Unconventional oil and gas plays in North America continue to fuel demand for regional pipeline construction projects. According to industry observers, insufficient pipeline capacity is a persistent impediment to North American energy sector production and revenue growth. Indeed, oil distribution bottlenecks are common at critical junctures, including at points within the U.S. Permian Basin and the Canadian oil sands regions. In Canada, for instance, such bottlenecks have caused oil reserve buildups, forcing Canadian oil prices lower as a result.*
Although demand for pipelines in North America is strong, pipeline companies are encountering project planning and execution challenges on several fronts. While federal and state permitting rules and regulations have largely remained unchanged for many years, pipeline companies are increasingly having a difficult time predicting when, and if, construction permits will be issued. Public opposition and interest groups’ efforts to stop pipeline projects through the courts only add to the uncertainty. Meanwhile, as pipeline companies work with various stakeholders and wait to begin construction, commodity prices, labor availability, and drilling and production schedules are subject to change. By and large, pipeline companies are facing an increasingly difficult environment to expand and rebuild an aging and strained network of oil and gas pipelines across North America. The key for pipeline companies to succeed in this increasingly challenging environment is to get a firmer grasp on their projects’ cost and schedule predictability, while remaining safe and competitive.
IPA’s Pipeline Database and Expertise
IPA is uniquely positioned to help project teams develop and define their pipeline projects for success. IPA’s database contains more than 1,000 pipeline projects worldwide. The projects represented in our database include traditional pipeline companies and pipelines executed by midstream and major integrated oil companies.
For each pipeline in our database, we have captured up to 2,000 data points. We collected technical information like pipeline length, diameter, wall thickness, types of terrain, line pipe metallurgy, the number of spreads used for construction, and crossings information. We have their cost and schedule histories and understand project team structures, the appropriateness of their targets, and the quality of project development and definition at full-funds authorization. This leaves us with a robust understanding of the effect of pipeline-specific project practices on pipeline-specific project outcomes.
Our pipeline database also addresses a wide range of technical characteristics. IPA has in its database pipelines that range in length from less than a kilometer to more than 1,000 km; pipeline diameters that range from 3 inches to 56 inches, and pipeline wall thicknesses that range from 0.1 inches to 1.5 inches. These projects use every imaginable construction technique. We also have pipelines with a wide range of crossing characteristics. IPA measures crossing length as a percentage of total pipeline length for road crossings, rail crossings, river crossings, mountain crossings, and wetlands crossings. A company considering building a pipeline project will almost certainly find that the project fits within the parameters of IPA’s dataset and expertise.
IPA’s Pipeline Tools
From this historical database of more than 1,000 pipeline projects, we have created several pipeline-specific tools to benchmark various project types. With these tools, IPA can benchmark the costs and schedule competitiveness of pipeline projects and quantify the effects of uncertainties as they have played out in other projects.
Pipeline Cost Model: used to develop an industry average total engineering and construction cost (and range around that industry average) based on technical characteristics like pipeline length, diameter, and crossings information; the cost model can be used by companies to calibrate early expectations around the cost of a potential pipeline; the cost model can also be used to increase cost predictability (i.e., the likelihood the final project cost resembles the cost used in establishing the full-funds authorization estimate)
Cost Ratio Analysis: used to examine categories of estimated or actual project cost (e.g., detailed engineering cost to line pipe cost) and compare those of the project being benchmarked against those of past, similar projects; can be used to identify in which estimate line items a project is likely to overspend or overrun
Pipeline Construction Duration Model: used to develop an industry average construction duration based on technical characteristics like pipeline length, diameter, and crossings information; companies can use the model to calibrate early expectations around the schedule of a potential scope
Pipeline-Specific Front-End Loading Tool: used to quantify the status of project readiness at the end of feasibility (FEL 2) and define (FEL 3) stages for pipeline scopes; the tool measures the status of planning deliverables common to all projects (engineering drawings, geotechnical information, permitting, cost estimate, schedule, execution plans, etc.); it also incorporates pipeline-specific considerations (e.g., status of Rights of Way, community relations issues, etc.); the independent quantification of project status better positions decision makers to answer questions like, “Is this project opportunity ready to move into the next phase or does more work need to be completed to allow for making a good business decision?”
Pipelines are becoming more difficult (and expensive) to build, and, yet, in the foreseeable future, the demand for pipelines in North America is not dissipating. This leaves pipeline companies in a tough position.
In this challenging environment, access to data to better plan future pipeline projects becomes that much more important. Pipeline owners need to predictably and effectively execute their pipeline scopes, and IPA data help them do that. Not only do IPA project assessments identify potential gaps relative to our pipeline Best Practices, they also help calibrate cost and schedule assumptions. This is useful as a measure of readiness/feasibility at the full-funds decision gate. It is also helpful earlier in the lifecycle when deciding what pipeline opportunities to prioritize.
* Haley Zaremba, Pipeline Bottlenecks Cost Canadian Producers $20 Billion, Oilprice.com, published May 4, 2019.
Chris Mullaly is a Senior Project Analyst and René Klerian-Ramirez is a Senior Project Analyst. Both work in IPA’s North America office in Ashburn, Virginia.