Keynote address:

The challenge of building pipelines

by Charles L Rottier
Australian Pipeline Industry Association

Contents of this Paper:

Physical challenges

Financial challenge

Copyright 2001 Scientific Surveys Ltd. All rights reserved.

Pipeline Pigging and Integrity Monitoring Conference: Singapore, 1993

While the theme of this conference is aimed towards the operation and maintenance of pipelines, and the
techniques and new methods being developed to assist owners and operators assess their pipeline's quality and
serviceability, and to extend the useful life of pipelines, I would like this morning to look at some of the aspects
developers and owners are facing in the construction of new pipelines. Some of these aspects impact on
serviceability, while others affect the approach owners need to take in developing projects.

Physical challenges
Oil- and gasfield developers, onshore and offshore, are aware of the physical challenges faced in developing
producing fields, pipelines, and distribution systems, be they ship-loading or land-based. The difficulties which
can be encountered were demonstrated in the development of the Kutubu Petroleum project completed last year in
PNG. It combines severe terrain obstacles, with remote location, with lack of infrastructure, and the needs to be
fully self-sufficient in the onshore section, and shallow water, high current velocities, moving river beds and
slowly-shoaling waters in the marine section. The field itself was developed and supplied by air for all its needs,
and all this in a climate capable of precipitating 6m of rain a year and up to 300mm in 24 hours. Yet, despite these
obstacles, the project was finished on time and on budget.

Financial challenges
Unfortunately, not all such resource projects have such a satisfying conclusion. The resource industry is littered
with stories of projects which overran time and budget, turning into financial liabilities for the developers and
bankers. The reasons for these project overruns are many and varied; the underlying theme, however, seems to me
to be a lack of planning of the project, and a reluctance to commit the time and money at the front end of the job
to address all the problems which could arise, including government approval, landowner agreements, physical
conditions and security of personnel in countries affected by civil disruption.
The bankers, however, tend to view such problems in a more simplistic manner than a project manager. They
have only one interest: to see that the project is finished within the financial parameters. As a result, we are seeing
changes in the way projects are packaged and delivered, changes which our financial advisers are promoting. We
are seeing moves to more lump-sum bidding for work, often design and construct, either within the confines of
build-own-operate (BOO) packages, build-own-operate-transfer (BOOT) packages, or the traditional engineeringprocurement-construction-management (EPCM) package. Even within the EPCM approach, at least in Australia
and the USA, we are seeing the concept of integrated teams being promoted, where the client teams-up with an
appropriate engineer to form a team to project manage the work. In such circumstances, the project manager is
likely to be the client's representative, but the rest of the team is a mixture of client and engineers' staff, depending
on the project's needs and the skills of the individuals.
Is this move to lump-sum contract and BOO and BOOT projects achieving the end result? It is hard to tell, but the
continuing push by developers who have no in-house engineering capability and the financiers to these
arrangements indicates that they, at least, have a level of comfort and this is understandable.
The advantages to the financiers and owners are:

they have a higher level of comfort that the quoted costs will not be exceeded;

there is greater pressure on the bidders to "get it right", as there is little or no scope for extras;

if going into BOO projects, it is the proposing consortium which arranges the finances, while the
developers' commitment is to the product for a fixed term.

Copyright 2001 Scientific Surveys Ltd. All rights reserved.

Keynote address: The challenge of building pipelines

The developers/owners must, however, also realize that their security or comfort will come at a cost, namely:

little involvement in detailed design once the contract is let, or high cost for change;

higher bid costs as bidders allow for risk which may occur;

the potential for a successful constructor to make short-term decisions to progress his work at the expense
of the long-term needs of the owner;

the risk that the best technology is not matched to the best constructor or financial package, resulting in a
higher finished product cost.

How did we get into this situation? By engineers, managers and constructors making rash promises in open-ended
contracts, which protected their revenue and return, but put all the risk on the developer.
The response now seems to be to put all the risk on the constructor, which is as inappropriate as the original
problem.
The solution? To assess the project risks at the outset, identify responsibility to a party, then establish a project
execution plan incorporating groups with proved performance records and take this to the banks for funding. Do
not let the banks dictate the performance method for your project: take the initiative, utilizing the best advisers, to
develop your preferred method of development.
To divert from my theme for a few moments, I would like to make a few observations to this audience, which
represents a broad cross-section of pipeline operators and owners. It relates to exchange of information,
particularly as it relates to the SE Asian environment.
Designers design facilities based on the best information they have. This information comes from a variety of
sources - text books, articles, feedback from previous projects, and operations' personnel preferences in the design
process.
For reasons of professional pride, breakdown in communications, or whatever, much of the feedback or
experiences of the operators of facilities do not get back to the design groups who were involved in the original
projects, and so design flaws are continued from one project to the next in all innocence by the designers.
Sometimes this relates to equipment layouts, sometimes to equipment specifications. Regardless of the reason, it
is a matter of frustration to operators, yet is something they have control over. I would encourage all of you here
today who are operators to develop a spirit of openness in dealing with other operators, with facilities designers
and with equipment suppliers to provide feedback which will enable designers to improve the design of new
facilities so as to increase operability of systems and, ultimately, the life of the facilities.
Conferences such as these, and the workshops held yesterday, are the ideal forum for exchange of information,
both good and bad, so the industry can move forward and pipelines become more cost-effective to build, own and
operate, and become a more common means of transportation.
Pipelines are an inherently-safe form of transport, and this brings me to my next point about pipelines and
pipeline developments. At this point I must admit to not being familiar with all the codes and standards that relate
to pipeline design and operation in the various countries in SE Asia. What I do know, however, is that as countries
develop, government regulations follow, and one aspect of the regulations that comes under scrutiny is that of
safety.
In this regard, some Australian regulatory authorities are presently going through the throes of reviewing the
safety of pipelines. The end result of such reviewing is, unfortunately, often recommendations to change existing
practice, even though there is little evidence to support such changes. The recommendations often stem from the
need of the bureaucracy to make some finding in order to justify the decision to make the review in the first
instance.

Copyright 2001 Scientific Surveys Ltd. All rights reserved.

Pipeline Pigging and Integrity Monitoring Conference: Singapore, 1993

There are pipeline standards and codes which are generally adopted by designers on an international basis. These
standards and codes, when applied by competent designers and implemented by competent contractors, will
produce pipelines which are safe by any measurement standards, either qualitative or quantitative. Inspection
methods for pipe manufacture and line welding continues to improve, and defect levels continue to decrease as
more sensitive inspection systems are developed and introduced. The failure of pipes is becoming more and more
rare as pipe mills move to incorporating quality systems into their manufacturing procedures, and acquire thirdparty accreditation for their plants.
The use of ERW line pipe for submarine work can now be considered an option for DSAW pipe (though not often
adopted as I understand), based on pipe failure records (or lack of failures) under hydrostatic test for ERW pipe.
Changes in equipment and design approaches have occurred as a natural consequence of economic pressures on
everyone in the construction chain to do things cheaper, and the end result is that these days they can also be done
better. Regulatory authorities, therefore, who seek to impose their own local overlays on these international
standards, often without sufficient technical support to undertake the reviews, may inadvertently impact the
economics of new pipeline systems to the advantage of road, rail or water transport systems, each of which is
inherently less safe and more prone to leakage/spillage than a properly-constructed pipeline.
I would urge those here today who have contact with governmental regulatory authorities to be active in working
with the appropriate authority so as to avoid the temptation the authorities may have to undertake reviews and
recommend changes to what may be already sound practices. Should an incident or accident be quickly identified
by the operator, and the operator is seen as being active in leading any investigation and submitting proposals to
avoid such an incident or accident in the future, the regulatory authorities will be comfortable leaving you to
manage your assets. Whereas, if you shirk your responsibilities, you will have no defence against government
authorities imposing additional restraints or restrictions, regardless of how relevant or appropriate they may be.
On a particular note about being active when an incident occurs, it is important that you share the information you
gather in respect to the reason and remedy with fellow operators, so as not to create a precedent, which costs you
little because of your circumstances, but costs them a lot for no benefit.
I have touched on a number of items which I believe impact on all of us in the pipeline industry. Some of these
items are imposed on us by those who may not fully understand our industry. It is a responsibility we all must
share to take the lead in matters affecting our industry, so that we retain as much control as possible over our own
destinies.

Copyright 2001 Scientific Surveys Ltd. All rights reserved.