Ever since the discovery of oil, the challenge of getting it to the needed markets has represented a major logistics challenge. Almost as many fortunes have been made transporting oil by various methods as by drilling for it. While the Keystone Pipeline has been in the news lately, it is only a faint shadow of the major controversy surrounding the Alaskan Pipeline project of the 70s.
By Air, Sea and Land
Today, oil is moved through a multiple of methods. In fact, it is possible for a single barrel of oil to be pumped over the sands of a desert, placed on a ship, sent across the oceans, and then be pumped yet again into a train or truck for its trip to a refinery. Each of these methods has different advantages and disadvantages, including such issues as:
• Environmental impact
It is estimated there are more than 1.5 million miles of liquid petroleum pipelines in the world, with an additional 15,000 miles added in 2013 alone. In the United States, there are at least 185,000 mile of oil pipelines, before the addition of any of the new construction in 2014. These numbers underline the importance of pipelines as a primary distribution method. While these installations represent billions of dollars in investment, they provide an efficient and cost-effective way (app $5 per barrel) to move crude oil over large distances in great quantities, 24/7. Most pipelines are also subterranean, making them impervious to changes in weather and surface obstacles.
For all these advantages, the construction of pipelines is often opposed by environmentalists and others. The construction process itself is often disruptive to natural environments, and all pipelines leak and are subject to disruption by earthquakes and other disasters. Additionally, all pipelines corrode over time, and present potential long-term problems, even if no longer used for their original purpose.
Pipelines are also limited in their ability to serve multiple markets. Since they are so expensive to construct and maintain, they are primarily intended for point-to-point movement of bulk oil. The oil delivered to storage tanks and other locations must be trans-shipped by other vehicles. The immense supertankers on the oceans today carry as much as 2 million barrels of oil at once. To put this amount in perspective, that is more than many medium-size oil companies will produce in a year.
While these numbers present significant economies of scale for transporting oil, the tankers have their own disadvantages. Weighing as much as one billion pounds fully loaded, these ships can’t just dock at any port. They also present major risks of an ecological disaster should one ever lose even a significant part of its cargo at sea or offshore. Costing as much as $80 to $100 million dollars to construct, it takes more than $50,000 dollars a day to run these ships at breakeven, and much more to make a profit. These economics limit the available customers for oil shipment to the very largest oil companies.
Of course, the transport of oil by rail has long been an alternative to pipelines, creating something of a pipeline on wheels. While the loads are miniscule by other standards, a single train can still move nearly 100,000 barrels of oil at a very efficient cost-per-mile. Additional capacity is easily added or eliminated, allowing more control over the ongoing cost structure. However, there are special costs and risks associated with rail transport, such as the $200 million derailment in Quebec in 2013. In fact, more crude oil was spilled in rail accidents in the U.S. in 2013 than in nearly 40 years.
Lastly, tanker trucks and semis serve to help transport smaller quantities of oil from remote locations. Less than 4 percent of all crude oil is shipped by road in the United States, and the reasons are basically economics and safety. A single truck only carries about a third of the content of a single rail car, and costs as much as three times per mile per barrel to move.
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