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How on earth did in the pipeline come to mean what it does? What's the correlation between pipeline and something that's in the process of production or being developed? Is the expression taken from the image of water passing through a pipeline or an underground tube before it can be made accessible at the point of exit?

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Your assumption is correct. It's in the pipeline means it's on its way.

the system for developing and producing something · the next wave of products to come down the pipeline · Newer treatments for the disease are in the pipeline.

Also, the phrase originated because of oil pipelines:

If something is described as being "in the pipeline," it means that it has not yet arrived but is expected to arrive in the future. This English idiom generally refers to plans that have not yet come to fruition but, if all goes well, will be fulfilled. In this context, "in the pipeline" is an idiom usually reserved for the plans and projects undertaken by businesses or other large institutions. The phrase gets its meaning from the fact that oil in pipelines is on its way from oil wells to refineries.

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