Transporting Oil and Gas: U.S. Infrastructure Challenges
108 Pages Posted: 20 Mar 2014 Last revised: 7 Mar 2015
Date Written: March 18, 2014
This article explores the history and geography of oil and natural gas to help explain why the U.S. physical and regulatory infrastructure for transporting these two similar types of energy resources to markets developed so differently. Notably, while interstate natural gas pipelines are reviewed and permitted at the federal level by the Federal Energy Regulatory Commission (FERC), interstate oil pipelines are reviewed and permitted almost exclusively at the state level. These regulatory differences, along with differences in the physical properties of the two energy resources, have resulted in very different energy transportation infrastructures and concerns for each resource. This inquiry is critical in light of the complete transformation of the U.S. energy economy over the past five years. Starting in 2009, hydraulic fracturing and horizontal drilling have allowed massive development of oil and natural gas in parts of the country that were not major oil and gas producers, and on a scale that could not have been contemplated less than a decade ago. This article concludes that the regulatory siting regime for oil pipelines at the state level and for natural gas pipelines at the federal level are generally both sufficient in their respective arenas to facilitate construction of new oil and gas pipelines when market forces allow. What is lacking however, are sufficient regulations or economic incentives under state or federal environmental laws to ensure that necessary natural gas transportation infrastructure is built in oil rich areas like North Dakota to capture the natural gas produced with oil. In the absence of such incentives, producers flare large amounts of natural gas into the atmosphere because of its relatively lower market value as compared to oil and the absence of gathering pipelines or other localized collection systems in producing areas. Likewise, the lack of oil transportation infrastructure in new producing areas has resulted in two-thirds of the oil produced in those regions traveling by rail instead of by pipeline, up from zero only a few years ago. This has resulted in high profile rail accidents leading to numerous deaths, explosions, and evacuations of towns. This article makes several proposals that draw on the complex history of transporting oil and gas in order to create a transportation infrastructure for the future that matches the realities of today’s new production technologies and geographies.
Keywords: oil, petroleum, natural gas, oil pipelines, natural gas pipelines, shale gas, shale oil, FERC, Keystone XL Pipeline, Bakken Shale, fracking, hydraulic fracturing, LNG, energy, transportation, rail
JEL Classification: K11, K32, Q3, Q4
Suggested Citation: Suggested Citation