Profits from Inches

Jesse Jones let out some figures last week which startled the oil industry. The figures: Big Inch and Little Big Inch pipelines, both owned by Jones' Defense Plant Corp., are turning in fat profits of nearly $100,000 a day. More important for their postwar future, they are carrying petroleum products from Texas to the New York area far cheaper than private carriers, either rail cars or tankers.

Big Inch, stretching 1,362 miles from Longview, Tex. to Linden, N.J., is pumping 320,695 barrels of crude oil a day at a net profit of 20-c- a barrel. Little Big Inch, 221 miles longer but four inches slimmer than the two-foot pipe of its older brother, is pumping 207,608 barrels a day of high-octane gasoline, and other refined products, at a profit of 17.2-c- a barrel. The Ickes-fathered pipelines are now supplying about one-fourth the petroleum requirements of the U.S. Northeast.

In totting up the profit, conservative Banker Jones carefully added in all costs, except taxes and interest on investment, but including depreciation on D.P.C.'s $143,000,000 pipeline investment. Thus, overall costs of Big Inch are 38-c- a barrel, far under the War Shipping Administration rates of $1.60 a barrel for railroad tank cars and 61-c- for tankers. Little Big Inch operates even more cheaply, 24-c- a barrel, v. tank-car costs of $1.74, tanker rates of 40-c-. At these rates, the Inches will turn in enough cash to pay for themselves in another four years. Actually D.P.C. officials argue that the pipelines have already paid for themselves. The Government has saved enough in tanker and rail subsidies which it would have had to pay oil companies if the Inches had not been built.

Said Jones: "These pipelines should be able to operate after the war in competition with ocean tankers and other transportation facilities. ... It should be possible to sell the lines to industry with reasonable allowance for depreciation."

But there are plenty of "ifs" to such a sale. The pipelines are now operating at capacity. This will probably not be possible after the war. As the flow drops, costs will rise. Furthermore, the pipelines are too big for one company to operate. But the Department of Justice may frown on their sale to a group of companies. And the end of the war will find the U.S. with a fleet of new, fast tankers for sale. Under private operation, tankers may be cheaper and more flexible carriers than the Inches. Simplest solution would be their purchase by some common carrier corporation not already owning stock in a Texas pipeline or in an oil company--if such a company could be found.

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