Pipeline operating costs are resistant to inflation due to minimal manpower requirements. As a matter of fact, pipelines have been able to reduce costs and charges over the years. In 1955, the average revenue/100 barrel-miles was 6.5¢. By 1968, this had decreased to 4.6¢/100 barrelmiles, as shown in the chart below. Most importantly, this decline occurred while the cost of other forms of transportation was rising. In the period 1947-1974, the average pipeline revenue per ton-mile increased by only 8% (.292¢ to .315¢), while the Consumer Price Index increased 121%.

There are several reasons for the improving economies of pipeline transportation. Construction of large-diameter lines, requiring increasing amounts of capital and involving a considerable amount of risk, has been a major factor. As line diameter is increased, construction costs also increase, but linearly, while capacity increases exponentially. Additionally, unit operating costs decline with increasing line size.

C. Future Requirements of the Pipeline Industry in Meeting the Nation's

Energy Needs

Worldwide non-Communist pipeline construction in 1977 is forecast at nearly 18,000 miles with an estimated price tag of $5 billion.*

Construction of these lines can be traced directly to worldwide increases in consumption of petroleum and petroleum products. The biggest gainers in total pipeline mileage will be the Middle East (+97%) and Africa (+55%) as the nations in these regions extend their role in world energy supply.

U. S. pipeliners plan to lay 5500+ miles of pipe in 1977 at an estimated cost of $1.3 billion, exclusive, of course, of the Trans Alaska Pipeline System. This is a decline of approximately 17% from 1976, but the United States will still account for almost 1/3 of all new non-Communist pipeline construction. In addition, more than half the new horsepower in pumps and compressors will be installed in the U. S. Domestic firms will install 162,885 h.p. in compressors, 174,610 h.p. at pump stations, and 8.9 million barrels of storage capacity. As shown in the following tabulation, the majority of new pipeline mileage will be of 4-10" diameter, but the largest increase will be in pipe sizes of 12-20".

These pipelines will be constructed under conditions much different than those of early pipeline systems. Most of the early lines were laid on land and in lightly populated open country. The growth of refinery centers and industrial complexes, and the general congestion that exists around them, have made pipelining increasingly difficult. Additionally, as existing domestic reserves decline, and the nation's consumption of energy grows, the petroleum industry has been forced to look for oil in remote, hostile environments. The pipeline industry has adapted to these new environments in order to connect the new producing fields with existing refining centers. Pipelines have made production from the North Slope, North Sea, and offshore Louisiana practical realities.

These hostile environments have necessitated the development of highly specialized equipment to lay and bury pipelines. The cost of this equipment and general inflationary trends have drastically increased pipeline construction costs, as shown in the following graph. From 1964 through 1969, the pipeline construction cost index increased at a rate of less than 5 points/year; but in the following four years, the rate averaged 11 points/year, more than double the previous rate. The significance of this is highlighted by the fact that construction costs average 38% of pipeline investment.

The industry is faced by many challenges, but the need to maintain an efficient pipeline system in the future to meet the nation's energy needs is great. This will require more and more private capital. The Trans Alaska Pipeline System is illustrative of the challenges that must be met by the industry to bring petroleum to market.

The Trans Alaska Pipeline System (TAPS) is scheduled to be completed in

mid-1977 with an initial capacity of 600 M BPD expanding to 1.2 million BPD by year end.

TAPS extends from Prudhoe Bay to the Port of Valdez, 789 miles. TAPS will displace Colonial Pipeline ($538 million in carrier property) as the largest privately financed pipeline project. With an initial cost of over $7.5 billion, this one pipeline will approximately double total U. S. investment in pipeline facilities.

TAPS has been described as the most thoroughly studied, intensively engineered, and closely scrutinized project of all time. The pipeline will bring crude oil from the inaccessible North Slope of Alaska to the ice-free port of Valdez, reducing U. S. dependence on foreign oil. Completion of this system, at $10 million per mile, is an excellent example of the pipeline industry's response to a severe construction challenge. It also demonstrates the need of the industry for massive amounts of private capital.