CASE ANALYSIS: ALL AMERICAN PIPELINE
1. Evaluate the economics of the All American Pipeline Investment. What benefits and risks do you consider important? Has Goodyear properly addressed them?
Within the time frame of Goodyear's consideration of the proposed All American Pipeline, an enormous volume of crude petroleum is going to enter the contiguous 48 states through Pacific Coast ports. The existing and proposed refinery capacity in the Pacific Coast states are not and will not be sufficient to accommodate the anticipated volume of crude oil that will enter through the Pacific Coast ports. Thus, a substantial proportion of the volume of new crude oil must be transshipped to refinery facilities in Texas and to the states bordering Texas. The only feasible means of such transshipment is via pipeline. Neither the existing nor the planned pipeline capacity between the Pacific Coast ports and the Texas region is or will be sufficient to handle the expected volume of crude oil that must be transshipped. Thus, a substantial financial opportunity exists for Goodyear through the construction and operation of the All American pipeline.
Substantial risks also must be borne by Goodyear if the company proceeds with the construction of the pipeline. In the early-1980s, the OPEC oil embargoes of the 1970s were still fresh in the minds of all concerned, and, as a consequence, there was a sense of urgency surrounding the need to increase pipeline capacity. International politics, however, tends to be unpredictable. Thus, a risk existed that the All American Pipeline could turn out to be a very expensive 'white elephant." In the early-1980s also, the accurate projection of future costs, as well as the future value of the dollar, was difficult. Thus, it was all too easy to either under estimate or over estimate both the costs involved in the completion of the pipeline or the value of the revenues from the operation of the pipeline...