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Copyright © 2001 Scientific Surveys Ltd. All rights reserved. 1

Keynote address:The challenge of building pipelinesby Charles L Rottier

Australian Pipeline Industry Association

Contents of this Paper:

• Physical challenges

• Financial challenge

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Pipeline Pigging and Integrity Monitoring Conference: Singapore, 1993

2 Copyright© 2001 Scientific Surveys Ltd. All rights reserved.

While the theme of this conference is aimed towards the operation and maintenance of pipelines, and thetechniques and new methods being developed to assist owners and operators assess their pipeline's quality andserviceability, and to extend the useful life of pipelines, I would like this morning to look at some of the aspectsdevelopers and owners are facing in the construction of new pipelines. Some of these aspects impact onserviceability, 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 developingproducing fields, pipelines, and distribution systems, be they ship-loading or land-based. The difficulties whichcan be encountered were demonstrated in the development of the Kutubu Petroleum project completed last year inPNG. It combines severe terrain obstacles, with remote location, with lack of infrastructure, and the needs to befully self-sufficient in the onshore section, and shallow water, high current velocities, moving river beds andslowly-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 theseobstacles, 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 litteredwith stories of projects which overran time and budget, turning into financial liabilities for the developers andbankers. The reasons for these project overruns are many and varied; the underlying theme, however, seems to meto be a lack of planning of the project, and a reluctance to commit the time and money at the front end of the jobto address all the problems which could arise, including government approval, landowner agreements, physicalconditions 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. Theyhave only one interest: to see that the project is finished within the financial parameters. As a result, we are seeingchanges 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 engineering-procurement-construction-management (EPCM) package. Even within the EPCM approach, at least in Australiaand the USA, we are seeing the concept of integrated teams being promoted, where the client teams-up with anappropriate engineer to form a team to project manage the work. In such circumstances, the project manager islikely to be the client's representative, but the rest of the team is a mixture of client and engineers' staff, dependingon 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 thecontinuing push by developers who have no in-house engineering capability and the financiers to thesearrangements 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 thedevelopers' commitment is to the product for a fixed term.

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Keynote address: The challenge of building pipelines

Copyright © 2001 Scientific Surveys Ltd. All rights reserved. 3

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 expenseof 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 ahigher finished product cost.

How did we get into this situation? By engineers, managers and constructors making rash promises in open-endedcontracts, 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 originalproblem.

The solution? To assess the project risks at the outset, identify responsibility to a party, then establish a projectexecution 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, todevelop 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, whichrepresents 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 designprocess.

For reasons of professional pride, breakdown in communications, or whatever, much of the feedback orexperiences 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, itis a matter of frustration to operators, yet is something they have control over. I would encourage all of you heretoday who are operators to develop a spirit of openness in dealing with other operators, with facilities designersand with equipment suppliers to provide feedback which will enable designers to improve the design of newfacilities 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 andoperate, 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 andpipeline 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 countriesdevelop, 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 thesafety of pipelines. The end result of such reviewing is, unfortunately, often recommendations to change existingpractice, even though there is little evidence to support such changes. The recommendations often stem from theneed of the bureaucracy to make some finding in order to justify the decision to make the review in the firstinstance.

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Pipeline Pigging and Integrity Monitoring Conference: Singapore, 1993

4 Copyright© 2001 Scientific Surveys Ltd. All rights reserved.

There are pipeline standards and codes which are generally adopted by designers on an international basis. Thesestandards and codes, when applied by competent designers and implemented by competent contractors, willproduce pipelines which are safe by any measurement standards, either qualitative or quantitative. Inspectionmethods for pipe manufacture and line welding continues to improve, and defect levels continue to decrease asmore sensitive inspection systems are developed and introduced. The failure of pipes is becoming more and morerare as pipe mills move to incorporating quality systems into their manufacturing procedures, and acquire third-party accreditation for their plants.

The use of ERW line pipe for submarine work can now be considered an option for DSAW pipe (though not oftenadopted 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 oneveryone in the construction chain to do things cheaper, and the end result is that these days they can also be donebetter. Regulatory authorities, therefore, who seek to impose their own local overlays on these internationalstandards, often without sufficient technical support to undertake the reviews, may inadvertently impact theeconomics of new pipeline systems to the advantage of road, rail or water transport systems, each of which isinherently 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 workingwith 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 identifiedby the operator, and the operator is seen as being active in leading any investigation and submitting proposals toavoid such an incident or accident in the future, the regulatory authorities will be comfortable leaving you tomanage your assets. Whereas, if you shirk your responsibilities, you will have no defence against governmentauthorities 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 yougather in respect to the reason and remedy with fellow operators, so as not to create a precedent, which costs youlittle 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 theseitems are imposed on us by those who may not fully understand our industry. It is a responsibility we all mustshare to take the lead in matters affecting our industry, so that we retain as much control as possible over our own

destinies.

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