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Staff Report No. 2013-08 July 2013 Economic Impact of Hazardous Liquid and Natural Gas Transmission Pipeline es on Rice Farming Operations in Southwest Louisiana Michael E.

1 Staff Report No July 2013 Economic Impact of Hazardous Liquid and Natural Gas Transmission Pipeline es on Rice Farming Operations in Southwest Louisiana Michael E. Salassi Fairbanks Endowed Professor, Department of Agricultural Economicss and Agribusiness Louisiana State University Agricultural Center, Baton Rouge,, Louisiana Hazardous liquid and natural gas pipelines in Louisiana support an oil and gas industry that is important to the state s economy. The Pipeline and Hazardous Materials Safety Admininstration of the U.S. Department of Transportation reports that there are approximately 38,392 miles of underground natural gas and hazardous liquid pipelines in the state of Louisiana. Approximately two-thirdhalf of the underground pipelines in south Louisiana (11,138 miles - 42%) are located in of these pipelines (26,306 miles) are located in south Louisiana. Almost the eleven-parish region of the southwest Louisiana rice production area. The installationn and existencee of these underground pipelines often times impose real external costss on rice farming operations. Many of these external costs incurred by rice producers/landowners are not compensated for by pipeline companies. This report provides some examples of additional external costs incurred by rice farming operations related to the installation and existence of underground hazardous liquid and natural gas pipelines in or near rice production fields. Althoughh some of these additional costs can vary in theirr direct impact across the rice production region, the additional costs incurred by a particular rice farming operation affected can be significant. Extent of Pipelines in the Southwest Louisiana Rice Area Table 1 provides information on the extent of undergroundd pipelines in the southwest Louisiana rice production area. The U.S. Department of Transporation reports there are 7,750 miles of natural gas pipelines and 3,388 miles of hazardous liquid pipelines, 11,138 total miles, in the eleven parishes located in the southwest Louisiana rice production area. Some of the parishes with the largest amount of underground pipelines are also some of the parishes with the largest amount of rice acreage in the state. The three parishes with the largest amount of rice acreage in 2012 weree also parishes that had very high mileages of underground hazardous liquid and natural gas pipelines: Jefferson Davis Parish 80,008 acres of rice, 1,054 miles of underground pipeline; Acadia Parish 78,261 acres of rice, 1,534 miles of underground pipeline; Vermilion Parish 46,691 acres of rice, 1,700 miles of undergroundd pipeline. These pipelines account for a significant amountt of land area in these parishes. Some of the pipeline corridors may be 3 to 5 pipelines wide, withh each pipeline right-of-way comprising a width of 30 to 50 feet. Using just a single pipeline corridor width of 30 to 50 feet, the 11,138 miles of underground pipeline in the southwest Louisiana rice area would comprise 40,502 to 67,503 acres of land area. With the existence of multiple pipeliness in many of these corridors, the actual land area encompassed by these pipelines is considerably greater. 1

2 Table 1 - Hazardous Liquid and Natural Gas Transmission Pipeline Mileage in the Southwest Louisiana Rice Area Parish Gas Pipeline Mileage Hazard Liquid Pipeline Mileage Total Pipeline Miles Percent of State Pipeline Mileage Acadia Allen Avoyelles Beauregard Calcasieu Cameron Evangeline Jefferson Davis Lafayette St. Landry Vermilion ,016 1, , , , ,190 1, , ,013 1, % 0.8% 0.4% 1.1% 5.7% 4.1% 1.6% 2.7% 1.5% 2.6% 4.4% Region Total 7,750 3,388 11, % Source: U.S. Dept. of Transportation, Pipeline and Hazardous Materials Safety Administration. Impact on Rice Crop Revenue Pipeline work activity (installation or maintenance) within a precision graded rice field has been observed to impact crop yield over several years following the time of pipeline work. Rice crop yields are reduced initially by the installation of the pipeline and in the following years by the disruption of the vertical soil profile as well as through soil subsidence in the affected field areas. Assuming this soil disruption impact on crop yields would phase out over a five-year period, the loss in crop revenue per acre impacted over this period would be estimated at approximately $2,820 per acre impacted at current rice yields and rough rice market prices. Table 2 - Estimated Crop Revenue Loss in Areas Impacted by Pipeline Activity Impact Year Estimated Yield Loss Value of Yield Loss per Acre in Impacted Work Area 1/ % 80% 60% 40% 20% $940 $752 $564 $376 $188 Total crop revenue loss per acre in impacted $2,820 area over 5-year period 1/ Based on an average rice yield of 6,530 pounds per acre (Acadia Parish avg. for 2012) and a market price of $14.40 per hundredweight (2012 avg. for La.) 2

3 A typical rice field in Southwest Louisiana would be approximately 30 acres in size (e.g., 1,500 feet long by 870 feet wide). One pipeline installed through the field could take up 50 feet of width over the length of the field, totaling 1.7 acres of land area and resulting in $4,794 of revenue loss from crop yield loss related to work activity on the pipeline in the field over a 5- year period. Multiple pipelines through this 30-acre rice field would expand this crop revenue loss impact: 2 pipelines 3.4 acres impacted, $9,588 in revenue loss, 3 pipelines 5.1 acres impacted, $14,382 in revenue loss, etc. Impact on Water Holding Capacity of the Rice Field Installation of a pipeline through a rice field can puncture the clay hardpan of the field, thereby potentially increasing the soil water infiltration rates and reducing the water holding capacity of the field for a few years. This clay hardpan puncture could repair itself over time, but could take a year or two to do so. Reduction in the water holding capacity of the rice field would impact the rice producer by having to increase the amount of irrigation water pumped onto the field to compensate for this water loss. The example illustrated below provides an estimate of the increase in rice irrigation pumping requried, and the additional irrigation cost, for a 5% to 10% loss in field water holding capacity associated with the puncture of the field clay hardpan resulting from the installation of a hazardous liquid/natural gas pipeline. Table 3 - Estimated Increase in Pumping Cost Related to Decrease in Field Water Holding Capacity Typical Rice Irrigation Increase in Water Use Increase in Water Use Water Use Through from Decreased Field from Decreased Field the Crop Season Water Holding Capacity Water Holding Capacity (+5%) (+5%) (+10%) (+10%) Per Per Field Per Per Field Per Per Field Acre (30 Acres) Acre (30 Acres) Acre (30 Acres) Acre Inches Pumped 1/ Gallons Pumped 2/ 733,158 21,994,740 36,658 1,099,737 73,316 2,199,474 Pumping Hours Pumping Cost: Diesel well 3/ $ $4, $8.28 $ $16.57 $ Electric well 4/ $44.37 $1, $2.22 $66.56 $4.44 $ / Based on an annual application of 27 acre-inches of irrigation water; 3,500 gpm pumping rate. 2/ One acre-inch of irrigation water = 27,154 gallons. 3/ Diesel pumping cost per hour = $47.56 (diesel $3.50/gal). 4/ Electric pumping cost per hour = $12.71 $0.10/kwh). 3

4 Impact on Existing Rice Irrigation Systems The installation of a harzardous liquid or natural gas transmission pipeline through existing rice fields with an existing underground irrigation system would impose a significant cost on the rice grower/landowner. After a new pipeline is installed, the rice grower may or may not be able to run an irrigation line across the newly installed pipeline. In either case, the rice grower/landowner would incur substantial costs resulting from the required reconfiguration of the rice irrigation system. In cases where the crossing of the newly installed pipeline by any underground rice irrigation line would be prohibited, the underground rice irrigation system would have to be reconfigured. This would involve work to design and install new irrigation pipes related to changes in the rice irrigation system as a result of the newly installed harzardous liquid/gas transmission pipeline. In cases where one irrigation well was previously providing irrigation water to the two rice production areas that were subsequently divided by the harzardous liquid/gas transmission pipeline, the rice grower/landowner would be required to drill a new irrigation well to service the rice production area now cut off from an irrigation water supply. The cost of drilling a new well and redesigning an underground irrigation system would exceed $100,000 or more for a single rice farming operation, depending upon how many land tracts of rice production were impacted. In cases where a rice irrigation line would be allowed to be installed under a harzardous liquid or natural gas pipeline, the rice grower/landowner would be required to bore a hole under the pipeline through which to run the underground rice irrigation line. With the costs of boring horizontal holes underground at depths of more than 5 feet in the range of $50 to $100 per foot, the cost of boring a hole for one rice irrigation line to cross under a hazardous liquid or natural gas pipeline is not insignificant. The cost of boring a distance of 200 feet to install one rice irrigation line under a hazardous liquid or natuarl gas pipeline would cost $10,000 to $20,000 per irrigation line drilled. Impact on Rice Crop Field Operations Within Field Operation Costs The installation of a harzardous liquid/gas transmission pipeline through a rice field has a direct impact on the field operations associated with producing rice in the field. Field operations required for the production of rice would be impacted in the year of an installation of a harzardous liquid/natural gas transmission pipeline as well as potentially in the following few years due to the subsidence and softness of the soil in the impacted area. As a result of the pipeline activity in a given year, complete passes over the field with rice tillage, planting and harvest equipment may not be possible. In these instances, rice production costs would increase due to the increased field time required by farm field machinery to circumvent the affected area. Field time would increase as a result of increased number of machinery turns and slower speeds of operation. In cases where the field machinery would be unable to cross over the impacted pipeline area to conduct tillage, planting or harvest operations, the variable cost of these operations could easily increase by 50% or more as field time required to perform field operations increased around the impacted pipeline area. 4

5 Table 4 - Variable Costs of Typical Rice Field Operations (Tillage, Planting, Harvest) Performance Rice Field Operation Rate (hours/acre) Land prep heavy tillage Land prep light tillage Planting drill Harvest combine Total Variable Cost Typical Number of Passes over Field 1/ Source: 2013 Projected Rice Production Costs, LSU AgCenter Operation Variable Cost ($/acre) 1/ $10.08 $ 3.58 $ 6.21 $26.81 $46.68 Potential Cost Increase Per Acre 50% Increase $ 5.04 $ 1.79 $ 3.10 $13.40 $ % Increase $ 7.56 $ 2.68 $ 4.65 $20.10 $35.01 Impact on Rice Crop Field Operations Costs of Moving Equipment Around Pipelines The installation of a harzardous liquid/natural gas transmission pipeline through a rice field could also impact the costs of rice production field operations in instances where tractors, combines, and other farm equipment would have to move around pipeline activity in order to get to other rice fields to perform field operations during the growing season. Distances traveled from one rice field to another could be increased as pipeline work activity could obstruct machinery movement between fields. The table below provides estimates of the variable costs of operating a field tractor or rice combine over various distances to circumvent areas of pipeline work activity. In addition, culverts may need to be installed in order to provide new additional points of access into rice fields in instances where newly installed hazardous liquid/natural gas pipelines have altered existing locations of field access by farm machinery. Costs of installing 36- to 40- inch culverts between roads and rice fields to allow access to the field by farm machinery are in the range of $5,000 per culvert installed. Table 5 - Estimated Costs of Moving Farm Machinery Around Pipeline Work Areas Rice Farm Variable Cost Variable Cost Variable Cost per Round Trip Machinery Per Hour 1/ Per Mile 2/ 1 mile 2 miles 5 miles ($/hour) ($/mile) ($/trip) ($/trip) ($/trip) Tractor - 4wd 300 hp $68.89 $13.78 $13.78 $27.56 $68.89 Combine hp $85.52 $17.10 $17.10 $34.21 $ / Source: 2013 Projected Rice Production Costs, LSU AgCenter. 2/ Based on forward speed of 5 miles per hour (0.2 hours per mile). 5

6 Impact on Farm Level Agricultural Structure Expansion One impact of pipelines on rice farms results from their possible location near existing farm structures, particularly grain bins. Existing or newly installed underground pipelines located in close proximity to existing onfarm grain bins could prevent the rice producer or landowner from building additional bins at that location in the future. This impact would probably not be widespread, but would be significant for the particular rice farm impacted. With the inability to build more grain storage facilities, the rice producer would have two options. The first option would be to sell some portion of the rice farm s annual rice crop at harvest time rather than store it for later sale at a higher price. This impact on timing of some portion of the sales of an annual rice crop would be a long-term impact, not a one-time event. Table 6 below provides an estimate of the actual rough rice market price changes from harvest time in August to the following January over the past ten years. Table 7 provides estimates of the rough rice price loss from early sales and associated crop revenue loss an a per acre and per field basis. Table 6 - January to August Rice Market Price Gains, Rice Crop Years Year August (harvest time) January (succeeding) Percent Price Increase (%) Rough Rice Price ($/cwt.) 1/ Rough Rice Price ($/cwt.) 1/ All Years (10 of last 10 years) Years with Increase (8 of last 10 years) $ 5.93 $ 8.93 $ 6.59 $ 8.89 $10.10 $17.90 $14.90 $11.70 $13.60 $14.60 $ 8.57 $ 7.39 $ 7.80 $10.40 $12.40 $18.20 $15.00 $14.00 $15.20 $ % 82.8% 118.4% 117.0% 122.8% 101.7% 100.7% 119.7% 111.8% 99.3% 144.5% % 117.0% 122.8% 101.7% 100.7% 119.7% 111.8% % Avg. 1/ U.S. Department of Agricultural, National Agricultural Statistics Service % Avg. Table 7 - Estimated Annual Rice Revenue Loss Due to Inability to Store for Later Sale Annual Revenue Loss 2/ Alternative Harvest Time Rough Rice Per Per Field Rough Rice Prices Price Loss 1/ Acre (30 Acres) ($/cwt.) ($/cwt) ($/acre) ($/field) $11.00 $12.00 $13.00 $14.00 $15.00 $16.00 $1.88 $2.05 $2.22 $2.39 $2.56 $2.73 1/ Based on a January to August price ratio of 117.1%. 2/ Based on a 6,500 pound rice yield per harvested acre. $122 $133 $144 $155 $166 $177 $3,660 $3,990 $4,320 $4,650 $4,980 $5,310 6

7 The second option which would be available to rice producers who are unable to expand onfarm grain storage facilities due to close proximity to underground pipelines would be to have the rough rice that would have been dried and stored in additional onfarm grain bins dried and stored at commercial facililties. With typical current charges for these commercial services at approximately $1.30 per cwt. ($2.10 per barrel) for drying and storage charges of $0.09 per cwt. per month ($0.15 per barrel per month), commercial charges to dry harvested rough rice and store it for three months would total $1.57 per cwt. ($2.55 per barrel). These commercial services costs would equate to $102 per harvested acre of rice, based on a 6,500 pound rice yield, and would total $3,060 for a typical rice field of 30 acres in area size. Commercial drying and three months storage charges for rough rice that would have been stored in a 30 ft. width onfarm bin at a depth of 20 feet (5,115 cwts. of rice) would total $8,030 per year. For larger onfarm grains bins of 48 feet in width storing rough rice at a depth of 30 feet (19,641 cwts. of rice), annual commerical drying and storage charges for this volume of rice would total $30,836. Again, these additional charges would be over a long term period, not a one-time occurrence. Impact on Future Agricultural Use of Land for Rice Production Even though the land area above underground pipelines can be farmed for rice production, the existence of those pipelines can restrict the use of the land for some purposes related to rice production. The most prevalent example would be related to water reservoirs which might be used to store irrigation tailwater recovery for irrigation use. The design and use of tailwater recovery systems, with permanent reservoirs built for the purpose of storing reclaimed irrigation water, are being encouraged as a means of conserving underground water supplies in aquifers located within the state. Although temporary annual within season field flooding for rice or crawfish production is allowed over existing hazardous liquid/natural gas pipelines, permanent long term water reservoirs could be prohibited. As underground water supplies in aquifers are reduced over the long term through pumping, the existence of underground pipelines on rice land would restrict the ability to build permanent water-holding reservoirs to conserve irrigation water and underground water resources. Impact on Market Value of Agricultural Land One of the major long-term impacts of underground pipelines located on rice farms is the limitation imposed on future uses of the land directly over and adjacent to the location of the pipeline. With the building of any permanent structure over the pipeline prohibited, the existence of the pipeline, in effect, limits the future use and value of that land. These impacts can include: (a.) change in the highest and best use of the land, (b.) increased cost or restrictions on existing uses, and (c.) limits on future development or use. With land sold for higher density end use at values of $10,000 per acre or more, particularly land with highway or road frontage, and land sold for agricultural use typcially in the range of $2,000 to $3,000 per acre, potential returns from future land sales by landowners with rice land including existing underground pipelines are severely restricted. 7

8 The existence of underground hazardous liquid/natural gas pipelines on farm land could also have an impact on the value of that land for agricultural use. This agricultural use land value impact would depend upon the specific contractural arrangement between the landowner and the respective pipeline company. In instances where a one-time upfront payment is made by the pipeline company to the landowner for the use of crop land for pipeline right-of-way purposes, no beneficial impacts on the agricultural use value of that land would be realized. However, in instances where the crop land area over the pipeline would be leased by the pipeline company, with the pipeline company making annual or periodic lease payments to the landowner, this could have the impact of enhancing the land value somewhat even though the use might still be restricted to agricultural uses. The lease of land for hazardous liquid/natural gas pipelines, whereby the landowner would receive annual or periodic lease payments under long term lease agreements, even into perpetuity, for the right-of-way use of that land by pipeline companies, could have the effect of enhancing the value of that land even though its use may still be restricted to agricultural uses. References 2012 Louisiana Rice Acreage Summary, LSU Agricultural Center. [ Louisiana Hazardous Liquid/Gas Transmission Pipeline Data, U.S. Department of Transportation, Pipeline and Hazardous Materials Safety Administration. [ Parish Hazardous Liquid/Natural Gas Transmission Pipeline Maps, National Pipeline Mapping System. [ Rough Rice Market Prices, U.S. Department of Agriculture, National Agricultural Statistics Service. [ Salassi, Michael E., and Michael Deliberto, Projected Costs and Returns Rice, Soybeans, Wheat and Sorghum, Southwest Louisiana, 2013, LSU Agricultural Center, Dept. of Agricultural Economics and Agribusiness, A.E.A. Information Series No. 289, January

9 Appendix Maps of Hazardous Liquid/Natural Gas Transmission Pipelines in Southwest Louisiana Parishes Figure 1 Acadia Parish Figure 2 Allen Parish Figure 3 Avoyelles Parish Figure 4 Beauregard Parish Figure 5 Calcasieu Parish Figure 6 Cameron Parish Figure 7 Evangeline Parish Figure 8 Jefferson Davis Parish Figure 9 Lafayette Parish Figure 10 St. Landry Parish Figure 11 Vermilion Parish 9

10 Figure 1 - Hazardous Liquid and Natural Gas Transmission Pipelines in Acadia Parish [1,534 miles of hazardous liquid and natural gas pipelines in Acadia Parish] 10

11 Figure 2 - Hazardous Liquid and Natural Gas Transmission Pipelines in Allen Parish [326 miles of hazardous liquid and natural gas pipelines in Allen Parish] 11

12 Figure 3 - Hazardous Liquid and Natural Gas Transmission Pipelines in Avoyelles Parish [152 miles of hazardous liquid and natural gas pipelines in Avoyelles Parish] 12

13 Figure 4 - Hazardous Liquid and Natural Gas Transmission Pipelines in Beauregard Parish [436 miles of hazardous liquid and natural gas pipelines in Beauregard Parish] 13

14 Figure 5 - Hazardous Liquid and Natural Gas Transmission Pipelines in Calcasieu Parish [2,190 miles of hazardous liquid and natural gas pipelines in Calcasieu Parish] 14

15 Figure 6 - Hazardous Liquid and Natural Gas Transmission Pipelines in Cameron Parish [1,575 miles of hazardous liquid and natural gas pipelines in Cameron Parish] 15

16 Figure 7 - Hazardous Liquid and Natural Gas Transmission Pipelines in Evangeline Parish [601 miles of hazardous liquid and natural gas pipelines in Evangeline Parish] 16

17 Figure 8 - Hazardous Liquid and Natural Gas Transmission Pipelines in Jeff Davis Parish [1,054 miles of hazardous liquid and natural gas pipelines in Jeff Davis Parish] 17

18 Figure 9 - Hazardous Liquid and Natural Gas Transmission Pipelines in Lafayette Parish [557 miles of hazardous liquid and natural gas pipelines in Lafayette Parish] 18

19 Figure 10 - Hazardous Liquid and Natural Gas Transmission Pipelines in St. Landry Parish [1,013 miles of hazardous liquid and natural gas pipelines in St. Landry Parish] 19

20 Figure 11 - Hazardous Liquid and Natural Gas Transmission Pipelines in Vermilion Parish [1,700 miles of hazardous liquid and natural gas pipelines in Vermilion Parish] 20

21 Louisiana State University Agricultural Center Louisiana Cooperative Extension Service / Louisiana Agricultural Experiment Station

Michael E. Salassi and Michael A. Deliberto 1

Staff Report No. 2008-06 June 2008 Examining Cropland Rental Arrangements for Rice Production in Louisiana Michael E. Salassi and Michael A. Deliberto 1 1 Department of Agricultural Economics and Agribusiness