A Spotlight on Fuel Pipelines Issues and What Tax Analysts Can Control

A Spotlight on Fuel Pipelines: Issues and What Tax Analysts Can Control

The backbone of the American fuel supply system is its maze-like system of fuel pipelines. We depend on pipelines to move massive amounts of fuel from one storage facility to another (known as terminals) in a quick and safe fashion. But with the aged condition of this system and intricacies of its mechanics, it is becoming more and more difficult to keep it running smoothly and safely. The past few years have seen some major pipelines in the news with the Keystone Pipeline Project and the Westshore Pipeline in Wisconsin in the forefront.

The average consumer rarely thinks about pipelines, but they play an important role in our daily lives. Each year, more than 3.4 billion barrels of fuel (that’s almost 143 billion gallons!) travel through our pipeline system in a safe and contained manner. Pipelines can be buried, installed above ground, or co-exist with other infrastructures to provide for the fuel needs of our ever-expanding economy and consumption. For the most part, this is all completed in a safe and timely manner. They have fewer accident rates than rail, tanker or truck transport and since most of the process is far more automated than other forms of transportation, this means less risk to human life and error.

The pipeline system also helps us gain access and distribution of our own and neighboring countries fuel deposits. This allows us to become more independent from importing overseas’ oil.

The biggest issues with pipelines involve when they leak or are taken out of commission because they have such a huge impact for the consumer and individuals working in the fuel distribution industry. If suddenly 50 percent of all the gas stations in an area closed or had restricted supplies, our daily lives and activities would be greatly affected.

When there is a closure to a pipeline system, our clients need to adjust their reporting practices to adjust to the changes in fuel logistics. To help alleviate the stress associated with a pipeline closure (whether temporary or permanent), we recommend organizations keep their licenses up to date. Understanding the business’ current licensing status will allow organizations to make informed decisions about where they can divert or acquire resources.

In addition, motor fuel distributors should understand what contingency plans are in place if a pipeline source should be shut down. Will you utilize rail or trucking? Will you start stockpiling inventory in bulk facilities? These questions and others should be answered prior to any closure event. Tax reporting professionals should connect with their organization’s operations team for guidance.

Fortunately, technology is being used to help identify issues before they become major with the advent of the Pipeline Inspection Gauges or “Smart Pigs”. These inspection tools provide data about the safety conditions of the pipeline and can be used in both active and non-active transport lines. The technology is like a MRI where the device emits waves to determine the thickness of the pipeline and create an image showing any cracks, fissures or erosion issues. The basic concept of a pig has been in the industry for many years, but the advancement of imaging has given pipeline operators a new tool to maintain the integrity of the lines.

These technology advancements and coordination with US agencies on a systematic approach of ensuring our pipelines infrastructure and plans to replace current aging systems will become more and more important as time goes on.

One thing is for certain. The use of pipeline transportation will not erode anytime soon, so it is our responsibility to educate our consumers about why we use it, how we react to changes in the process, and how we will maintain it going forward.

Bob Donnellan

Bob Donnellan

Motor Fuel Tax Subject Matter Expert

This analysis is intended for informational purposes only and is not tax advice.  For tax advice, consult your tax adviser. See the full disclaimer here.