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A Tale of Three Pipelines (Part I: Remembering Tide-Water Pipe Line)

Consider: the Tide-Water Pipe Line Company … built an “impossible” [crude-oil] pipeline in three months. And it was open for business in May 1879–a mere six months after the company was formed. In today’s American industry, in six months it can be difficult to get permission to lay down mats to teach Yoga on; a state of the art industrial project is inconceivable.
If oil is the lifeblood of a mobile civilization, then oil pipelines are its arteries.
TransCanda’s Keystone XL pipeline, a potential source of highly secure Canadian oil for U.S. refineries all the way to the Texas Gulf Coast, was proposed back in 2008. Despite the fact that pipelines are the safest way of transporting oil, and that this proposed pipeline went to borderline bizarre lengths to prevent the slightest momentary oil leakage, TransCanada endured more than three years of dealing with the “green” regulatory establishment–wrangling with permits, environmental impact statements, secondary environmental impact statements, and the like.

Like thousands of other businesses that deal with this “green” gauntlet, they knew that at any stage a hostile bureaucrat could undo billions in investment, not to mention future Americans’ ability to withstand disruptions in the world oil market.

Then, finally, when the pipeline decision was sent to the highest authority, President Obama, for approval, he casually announced that he would delay a decision by 18 months.

For those who bemoan the stagnation or decline of American industry–and I am one of them–ask yourself: Can America possibly experience rapid industrial progress when it takes 5 years to find out if you’re allowed to build a pipeline? (Congressional Republicans are trying to force a decision sooner, but the President has indicated this will not be in the pipeline’s favor.) Could America have possibly become the world’s industrial superpower with such policies?

The answer is a resounding No.

In this vein, it is instructive to know the story of America’s first long-distance pipeline, the Tide-water Pipeline, as it highlights the greatness of America’s original industrial policy–and the spectacular results it made possible.

Tide-Water Pipe-Line Company (1878)

In November 1878, Byron Benson and his business partners created the Tide-Water Pipe-Line Company. Benson’s goal was to change the way oil was transported.

Since kerosene refined from crude oil was by far the cheapest illuminant at the time, the ability of millions of Americans to see at night–or not–depended on the ability of the oil industry to produce cheap, plentiful, reliable kerosene. And a large variable in kerosene’s cost was its transportation cost. The industry had gradually evolved from wine barrels on wagons to barrels on rafts to barrels on railroad cars–and then to tanker cars (“tank cars”) that would transport oil that much more efficiently.

But the solution Benson sought, the long-distance pipeline, had the greatest potential of them all–no on-loading and offloading, no return trips, just a continuous flow of oil pumped between vital centers of commerce.

This was no easy task. The pipeline Benson wanted to create was enormous by the standards of the day–at 130 miles, it was 4 times longer than the existing record-holder. Further, the route he needed to take involved half-mile mountains, which meant challenges in building and engineering the pumping system. To make the task still more difficult, Tide-Water had as its competitors the master of railroad transportation, which just so happened to be the world’s largest and arguably shrewdest company: John D. Rockefeller’s Standard Oil. John Archbold, one of Rockefeller’s top lieutenants, scoffed at Benson’s ability to build Tide-Water.

Private Property as ‘Regulator’

But Tide-Water had one great ally: it functioned under a very different industrial and environmental policy than today’s companies deal with. The policy was simple and profound: the government’s job was to protect everyone’s property rights–whether a developer who wanted to build a pipeline or a potential victim of the pipeline’s pollution.

As evidence of the efficacy of this policy, note that there were some worries at the time that the pipeline would burst–but they were found to be without evidence, and thus were not allowed to hold up development. As for the “environmental impact” on other species, that was up to land-owners. Everyone was free to buy property for whatever purpose he chose, whether to run a pipeline or build a house or enjoy wildlife or all three. But no one could dictate what someone else did with his land. Companies with new projects bought up land or acquired land-use rights from others, and they could build factors, railroads, oil refineries, etc. to the best of their ability.

The result of such a policy was profound: when individuals truly owned and could use their own property, there was no gap between their ideas and their implementation. This is the phenomenon I have referred to as “Energy at the Speed of Thought”–or, more broadly, industry at the speed of thought.

Consider: the Tide-Water Pipe Line Company began in 1878. It built an “impossible” pipeline in three months. And it was open for business in May 1879–a mere six months after the company was formed. In today’s American industry, in six months it can be difficult to get permission to lay down mats to teach Yoga on; a state of the art industrial project is inconceivable.

The moral of this story is that property rights are essential to industrial development. They make possible industry at the speed of thought. Today, we associate rapid progress with industries such as software and the Internet and electronics–which, not coincidentally, are the industries where the government has least control of the property involved. But there was a whole era of American history where the more physically-intensive industries, such as energy production or transportation, moved with amazing speed, as well.

How did we depart from that era? In Part II, I will discuss another seminal pipeline, the Trans Alaska Pipeline project of the 1970s, which epitomizes the decline of American industrial policy.

[Note: For more details on the history of pipeline law, including the Tide-Water case, see Robert Bradley’s Oil, Gas, and Government: The U.S. Experience., pp. 614–615].

Alex Epstein is a Principal at MasterResource and Founder of the Center for Industrial Progress.

4 comments

1 garret seinen { 12.21.11 at 1:14 pm }

Couldn’t agree more – the our well-being is being strangled with green twine. Worse, the activists have taken over the governing and the education system.
“Rocks are sacred, man is vile”, the self-appointed custodians of this earth continually bleat. They fail to appreciate the irony of a carbon live-form denouncing carbon dioxide. Those with their eyes open should.

2 Donald Hertzmark { 12.21.11 at 1:45 pm }

Alex,

Well said. And it is not just pipeline infrastructure.

Here is a gem (from Wikipedia) on the NJ Turnpike:

“According to a letter to the editor written by the daughter of Paul L. Troast, the first chairman of the NJ Turnpike Authority, Kathleen Troast Pitney:
‘ Governor Driscoll appointed three men to the Turnpike Authority in the late 1940s – Maxwell Lester, George Smith and Paul Troast, my father, as chairman. They had no enabling legislation and no funding. They were able to open more than two-thirds of the road in 11 months, completing the whole (project) in less than two years… ‘”

Less than two years, starting with no money or even legal authority! We could not even complete the planning studies for such a project in two years these days. The right-of-way lawsuits would probably go on for a decade or more.

3 MikeP { 12.21.11 at 7:58 pm }

I’ve seen several reports that the Keystone pipeline will require the extensive use of eminent domain to seize right-of-way from private property owners who do not want it on their property?

Is that accurate?

4 Henry Solomon { 12.21.11 at 9:04 pm }

This is very informative history with lessons relevant to the environmental obstacles industry faces today, and I agree emphatically that the elimination of these abstacles centers on a respect for property rights. Government has no proper function determining whether or not projects are environomentally sound. What is required is property owners protecting their own interests, including what kind of environment is essential for the protection of their property and well being, and taking legal action when their rights are violated.

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