U'S' Russia Oil Transportation and Markets Seminar

1
U.S. Russia Oil Transportation and Markets
Seminar

• Center For Strategic Research U.S. Department
  of Energy
• Moscow, Russia
• September 21-22, 2004
• Overview of U.S. Crude Oil Pipeline System
• Presentation of Raymond Paul
• Director, Public Affairs
• Association of Oil Pipe Lines
• Based Partially Upon Information Provided by
• Cheryl Trench, Allegro Energy Group and
• Dick Rabinow, Retired President, ExxonMobil
  Pipeline

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Facts and Figures of the U.S. Crude Oil and
Refined Products Pipeline System

• Approximately 200,000 miles of interstate crude
  oil and products pipelines
• 95,000 miles of products pipelines
• Vary in size from several inches in diameter to
  48 inches and with few exceptions, they are all
  buried
• Located in all 50 states with greatest
  concentration the Gulf Coast (Louisiana, Texas)
  and Midwest (Illinois) regions
• Carry 67 of total petroleum movements
• Over 38 million barrels/day and more than twice
  US consumption

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U.S. Crude Oil and Refined Products Pipelines
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Selected Crude Oil Trunkline Systems
Vancouver
Portland
Enbridge
Anacortes
Montreal
Portland
Billings
Sarnia
Minneapolis
Casper
Chicago
Salt Lake City
Wood River
Patoka
Patoka
Cushing
For Canadian Crude
For Other Imports
Capline
Beaumont
From a Domestic Origin
Locap
LOOP
Houston
State shading shows Petroleum Administration for
Defense Districts (PADDs)
Seaway
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How are U.S. oil pipelines owned/operated?

• Subsidiary of integrated oil company
• Master limited partnerships
• Pipeline subsidiary of conglomerate
• Independently operated Joint ventures
• Owner operated joint venture
• Undivided joint interest pipeline
• Issues of concern to each may differ

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Partnerships

• Publicly Traded Partnerships (MLP, LLC)
• Allows the public to directly own pipeline with
  limited liabilities, general partner manages
  pipeline
• Only purpose is to own and operate pipeline

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Joint Venture

• Multiple owners
• Achieve economies of scale
• Obtain sufficient capital for large, risky
  projects
• Managed as a single entity and managed directly
  by employees of the entity

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Undivided Joint Interest

• Achieves economy of scale
• Each investor owns fixed percentage of large
  pipeline, like multiple straws
• Each owner competes with other as to rates,
  services
• Pipeline separately operated and managed by
  contract
• E.g. TAPS

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Scope of Federal Energy Regulatory Commission
(FERC) Regulation

• How does FERC set rates?
• Index Methodology (currently PPI)
• Settlement/Negotiated Rates
• Cost-of-service
• Market-based Rates
• What else does FERC regulate?
• Conditions of service (undue preference or
  discrimination)
• Shipper confidentiality
• What doesnt FERC regulate?
• Siting, entry and exit, nature of service, safety

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U.S. Oil Pipelines are Common Carriers

• Owners/operators of oil pipelines DO NOT own the
  product they transport
• Pipeline publicly posts rates and conditions of
  service (e.g. minimum batch size, product
  quality)
• Shippers to nominate volumes to be shipped,
  usually on 30 days notice.
• Prorationing If requests exceed capacity on the
  pipeline, the space is allocated on a
  non-discriminatory basis
• Space is not allocated based on the highest bid,
  nor a first-come, first-serve basis

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Crude Quality Bank

• If pipeline operates fungibly in a common stream,
  and different crude qualities tendered to
  pipeline, Quality Bank intended to make shippers
  whole.
• Quality Bank generally administered by pipeline.
• Shipper of lesser quality crude to pay Quality
  Bank for value gained on common stream crude and
  shipper of better quality crude to be paid by
  Quality Bank for value lost to common stream
  crude.
• Quality Bank value differential are generally
  based on gravity and sulfur but can be managed on
  other parameters.
• The Quality Bank manager calculates the gravity
  and sulfur differential, invoices shippers,
  handles the receipts and disburses the payments.

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Who Else Regulates Oil Pipelines?

• Federal Regulation
• Safety Office of Pipeline Safety (Department of
  Transportation)
• Security TSA and Coast Guard (Department of
  Homeland Security)
• Storage Terminals, Fuels Environmental
  Protection Agency
• Worker Safety OSHA
• Siting and Permits ACOE, BLM, FWS, Forest
  Service, MMS
• State and Local Role

13
Liquid Pipeline Operations

• Pipelines operate and are monitored 24 hours a
  day, 7days a week
• SCADA systems allow real time monitoring of key
  pipeline operations from a centralized location
• Enhanced Security post Sept 11, 2001 by operators
  and more coordination with government officials
• Safety regulation moving to risk based approach
• Focus on reducing pipeline damage from
  excavations, the leading cause of major accidents

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U.S. Russia Oil Transportation and Markets
Seminar

• Center For Strategic Research U.S. Department
  of Energy
• Moscow, Russia
• September 21-22, 2004
• Overview of U.S. Crude Oil Pipeline System
• Presentation of Raymond Paul
• Director, Public Affairs
• Association of Oil Pipe Lines
• Email rpaul_at_aopl.org
• Phone [phone]