The Nature of Transit Trade

Transit trade faces the problems of any cross-border trade, but compounds the problems outlined above through increasing the number of parties engaged in a project. If there is more than one transit country, this compounding effect obviously is magnified. The interests of a “pure transit” country are fundamentally different from those of an exporting or importing country. Expressed simply, exporting and importing countries have more to lose by spoiling a deal than does a transit country. Transit countries only stand to lose their transit revenue when actively interfering with a deal, although such behavior may also damage their international standing if they unilaterally interfere with bilateral or multilateral agreements. Once transit is introduced, a transit fee is involved. The basis of this fee is obscure. One view argues it is a form of compensation for the state surrendering part of its sovereignty; this reasoning is rather undermined, however, by the fact that while the pipeline is being constructed and operated it is still subject to the jurisdiction of the state. Another view sees the transit fee as a reward for helping to realize the value added in a cross-border oil or gas trade (both the profit and the rent). A third view is that the fee confers to the transit state a significant portion of the saving that is made by using the transit route versus the next lowest cost alternative (in the absence of a viable alternative transport route this logic would reward the transit country with a large part of the whole value of the oil or gas exporting project, but this would be in response to the monopoly position of the transit country). Some further argue that assessment of the fee depends on international norms that use charges per volume per kilometer. This argument, however, tends to ignore the role of bargaining and the role of competing transport options, which is key to limiting any transit fee. The transit fee normally relates to the throughput of the line. Often it involves the transit country off-taking some throughput. This is particularly relevant for gas since the transit country can gain from the economies of scale in circumstances where the domestic market of the transit country may be too small to itself to justify a gas pipeline. The transit country also may gain other benefits, such as securing political support from countries or simply by advancing free trade. Cross-border pipelines involve different parties with different interests. Pipeline projects necessarily involve different parties with different interests. In so far as transit increases the number and diversity of players, this can aggravate conflict. A number of obvious divisions exist:

- The public sector may have very different objectives from the private sector. Economic reform and liberalization, through expanding the role of the private sector, may well accentuate these differences. One of the difficulties is determining who should do what. The private sector plays an important sponsoring role. For transitional periods in emerging markets, the state, by its assumption of residual risks, may be indispensable to the facilitation of a project. Once a clear regulatory framework has been established, however, and the rights and obligations of private investors have been clearly and credibly defined, there is every reason to leave the project to the private sector. This would limit the role of the state to regulatory and fiscal matters. If in the course of a project a private sector is just emerging, the state (or state company) can play a positive role by guaranteeing the minimum demand required (for a gas project) and by assuming some early risks that, because of regulatory and legal uncertainties, private companies are unwilling to accept until privatization has been completed.

- Governments pursue their national interests, and these may differ. Exporting countries want reliable income, high rent, and the optimal development of their hydrocarbon reserves. Consuming/importing countries want secure supplies at competitive prices. Pure transit countries want taxes/rent as reward for granting access and as protection from any negative HSE consequences. Where noncommercial motivations are important, such divergences are accentuated: this provides a good reason to maximize the role of commercial drivers in such projects, but often politics makes this impossible.

- The different companies involved may have different objectives. Most obviously, a vertically integrated entity will behave differently from a standalone venture. A standalone pipeline company will simply be interested in maximizing throughput at the highest tariff it can charge. Once vertically integrated, however, the company must also consider the impact of its activity on operations at either end. If both the upstream and downstream ends of the pipeline are characterized by competitive markets, as is frequently the case for oil, this is no problem. However, if either end has elements of imperfect competition the game changes, since this introduces the temptation to use the pipeline to reinforce a monopolistic position. This is particularly relevant for gas, where transportation limitations make it easier to capture markets. Problems arising from these divisions of interest can be dealt with under the competition law and policies of the relevant country. As such, they do not have a specific cross-border dimension and so are not discussed further in this report. Within a country, regional interests may differ from those of the central government. Clearly both will seek to maximize their benefits from pipelines, and this is in the context of what typically is a zero sum game. Although this is an important and sensitive issue, it is not one for cross-border pipelines in terms of sovereign nation states and is not pursued further in this report. Within a country, regional interests may differ from those of the central government. Clearly both will seek to maximize their benefits from pipelines, and this is in the context of what typically is a zero sum game. Although this is an important and sensitive issue, it is not one for cross-border pipelines in terms of sovereign nation states and is not pursued further in this report.

Pipeline Past and Future

When most Americans hear the word pipeline they automatically think of the trans-Alaska pipeline system known as TAPS. This pipeline was built back in the 1970s and cost roughly $ 8 billion dollars.

It took 25,000 laborers and even more contractors to piece together the approximately 100,000 pipeline pieces. In America today many things have changed since TAPS.

Unlike the older pipeline of Alaska, today we build most of our pipelines underground and even under the sea in some cases. The US is known to have some of the largest gas reservoirs in the world and as we establish additional projects to tap into these giant resources, new pipeline projects will be the result. As you can see from how many people it took to build the TAPS, many jobs will be created when we start drilling into more of our reservoirs. There are many new pipelines that need to be built in the immediate future – in fact, of the major proposed projects, there are more than 3,700 miles of pipeline needing to be built.

With a greater understanding of how pipelines transport natural gases and the jobs that can be involved in this process, let's move on to the next page where we'll talk about an overview of refinery jobs.

Pipeline transport

Pipeline transport is the transportation of goods through a pipe. P&GJ’s worldwide survey figures indicate that 118,623 miles of pipelines are planned and under construction. Of these, 88,976 represent projects in the planning and design phase; 29,647 miles reflect pipelines in various stages of construction. Liquids and gases are transported in pipelines and any chemically stable substance can be sent through a pipeline. Pipelines exist for the transport of crude and refined petroleum, fuels - such as oil, natural gas and biofuels – and other fluids including sewage, slurry, water, and beer. Pipelines are useful for transporting water for drinking or irrigation over long distances when it needs to move over hills, or where canals or channels are poor choices due to considerations of evaporation, pollution, or environmental impact. Pneumatic tubes using compressed air can be used to transport solid capsules.

Oil pipelines are made from steel or plastic tubes which are usually buried. The oil is moved through the pipelines by pump stations along the pipeline. Natural gas (and similar gaseous fuels) are lightly pressurized into liquids knows as Natural Gas Liquids (NGLs). Natural gas pipelines are constructed of carbon steel. Highly toxic ammonia is theoretically the most dangerous substance to be transported through long-distance pipelines, but accidents have been rare. Hydrogen pipeline transport is the transportation of hydrogen through a pipe. District heating or teleheating systems use a network of insulated pipes which transport heated water, pressurized hot water or sometimes steam to the customer.

Pipelines conveying flammable or explosive material, such as natural gas or oil, pose special safety concerns and there have been various accidents. Pipelines can be the target of vandalism, sabotage, or even terrorist attacks. In war, pipelines are often the target of military attacks. It is uncertain when the first crude oil pipeline was built. Credit for the development of pipeline transport is disputed, with competing claims for Vladimir Shukhov and the Branobel company in the late 19-th century, and the Oil Transport Association, which first constructed a 2-inch (51 mm) wrought iron pipeline over a 6-mile (9,7 km) track from an oil field in Pennsylvania to a railroad station in Oil Creek, in the 1860s. Pipelines are generally the most economical way to transport large quantities of oil, refined oil products or natural gas over land.

Natural gas (and similar gaseous fuels) are lightly pressurized into liquids knows as Natural Gas Liquids (NGLs). Small NGL processing facilities can be located in oil fields so the butane and propane liquid under light pressure of 125 pounds per square inch (860 kPa), can be shipped by rail, truck or pipeline. Propane can be used as a fuel in oil fields to heat various facilities used by the oil drillers or equipment and trucks used in the oil patch. EG: Propane will convert from a gas to a liquid under light pressure under 40 psi (280 kPa), give or take depending on temperature, and is pumped into cars and trucks at less than 125 psi (860 kPa) at retail stations. Pipelines and rail cars use about double that pressure to pump at 250 psi (1,700 kPa).

The distance to ship propane to markets is much shorter as thousands of NGL processing plants are located in oil fields or close by when a number of pipelines tie into each other from various relatively close fields. Many Bakken Basin oil companies in North Dakota, Montana, Manitoba and Saskatchewan gas fields separate the NGL's in the field, allowing the drillers to sell propane directly to small wholesalers, eliminating the large refinery control of product and prices for propane or butane.

The most recent major pipeline to start operating in North America, is a TransCanada natural gas line going north across the Niagara region bridges with Marcellus shale gas from Pennsylvania and others tied in methane or natural gas sources, into the Canadian province of Ontario as of the fall of 2012, supplying 16 percent of all the natural gas used in Ontario.