In this lesson, we're going to talk about crude oil, the actual logistical path getting it from the pump at the wellhead to the pump, basically, at the retail gasoline station. And then we'll talk about the value chain. Crude oil itself has no real value. It's what the refiners can turn it into is where the value actually lies.
Here again is this schematic of the value chain for both natural gas and for crude oil. But if you look at the crude oil parts, basically we go from the wellhead where there is the cost to lift the crude oil. Then we've got the refining, and then there's fees associated with that. Then we're going to have to get it, the crude, to the refineries via various methods that we'll talk about.
Then we also have to take away the refined products to market itself. You can store crude oil. You can also store the refined products. And ultimately, you get to a distribution point where you're at the retail level. Or in the case of crude oil, you're also manufacturing some petrochemical feedstocks.
So we're talking, again, about crude oil logistics from pumps to pump. Here's an old wooden derrick, crude oil, probably back from the time of the first discoveries in Titusville, Pennsylvania. West Texas Intermediate Crude Oil is going to be the standard we talked about. We did talk about that in a previous lesson when we talked about the contracts with the New York Mercantile Exchange.
But it's the North American standard. It is known as low-sulfur sweet crude, traded in international currency as the US dollar. It is priced free on board in Cushing, Oklahoma. And again, as we talked about in a previous lesson, it is traded on the New York Mercantile Exchange as a financial derivative, which does allow for hedging.
And then Brent crude is the North Sea global standard. It is traded on ICE Futures Europe in London, which is formerly the International Petroleum Exchange in London. There are financial derivative instruments over there that are similar to the NYMEX crude contract. A lot of traders take the price opportunity or arbitrage between the London contracts and the NYMEX contracts in New York City.
Currently, still due to some supply bottlenecks, US Gulf Coast refiners are paying higher prices since imports are priced off of the Brent crude price. Now we can't get enough of the surplus domestic supply that we have to the Gulf Coast refiners at the present time.
Here is, basically, what the EIA shows to be the growth in crude oil production over the last year or so, going back actually two years to 2013, a four-week average on each plot point, and then showing the 2014 to 2015 period, again, four-week averages on each plot point. So you can see there's been a significant increase in US domestic crude production. And then imports-- as you would guess-- imports have declined steadily over the same two-year period and will continue to do so.
The pipeline infrastructure, of course, is critical to balancing the supply and demand for energy across the United States. And the same holds true for crude oil and petroleum product pipelines. Here is a very simplified schematic of the grid across the US.
Crude oil and petroleum pipeline product lines are supplied to major demand centers in the United States by over 200,000 miles of pipelines, representing about a $31 billion investment. Pipelines transport over 38 million barrels of crude oil, feedstocks, and petroleum products each day. 17% of the nation's freight is transported via pipelines for only 2% of the nation's cost.
The infrastructure now for crude oil in terms of various pipelines, you've got pipelines to transport the crude oil from major producing basins and various ports, import ports, to various refining centers and/or supply hubs. Other pipelines transport refined petroleum products, including gasoline, diesel, jet fuel, and LPGs, which are liquefied petroleum gases, from refineries and ports to end-user markets. Other liquids, energy-related petrochemical feedstocks are transported between supply chain points, perhaps from the tailgate of a refinery to the inlet side of a petrochemical processing plant.
Various modes for crude oil delivery, the primary one is the pipeline. You've got, in essence, it's a wellhead to transmission pipeline to the refineries themselves. You have pump systems along the way. And they can batch process the crude, put it in different volumes at different times, and separate them with a batch separator.
The interstate grid in the United States transports about 2/3 of all the oil. The pipelines are subject to the Federal Energy Regulatory Commission and the former Interstate Commerce Commission. They are labeled as common carriers. They do not have utility status, which natural gas pipelines do get.
The US network of petroleum and petroleum product pipelines is the largest in the world. It's also the cheapest method on a cost-per-barrel basis to move crude around. We also truck crude oil, mostly from wellhead tanks to refineries or from the wellhead tank batteries to rail terminals where it's loaded onto rail cars. It is the most costly method, you can imagine. It's the smallest amount that can be transported. It's the least volume capacity, approximately 200 barrels per tank, per truck tank, or 8,400 gallons.
Other modes of transportation, rail cars, they're very large capacity, 2,000-barrel tank cars, relatively cheap cost. The problem is there is limited access. Railroads obviously aren't everywhere.
Tankers, we're mostly familiar with those. Generally, for import purposes, they are very large capacity. Of course, they vary from standard tankers to what they call VLCCs, which are the very large crude tankers, so-called supertankers. Now these are water-bound. We also can barge crude oil intra-country. These are large capacity tanks also. But they are strictly water-bound as well.
Here's just a schematic, kind of a simplistic map, of petroleum and refined product transportation infrastructure across the US. What you see here on the map is pipeline, rail, barge, and tanker locations around the US.
Just a quick couple of thoughts on the actual regulation of crude oil. We've talked about regulated and non-regulated industries before. And pipelines have been regulated going way far back. You can see here, in 1887, the Interstate Commerce Act placed pipelines under the regulation of the ICC, the Interstate Commerce Commission, because railroads had been regulated. And now there was a concern about potential monopolistic power for those who owned the pipelines.
This then, in 1906, pipelines where placed under what was known as the Hepburn Act. And then the Interstate Commerce Act of 1887 set some ground rules which still apply to the pipelines today. Rates that they can charge have to be just and reasonable. They have to disclose their terms of service, in other words, the rules and regulations under which they will transport the crude oil.
They have to have form and content of tariffs. That means they have to have some documentation in terms of how they are going to conduct the operation, the rules for you to be a shipper to move crude oil, on there. And then tariffs are the rates that they're going to charge. Accounting methodologies, all reporting requirements, and then disclosure of shipper information, all of these things are requirements for pipelines to operate and, again, come out of this Interstate Commerce Act from 1887.
And today, the Federal Energy Regulatory Commission, or FERC as its most widely known, has jurisdiction over the crude oil pipelines. Congress abolished the Interstate Commerce Commission in 1995. Again, they have common carrier status. That means they need to be able to carry or ship crude oil for just about everyone. They don't have utility status. Natural gas pipelines received utility status under the Natural Gas Act, or the NGA, of 1938. So they don't have franchises, in other words.
Crude oil pipelines don't have protected territories. They also have no right of eminent domain. The right of eminent domain, especially for those of you who are familiar with land law, allows the entity to come in and condemn the property if the property owner protests the building of the pipeline. But again, these pipelines still have to provide just and reasonable rates and have the reporting requirements that I mentioned above.
Here's just a sample crude pipeline tariff. This is from Shell Pipeline Company. They have a pipeline and a crude line in the Houston, Texas area. And if you look at the top, the issuer is Shell Pipeline. The regulator in the state of Texas is the Texas Railroad Commission.
And we have, in essence, the originating point or the input points to the pipeline for the crude oil. And then the destination is East Houston, which is more than likely the very large Houston ship channel, which is the world's largest petrochemical refining corridor. That is the US Gulf Coast. They're shipping petroleum. You can see that the date of this particular contract agreement was June 1st of 2012.
The unit measuring, they're going to be paying so many cents per barrel. And if you get all the way down to the bottom here, you can see that the actual tariff rate for volumes of 0 to 65 million barrels, they're going to be paying $0.16 per barrel. If they ship a greater amount than 65, almost 66, million barrels, they will only be paying $0.08. So this would be a typical crude oil pipeline tariff. If you were interested in being a shipper, you would be issued one of these by the operator of the pipeline.