batch of regular gasolines coming from other companies.27 The advantages of using a commonstream pipeline are that is requires a lower capital investment in tankage translating into lower transportation costs; small shipments can be combined more easily to meet minimum shipment requirements, and the pipeline can offer immediate delivery of similar product at the destination upon receipt of the production at the origin point.28
By using a batch operation (either commonstream or segregated) the control center can plan the trip of each batch through the pipeline. Shipping information is kept current and any changes are fed into the computer to adjust the scheduling. The actual movement of each batch is monitored on an hour-by-hour and day-to-day basis.29 A batch or shipment can be isolated specifically since the pipeline control will know the specific number of feet each number of barrels occupies within the pipeline and, with the known pumping pressure, a definite rate of travel can be determined for each batch within each size pipeline. The location can be computed from this information.30
AOPL at 25. 23 Marketing Practices, Part 2 at 631. 24 AOPL at 26. 25 Id. 26. ** Marketing Practices, Part 2 at 632–33. 27 Id.
* Id., Part 3 at 5-6.
Moreover, other sophisticated devices are used to determine differences in the liquid's density and temperature in order to identify exactly when different grades of product or crude are passing particular points.31
The cycle and the scheduling of batches within the cycle lay at the heart of the pipeline operation. In crude pipelines, the cycle depends upon the types of crude being shipped; the number of days required to complete a cycle will vary significantly. In product pipelines, each pipeline attempts to set a specific number of days for the duration of each cycle. On Colonial pipeline for example, a 10-day cycle is used.32 This means that the cycle repeats itself every 10 days and each shipper's grades of product will be picked up and delivered at 10-day intervals.33 A typical product sequence within the 10-day cycle may be: regular gasoline, premium gasoline, regular gasoline, No. 1 fuel oil, No. 2 fuel oil or diesel, jet fuel or kerosene and regular gasoline. Unleaded gasoline will follow an unleaded product.*
Batches of segregated products meet at an interface. The mixture of batches on either side of the interface is the transmix: “A principal control in limiting the transmix problem is the necessity for large volume shipments in pipeline operations.” 35 The larger the batch, the smaller proportionately is the transmix.36
The spread of the contamination or transmix is a function of the velocity, differential density between the two products, viscosity and friction between the products and the pipe walls. The center of the interface is at the point of the original interface with the length of spread continually increasing, half on each side. The length of transmix is important in determining where to cut the batch so that the contaminated product either can be put into one of the products or cut out altogether for reprocessing.37 The interface can be minimized by scheduling the largest possible batch size to minimize the number of interfaces; proper cycling of products so that the mixture can be disposed of into one of the products; and delivering the product (if less than the entire batch is to be delivered) out of the center of the batch minimizing the number of times interfaces have to be handled (known as heart-cut deliveries). 38
The capacity of the pipeline can be expanded in a number of ways. The volume can be increased through increases in the horsepower applied to push the liquid. The throughput increases with horsepower but at a declining rate; if the horsepower doubles, the throughput will increase by one and one half.39 Horsepower increases can be accomplished by increasing the horsepower at existing pumping stations or by adding pumping station. At some point, the physical and safety limitations of the pipe are met and the pipe cannot accoinmodate any more increases in pressure.40 Further expansions can be accomplished
3 AOPL at 36.
40 The DOT establishes limitations on pipeline operating pressures in order to assure pipeline safety.
through additions of pipe along side the original pipe, either for small portions of the distance or for the entire length of the pipe. Expansion through pipe additions is known as “looping.”
B. Historical Perspective
Colonel Edwin Drake brought in the first oil well on August 27, 1859 near Titusville, Pennsylvania."1 Transporting the crude from the well head to refineries quickly became an important part of the industry. The first attempts at transportation were in wooden barrels carried by horse and wagon teams or put on flat beds and floated down rivers.is In 1862 a small diameter pipeline was laid from a well to a refinery 1,000 feet away. Then a two-inch line was laid that traversed 3 miles to a railroad terminal, but had to be abandoned because it had too many leaks to be useful.“- Finally, on October 7, 1865, Samuel Van Syckel completed the first successful pipeline. It ran for 6 miles from the Pithole Field in western Pennsylvania to the Oil Creek Railroad railhead at Miller's Farm. It consisted of 2-inch, lap-welded, wrought iron pipe with a capacity of 81 barrels per hour or 1,900 barrels per day.15
İt presented such a threat to the teamsters carrying oil in barrels on horse and wagons, that Pinkerton guards were required to prevent the line from being ripped up. 46 By 1874, a four inch line had been laid 60 miles to Pittsburgh.47 The high rate policy of the railroads, as well as the tactics of Standard Oil, caused the spread of the use of pipelines and within 10 years of the Van Syckel pipeline, railroad domination of crude oil transportation was being challenged.48
The early development of pipelines was a struggle between the Standard Oil forces and those independents with the courage to fight the power of Rockefeller and his Standard Oil trust. Rockefeller started his business in Cleveland, Ohio in the 1960's and through shrewd business acument and heavy handed tactics was able to begin his rise to the top of the oil industry. His major weapon was control of transportation, first railroads and then pipelines.49 The race for control of the industry in the late 1800's and early 1900's centered principally around the control of crude oil pipelines—both gathering lines and trunklines.
By the late 1870's Rockefeller's tactics enabled him through his Standard Oil trust to control both railroad and pipeline transportation.50 Standard Oil located its refineries in the centers of product consumption and was able to offer the railroads large volume ship
& Congressional Research Service, National Energy Transportation, Vol. I, Current Systems & Movements, Pub. 95–15, Senate Comm. on Energy and Natural Resources and Senate Comm. on Commerce, Science, and Transportation, 95th Cong., 1st sess., 1977 at 60 (Here. inafter cited as “NET""').
• Wolbert at 6.
43 NET at 160; Hearings on H.R. 9676 and H.R. 8572, Oil & Oil Pipe Lines, before the House Comm. on Interstate Commerce, 73d Cong., 2d sess., 1934, at 236 (Hereinafter cited as “Oil and Oil Pipe Lines").
44 Wolbert at 6.
46 AOPL at 3-4; Loos. John L., Oil on Stream ! A History of Interstate Oil Pipeline Company 1909–1959, Louisiana State Univ. Press, Baton Rouge, 1959, at xiii (Hereinafter cited as “L008"] ; Wolbert at 6.
19 AOPL at 3-4; Wolbert at 6;NET at 161. 47 Wolbert at 6. 45 NET at 161 ; Wolbert at 6. Oil and Oil Pipelines at 236. ** A subsequent section of this paper will indicate in some detail why the Standard Oil Company became the prototype of industry structure and control.
30 Johnson at 5.
ments of crude oil in return for favorable rates. Railroads were played off against each other and the system of favorable rates was maintained as a result.51 As pipeline transportation proved itself, the Standard Oil trust utilized gathering lines to cheaply transport the oil to the railheads and later was able to build or acquire pipelines that ran parallel to the railroads as a further method of maintaining its competitive advantage.52
In 1879 the Tide Water Pipe Line, a company independent of the Standard Oil trust, opened and became the first overland long distance trunk pipeline running 109 miles from the Bradford, Pa., oil fields to Williamsport, Pa. This 6-inch line was extended 5 years later to Bayonne, V.J., and provided a direct link from the oil fields to the coastal refineries and the lucrative export trade.58
Standard Oil, at first unable to gain control of Tide Water,54 emulated this achievement and by the 1880's Standard Oil had lines serving Pittsburg, Cleveland, Buffalo, and New York city.55
The major obstacle faced by pipeline owners was securing the right of way for the pipeline. Railroads were the principal impediment, refusing to grant right of way across their trackage. The Standard Oil companies backed the railroad's position.56 But in 1883, an eminent domain bill passed in Pennsylvania and opened the way for other states to adopt similar legislation. With this hurdle overcome, pipeline construction proceeded.
Discoveries of crude oil spread west to Ohio, Indiana, and Illinois and the use of pipelines spread as well. With the development of the Lima-Indiana Field, Standard Oil organized the Buckeye Pipe Line Company and used its pipeline to extend its control over that field.58 Refineries were built in the Chicago area and pipelines fed those refineries from the Ohio-Indiana-Illinois fields.59
Prior to 1926 only crude oil was shipped through the pipelines; products-mostly kerosene—were shipped by rail. Thus refineries tended to locate near large consuming centers, since it was cheaper to ship crude oil via pipeline than to ship products by higher priced rail transportation. Gasoline was not the principal product until 1911.60
The industry started to change with the discoveries of oil in the Mid-Continent and in Texas. The 1890's witnessed the development of the oil fields in Kansas and Oklahoma (the Mid-Continent field). Standard Oil was active in these fields through the Prairie Oil and Gas Company which was formed in 1901.61 1901 also was the year of the massive discovery at Spindletop, Texas—the start of the large flush production from the east Texas field. This discovery brought new companies to prominence due to the accessibility to water transportation. With Spindletop came the rise of the Texas Company (now
51 Johnson at 5; Mitchell, Edward J., editor, Vertical Integration in the Oil Industry, American Enterprise Institute for Public Policy Research, Washington, D.C., 1976, at 193 [Hereinafter cited as "Mitchell, ed.").
52 Johnson at 5 ; Mitchell, ed. at 193.
Texaco). Sun, and Guffey Oil Company (later acquired by the Mellons and developed into Gulf Oil).62
Standard Oil's interest, besides its control of the Appalachian & Lima-Indiana Fields, centered around the Mid-Continent field. Standard's company, Prairie Pipe Line, extended its system from the Kansas and Oklahoma fields through St. Louis and to the existing Buckeye system. Thus by 1905, crude from the Mid-Continent field could be processed in the Atlantic coast refineries via Standard Oil's pipeline system. In the other direction, from the Mid-Continent to the Gulf Coast, other companies, principally Texas and Gulf, built systems to connect with Gulf Coast refineries or for shipment elsewhere by water.6:
The major development during the 1906–11 period was the continuing and growing challenge to the Standard Oil companies based on discoveries in Kansas and Oklahoma. These new companies used pipelines to achieve transportation cost advantages and to achieve control over the means of transportation. But the use of the new pipelines was restricted to the owners, preventing competition from companies unwilling or unable to build their own pipeline system.65 At the same time Standard Oil built its pipelines to serve its own refinery requirements and not to serve others. Standard Oil's pipelines were not built to compete for common carrier business and never did so.66
From 1906 through 1920 there were no major pipeline innovations. Pipeline transportation exclusively was limited to the carriage of crude oil. Products were delivered by tanktruck and railway.67
The most significant events of the early years were the enactment of the Hepburn Act in 1906, making interstate pipelines common carriers (see infra for detailed discussion of this Act) and the dissolution of the Standard Oil companies in 1911.
The year 1926 marks the start of the era of product pipeline transportation. In this year some crude pipelines, no longer needed for crude transportation, were converted to product use.68 But the major stumbling blocks toward greater use of pipelines for products had all been technical. By the twenties the industry was able to solve such problems as standardization of product specifications. Further, the development of interface and contamination studies proved that products could be shipped in batches without fear of massive contamination, while the problem of leakage from pipelines was solved through the development of improved seamless and welded pipe and electric welding at pipe joints; and the continuous pumping through pump stations to avoid having to put the product into tankage at each pump station.69
The twenties also saw the development of new kind of pipeline organization, the joint venture. Companies found that they could build larger lines without duplicating efforts by joining together and building and operating the line. The first joint venture pipeline was a crude