Pipeline CAPEX Estimation

[analystuc]

My firm wants to build a gas pipeline, to supply a number of process plants. In my country, all gas pipelines belong to the national gas regulatory body. We proposed to build a pipeline in exchange for gas. Thus, there was need for both sides to come up with CAPEX estimates that would be agreed upon.
I was appointed to be part of a team on our side to determine CAPEX for the gas pipeline. We brought a consultant that gave us an 'all-up rate' per inch per kilometre. On the other hand, we had a dissenting opinion from our national gas regulators who had a different approach to CAPEX estimation. They believed every cost component [such as design, EIA e.t.c] should be computed as percentages of 'installed cost'.

Please whats the best[or rather industry-accepted] approach for CAPEX estimation for a gas pipeline?

 

[BigInch]

A consultant with experience in pipeline and associated facilities would have no trouble making a project conceptual design, general station layout of major facilities (with suggested plot plan), list of block valve locations, major river and road crossings, special construction areas, a list of high cost equipment, list of long lead time items and an itemized cost estimate of each one. The total cost would be broken down into capital and installation cost of each item (shipping where required) and include individual costs of design, procurement and permitting, right of way costs, clearing, trenching, stringing, welding & lowering in, backfill, final grading & cleanup, testing, commissionion and startup, and possibly the first year's of operation .. if you want. An overall schedule would normally be included as well.

I could give you a diameter-length estimate in less than 1 minute .. for free, so if that's all you got for your money, ya, I'd be pretty dissapointed if I were you and feeling bad but wealthy, if I were him.

**********************
"Pumping accounts for 20% of the world’s energy used by electric motors and 25-50% of the total electrical energy usage in certain industrial facilities."-DOE statistic (Note: Make that 99% for pipeline companies)

http://virtualpipeline.spaces.live.com/

 

[zdas04]

For budget estimates +/- 25% you could probably do well with a cost per diameter unit-length method. If you need better than that you have to look at the current markets for major components. The best estimate is the technique that BigInch recommended. The next best is to carefully price the material and then divide that number by 0.4 (project after project, I find material costs to be very close to 40% of project total). That will get you a better number than the inch-km approach, but not a lot more supportable.

David

 

[GregLamberson]

analystuc

BigInch gave good advice above, the other key factor is going to be location, i.e. it will cost more to lay a gas pipeline in the Niger Delta than say in Kansas. Existing infrastructure is another. Length will also be a factor as you may get into compression. There's lots of bechnmark information out there. As mentioned above, you should be able to get a decent +/- 25% estimate broken down into as many components as you wish to assess.

Greg Lamberson, BS, MBA
Consultant - Upstream Energy
Website:

http://www.oil-gas-consulting.com

 

[zdas04]

Greg,
Length is really a major factor. The longer the line, the smaller portion of the total project mobilization/demobilization costs are. In the cost per diameter-inch-mile analysis I always add a fixed mob/demob cost to the final number. Depending on where you are, getting equipment to the job can be a significant line item. I still only call that technique "budget quality".

David

 

[GregLamberson]

zdas04

Absolutely agree. It's only a piece of the decision making process and really only a data point to help decide if it is really worth investing the money to do a full blown feasibility study. Gotta start somewhere.

I would assume analystuc's disenters are simply looking for a full breakdown on the overall cost, which so they can dissect it piece by piece - in theory it will make them feel a little warmer & fuzzier, but at the end of the day, like you said it is budget quality only and would be akin to carrying the costs to 2 or 3 decimal points - but some bean counters like to feel warm & fuzzy.

What is frustrating is the client that asks for a +/-50% estimate and then has a laundry list of questions - what kind of coating included, will it be automatic welded, what kind of NDT, etc etc etc. Makes you want to say "I really have no idea, I just grabbed a number out of the air and hoped you wouldn't notice".

Greg Lamberson, BS, MBA
Consultant - Upstream Energy
Website:

http://www.oil-gas-consulting.com

 

[BigInch]

Well... the true factor is $/(D_in per Km), just nicknamed as $/D_in, so total cost variation by len is reqd to get $.

The real truth is that you only get those numbers in a magazine where some editor averaged 500 pipelines constructed all over the world during the last year, none of which are valid for any one given project, but because they're published, a lot of people that read stuff in their office and don't know what they're doing can convince similar people that they do and get them to go along with it because they can see it in the magazine too, and $DLs are easy to talk about on the phone. So, if you can say what the average project is, maybe you'll get the number, if you have the average project. The real problem is that projects rarely come in average sizes, so its a lot of variables that have to get canceled out in the end to get your average cost, none of which depend on diameter. Somehow the numbers manage to cancel each other out, no matter what basis you use, so everyone thinks $DLs are valid indicators. They really are not, but I could give you a good number for many projects just knowing the length and location and if its 6" or 30" D. Same principal that is used in Vegas; each hand is different, but the house always wins.

$DLs are actually all over the place in a wide distribution. In the US alone a high can be 3 or 4 X in New Jersey what it might be to do the same project in south Texas. When you consider maximum variations possible in a worldwide picture, they can easily reach to 5 or 8 times that of south Texas. Just minimal security budget and a couple of helicopters in some countries can be worth a run of "BigInch" pipe from Laredo to Hebronville alone. In some rough areas for a short pipeline you can spend almost as much on benching in the pump stations and pipeline erosion control as you did on laying in the pipe. Now add the guerilla insurance premiums.

An $DL is really only one highly specific number that you got on the last project that you hope will be good for the same project in the same area over the next year, but if the contractors get busy, I've even seen that get multiplied by 2 and even 3 in one or two cases.

So, when talking about a specific project and $DLs, the house might not win.

**********************
"Pumping accounts for 20% of the world’s energy used by electric motors and 25-50% of the total electrical energy usage in certain industrial facilities."-DOE statistic (Note: Make that 99% for pipeline companies)

http://virtualpipeline.spaces.live.com/

 

[zdas04]

In New Mexico it is $/diameter-inch/mile. I'm curious why it would be US Dollars per diameter-inch per km anywhere. I know that projects all over the world within a multi-national are compared based on US dollar cost so I get that conversion, but using inches just cracks me up.

David

 

[BigInch]

Just that inch statistics get published more often than mm.
I don't like flow in India .. Metric-tons/yr, or kPa anywhere.

**********************
"Pumping accounts for 20% of the world’s energy used by electric motors and 25-50% of the total electrical energy usage in certain industrial facilities."-DOE statistic (Note: Make that 99% for pipeline companies)

http://virtualpipeline.spaces.live.com/

 

[zdas04]

I've become pretty comfortable with a wide range of units and the one that puts my teeth on edge is kg/m^2.

Any time someone starts extolling the VAST benefits of the metric system I dredge up examples of where real non-invested folks use terms like inch-km, acre-m and other mixtures of units that work for them.

I taught a class in Calgary last month and after an hour they asked me to just use US units and quit slowing the class down to translate. They were evenly divided between people who prefered to use kPa, psi, and kg/m^2 for pressure, volumes in bbls and MSCF were understood. m^3, and E3m3 didn't always get the point across. I'm really nervous about doing the class in London in the spring, the potential for total melt down on units is too real. In Austrailia last year I came across quite a few pre-30 Engineers that didn't know what a psi was and we HAD to stop to translate, I hope London is more like Calgary than Brisbane.

David

 

[BigInch]

London is a bit psi fluent, more or less. Brush up on your by 7 multiplication tables for kPa if you're dealing with gas crowds. kg/cm2 is total rubbish. Liquids crowds are usually found in Bars (where else). CF have lost meaning to most around here in favour of M3/H or /Y. Talk E+6, E+9, E+12 as million, billion and trillion have no standard meaning in the EU. 8 million is 8.000 thousands. Yes, I also hate the interchanging commas for decimal points v/v in some places. UK speed limits are still in mph, go figure, but that's not the worst problem. Always "LOOK RIGHT->". Be seriously carefull with that one. I don't mind the 30/03/2010 format.

**********************
"Pumping accounts for 20% of the world’s energy used by electric motors and 25-50% of the total electrical energy usage in certain industrial facilities."-DOE statistic (Note: Make that 99% for pipeline companies)

http://virtualpipeline.spaces.live.com/

 

[BigInch]

BTW the worst conversion is $0.50 = £1.00
Hope you can stomach a $5.00 morning coffee.
OK that's with the tip.

**********************
"Pumping accounts for 20% of the world’s energy used by electric motors and 25-50% of the total electrical energy usage in certain industrial facilities."-DOE statistic (Note: Make that 99% for pipeline companies)

http://virtualpipeline.spaces.live.com/

 

[analystuc]

Thanks everyone for your contributions. They were really an eye opener. I guess a detailed and more accurate cost analysis will involve good knowledge of the right of way, and current market price of materials.

 

[stanier]

Soil conditions may also provide a reasonable cost.

Wet clays, swamps, rock, need to import fill, need to cart away contaminated soil, water table, wet weather creating rivers, terrain affecting high/low points, environmental habitats for rare and endangered species etc etc.

The latter is included for the "greenies" in Australia where the plant, fish and bird life are better looked after than our hospital patients and disabled. this is because they might be rare. the way things are going the elderly and infirm are in danger of becoming rare as there is more chane catching a disease in hospital than out.