If you’re in the market for an oil pipeline, you’re in luck — we’ve got a lot of extra ones right now. About half of the oil pipelines in the U.S. are sitting unused, energy research firm Wood Mackenzie said in figures shared with Reuters Thursday. The situation reflects a downturn in oil production that was kicked off by the pandemic.
Oil production, like a lot of other supply chain functions, isn’t an exact science; there’s usually a push-and-pull dynamic between production and pipelines as supply ebbs and flows. In early 2020, when U.S. oil production was still relatively high, somewhere between 30 and 40% of the nation’s pipelines were sitting unused, Wood Mackenzie reported. However, the fall in output as a result of covid-19, when demand was so low that oil prices briefly dipped into the negative, was so precipitous that the ratio of unused pipelines to oil output is really out of the ordinary right now.
Part of this incredible drop-off is thanks to the oil boom that preceded the pandemic. Between 2017 and 2020, operators scrambled to build more pipelines as a sharp increase in oil production in Texas’ Permian Basin caused transport bottlenecks and threatened to overwhelm the existing infrastructure. This was the cherry on top of a 15-year rush in American oil production unlike any other in history.
“The shale boom has been unprecedented in its size and the rate of production growth,” said Lorne Stockman, a director at Oil Change International. “Especially with the Permian, to my knowledge, there’s never been an oil basin or a plain that has grown so much, so fast.”
Another contributing factor to the pipeline building frenzy is the simple fact that Texas loves to encourage oil and gas production and puts very few guardrails in place. “There weren’t any huge regulatory hurdles to get over to get a pipeline built,” said Stockman. “You almost don’t need a permit to build them.”
The ghost network of pipelines has been a concern in the Permian for most of the pandemic. Last year, the Wall Street Journal reported that the slowdown in production was bad news for some of the country’s major pipeline operating companies, which previously had faced a huge glut of business. These operators include big names like Energy Transfer Partners, which owns the Dakota Access Pipeline. The Wood Mackenzie report notes that the Dakota Access Pipeline is only running at 77% of its usual capacity, compared to 100% before the pandemic. Plains All-American Pipeline is another biggie; the company tried (and failed) to build a pipeline through a majority-Black neighbourhood in Memphis this year, and is pushing to replace a California pipeline that shut down in 2015 after a major oil spill.
Pipeline operators and those supporting the fossil fuel industry like to use language about how pipelines are necessary to serve the nation; the idea of pipelines having a “public interest,” Stockman said, is often used in eminent domain cases where companies are trying to make a case for building pipelines on private land. Permitting agencies often parrot that language when allowing projects to move forward. Meanwhile, pipelines and other fossil fuel infrastructure have been “dubbed” critical, allowing conservative lawmakers to pass extreme policies to protect them from protesters.
But the excess pipelines in the Permian right now show that a lot of American oil and gas infrastructure is built not out of some noble drive to serve the energy needs of a nation, but because fossil fuel companies are looking for the best bang for their buck.
“You then see, actually, there’s overbuild,” Stockman said. “This is not about meeting demand — it’s about companies being able to make more money by having choices about where they can send their oil.”
It’s easy to blame covid-19 for the sharp drop in fossil fuel production and pipelines lying unused. Even with omicron, there’s also perhaps an expectation that production will pick back up again at some point. But the story of American oil production isn’t so simple.
Global forces like OPEC are keeping their reins on production tight to control prices, while American investors — many of whom lost money during the shale boom because the sheer amount of oil being produced made prices bottom out — are pressuring U.S. producers to keep production down. Meanwhile, the global energy transition is looming, as the world begins to recognise the urgency of stopping fossil fuel production. It remains to be seen whether those abandoned pipelines in the Permian will stay empty — or if fossil fuel interests will get their way and find another way to put them to use.