Oil and Gas Pipeline Construction Costs

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This article is part of the Global Fossil Infrastructure Tracker, a project of Global Energy Monitor and the Center for Media and Democracy.
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Background

There are four categories of pipeline construction costs; material, labor, miscellaneous, and right-of-way (ROW). The cost per category, expressed as a percentage of total construction costs, tends to vary by both location and year. Materials may include line pipe, pipe coating, and cathodic protection. Miscellaneous costs generally cover surveying, engineering, supervision, contingencies, telecommunications equipment, freight, taxes, allowances for funds used during construction (AFUDC), administration and overheads, and regulatory filing fees. ROW costs include obtaining rights-of-way and allowing for damages.[1]

Current Trends

Pipelines built in 2015 and 2016 were historically expensive, as determined by the costs for new projects as filed by operators with FERC, according to an Oil & Gas Journal analysis. For proposed onshore US gas pipeline projects in 2015-16, the average cost was $7.65 million/mile, up from both the 2014-15 average cost of $5.2 million/mile and the 2013-14 average cost of $6.6 million/mile. In 2012-13 the average cost was $4.1 million/mile as compared with $3.1 million/mile in 2011-12; $4.4 million/mile in 2010-11; $5.1 million/mile in 2009-10; and $3.7 million/mile in 2008-09.[1]

For the 33 land spreads filed for in 2015-16, cost-per-mile projections rose in all categories except material. In 2011 miscellaneous charges passed material to become the second most expensive cost category and they retained this position through 2016. Material-$992,991/mile, down from $1,012,698/mile 2014-15. Labor-$3,603,334/mile, up from $1,977,938/mile for 2014-15. Miscellaneous-$2,615,028/mile, up from $1,867,393/mile for 2014-15. ROW and damages-$441,548/mile, up from $378,255/mile for 2014-15. The continued rise in miscellaneous costs is driven by companies increasing the amount set aside for contingencies in their estimates.[1]

Labor spiked as a portion of land construction costs, reinforcing its place as the single most expensive category. Labor's portion of estimated costs for land pipelines jumped to 47.08% in 2016 from 37.77% in 2015, 42.36% in 2014, 38.84% in 2013, 44.61% in 2012, 44.27% in 2011, and 44.61% in 2010. Material costs for land pipelines, meanwhile, eased to 12.98% from 19.34% in 2015, 13.6% in 2014, 23.2% in 2013, 15.99% in 2012, and 14.54% in 2011.[1]

Estimating Construction Costs

The average cost-per-mile for the projects rarely shows consistent trends related to either length or geographic area. In general, however, the cost-per-mile within a given diameter decreases as the number of miles rises, suggesting that fewer and longer pipelines are more cost efficient. Lines built nearer populated areas tend to have higher unit costs. Additionally, road, highway, river, or channel crossings and marshy or rocky terrain each strongly affect pipeline construction costs.[1]

A 2011 study published in the Journal of Oil, Gas, and Coal Technology identified the variability within the four main cost categories. The percentage share of material cost of pipeline construction increased when pipeline diameter increased. In term of pipeline lengths, the share of material cost rose from 28% for short pipelines to 35% for long pipelines, with share of the other cost components decreasing except ROW, which was constant at 7% regardless of the total pipeline length. Therefore, the share of material cost increased when pipeline diameter and length increased, but the labour cost maintained as the primary cost component for all diameters and lengths, averaging 40% of total cost. The shares of cost components were also different for different regions in the United States. The material cost in the Central region made up around 41% of the total cost, while it was only 24% of the total cost in the Northeast and Southeast regions. The share of labour cost is between 34% and 48% in different regions. This may be influenced by differing costs of living by region. Miscellaneous cost was often a small part of the total cost, but the share of miscellaneous cost in the Southeast region reached to 30% of the total cost, even higher than share of material cost. The share of ROW cost of US pipelines ranged from 4% to 12% of total cost, while the share of ROW cost in Canada share was only 1% of total cost. The share of material cost and labour cost were approximately the same for Canadian pipelines, about 40%. The results agree with the conclusion that the shares of costs vary by countries and categories.[2]

Stranded Assets

Stranded assets refers to the amount of fossil fuel reservers that would have to remain in the ground, or fossil fuel infrastructure that wold have to remain unused at some point prior to providing a return on the investment, if the world were to transition to non-fossil fuel energy sources. For example, according to a 2015 study in Nature, an estimated 33% of oil reserves, 50% of gas reserves and more than 80% of known coal reserves should remain unused in order to meet global temperature targets under the Paris Agreement. Assets become stranded when new government regulations that limit the use of fossil fuels (like carbon pricing) are instituted, from a change in demand (for example, a shift towards renewable energy because of lower energy costs), or by legal action. Those who have invested in the fossil fuel industry are at most risk, including people who have bought stocks or bonds. This can include a wide variety of people and institutions such as individual investors, banks, pension funds, insurance companies, and universities, among others. Although the ‘stranded assets’ discussion often focuses on fossil fuels, it’s not just companies extracting oil, gas, and coal that could be affected by transition risk. Other companies that use fossil fuels as inputs for production, or are otherwise energy or carbon-intensive, could also be affected by new climate legislation, technological advances, or a shift in demand.[3]

A 2018 study published in Nature Climate Change suggests that part of the stranded assets would occur as a result of an already ongoing technological trajectory, irrespective of whether or not new climate policies are adopted. This loss would be amplified if new climate policies were adopted to reach the 2 °C target of the Paris Agreement, or if low-cost producers (such as some OPEC countries) maintain their level of production, or sell out, despite declining demand. The magnitude of the loss from stranded assets may amount to a discounted global wealth loss of US$1–4 trillion. Net importers, such as China or Europe, would fair better as fossil fuel prices drop. But net exporters, for example, Russia, the United States, or Canada, could see their fossil fuel industries nearly shut down. The two effects would largely offset each other at the level of aggregate global GDP.[4]

Meanwhile, a 2018 report indicated that major banks have increased fossil fuel financing. A report by Rainforest Action Network, Oil Change International, BankTrack, Indigenous Environmental Network, Sierra Club, and Honor The Earth, found that the major banks funneled $115 billion into extreme fossil fuels (defined as: tar sands, Arctic, and ultra-deepwater oil; coal mining and coal-fired power; and liquefied natural gas export in North America) in 2017, an increase of 11% from 2016. The single biggest driver of the increase in financing came from the tar sands sector, where financing grew by 111% from 2016 to 2017. The massive hike in bank support for tar sands to nearly $47 billion, led tar sands to overtake coal power as the most heavily funded extreme energy sector.[5] Further investments increase the carbon bubble and therefore the potential negative future consequences caused by the bursting of it.

Survey

The following table shows the results of a survey of projects documented by the Global Fossil Infrastructure Tracker. The survey is based on a diverse collection of projects worldwide. It shows the wide range in costs per km, which can likely be attributed primarily to differences between offshore and onshore projects, the inclusion or exclusion of additional infrastructure such as drilling platforms or pressurization stations, and regional costs differences. For that reason, these results should be viewed as non-conclusive. A more reliable global finding would require careful project definition (including exclusion of secondary infrastructure), thereby allowing apples-to-apples comparisons.

Wiki Name Owner Status Estimated Investment (US$) Lengthkm Inv per km (US$)
http://bit.ly/2mzAq9t Delfin Offshore Pipeline Fairwood Peninsula Energy Corporation, Golar LNG Proposed 8,000,000,000 50 160,000,000
http://bit.ly/2PCaLu9 Israel Cyprus Gas Pipeline Energean Proposed 7,000,000,000 200 35,000,000
http://bit.ly/2Rz8ZHM Sakhalin-Hokkaido Gas Pipeline Gazprom, Japanese Pipeline Development Organization (JPDO) Proposed 50,000,000,000 1500 33,333,333
https://bit.ly/2Pj6M5J Liza Gas Pipeline ExxonMobil Proposed 4,400,000,000 190 23,157,895
http://bit.ly/2PmmZHc Saddle West Pipeline TransCanada Proposed 655,000,000 29 22,586,207
http://bit.ly/2gqy1bb Alaska LNG Pipeline (AKLNG) Alaska Gasline Development Corp (AGDC) Proposed 55,000,000,000 2760 19,927,536
http://bit.ly/2z9PJeY Driftwood LNG Pipeline Tellurian Inc. Proposed 2,900,000,000 154 18,831,169
http://bit.ly/2RB09JD Kukrahati-Itinda Gas Pipeline H-Energy Proposed 1,828,846,000 125 14,630,768
http://bit.ly/2BPP9Ba Rio Bravo Gas Pipeline NextDecade Proposed 2,200,000,000 220 10,000,000
http://bit.ly/2Pk8x2B Eagle Spirit Pipeline Eagle Spirit Energy Holdings Ltd. Proposed 16,000,000,000 1601.3 9,991,882
http://bit.ly/2RnomCZ TEMAX Project Spectra Energy (50%), ConocoPhillips (50%) Proposed 500,000,000 53.1 9,416,196
http://bit.ly/2PzmJVt 2019 NGTL System TransCanada Proposed 2,400,000,000 275.2 8,720,930
http://bit.ly/2JfrAFN Sooner Trails Pipeline Proposed 3,500,000,000 402.3 8,699,975
http://bit.ly/2Je5SC1 Granite Bridge Pipeline Algonquin Power & Utilities Corp. Proposed 340,000,000 43.5 7,816,092
http://bit.ly/2Rk8wcc Buckeye Xpress Pipeline TransCanada Proposed 709,000,000 103 6,883,495
http://bit.ly/2PyoSk6 North Montney Mainline Pipeline TransCanada Proposed 1,400,000,000 206 6,796,117
http://bit.ly/2PzmJVt 2018 NGTL System TransCanada Proposed 570,000,000 88.5 6,440,678
http://bit.ly/2Rnu1ZS Wyndwood Pipeline Expansion Project Spectra Energy Proposed 170,300,000 27.4 6,215,328
http://bit.ly/2JfajfN South Saskatchewan Access Pipeline Proposed 47,000,000 8 5,875,000
http://bit.ly/2z8EW4K Eagle Mountain-Woodfibre gas pipeline FortisEnergy B.C. Proposed 250,000,000 47 5,319,149
http://bit.ly/2Jkk5gZ Haynesville Global Access Pipeline Tellurian Proposed 1,400,000,000 321.9 4,349,177
http://bit.ly/2JfpJAP Delmarva Pipeline H4 Capital Partners LLC Proposed 1,300,000,000 305.8 4,251,145
http://bit.ly/2Je683X Buncombe County Pipeline SCANA Proposed 72,500,000 19.3 3,756,477
http://bit.ly/2gAgk8W Keystone XL Oil Pipeline TransCanada Proposed 7,000,000,000 1900 3,684,211
http://bit.ly/2PmwBBY Permian Global Access Pipeline Tellurian Inc. Proposed 3,700,000,000 1005.8 3,678,664
https://bit.ly/2CTIisZ Cirebon-KHT Gas Pipeline Rekind Proposed 300,000,000 84 3,571,429
http://bit.ly/2ptQvws West-East Gas Pipeline Proposed 5,000,000,000 1500 3,333,333
http://bit.ly/2BSPbbq Northern Access Gas Pipeline National Fuel Gas Company Proposed 500,000,000 155 3,225,806
http://bit.ly/2RtenMu East Med Gas Pipeline Proposed 7,000,000,000 2200 3,181,818
http://bit.ly/2RwOzPk Bay of Bengal-Chittagong Oil Pipeline Bangladesh Petroleum Corporation Proposed 694,000,000 220 3,154,545
http://bit.ly/2Rsr8GU Bay of Bengal-Chittagong Oil Pipeline 2 Bangladesh Petroleum Corporation Proposed 694,000,000 220 3,154,545
http://bit.ly/2gA9TD5 Pilgrim Oil Pipeline Ares Management Proposed 900,000,000 286 3,146,853
http://bit.ly/2JgiMzw Big Foot Oil Pipeline Enbridge Proposed 200,000,000 64.4 3,105,590
http://bit.ly/2PIMXoM Israel Jordan Gas Pipeline Proposed 200,000,000 65 3,076,923
http://bit.ly/2JdyiMl Southern Reliability Link Pipeline New Jersey Resources Proposed 130,000,000 48.3 2,691,511
http://bit.ly/2JdyYBn Whistler Pipeline Targa Resources Proposed 2,600,000,000 997.8 2,605,733
http://bit.ly/2PiDpQR Permian to Gulf Coast Pipeline Proposed 2,000,000,000 965.6 2,071,251
http://bit.ly/2JfqlX9 Marquette Connector Pipeline AltaGas Proposed 137,500,000 67.6 2,034,024
http://bit.ly/2BRlXdl Spire STL Pipeline Spire Proposed 210,000,000 106 1,981,132
http://bit.ly/2Jg62cf Risberg Line Pipeline RH Energytrans Proposed 86,000,000 45.1 1,906,874
http://bit.ly/2Jfeecs Palmetto Pipeline Kinder Morgan Proposed 1,100,000,000 579.4 1,898,516
http://bit.ly/2PoRZGL Energia Mayakan Pipeline Expansion Proposed 300,000,000 159.3 1,883,239
http://bit.ly/2RxJ6YJ Ennore-Nellore Gas Pipeline Gas Transmission India Private Ltd. Proposed 779,672,880 430 1,813,193
https://bit.ly/2OndckB Cirebon-Semarang Gas Pipeline PT Pertamina Gas Proposed 400,000,000 235 1,702,128
http://bit.ly/2toFVeU Reedy Creek Walumbilla Pipeline APA Group Proposed 80,000,000 49 1,632,653
http://bit.ly/2JiImUA Arkoma Residue Capacity Pipeline Tall Oak Midstream Proposed 200,000,000 128.7 1,554,002
http://bit.ly/2z9Q80Y Eastern Shore Gas Pipeline Expansion Chesapeake Utilities Proposed 99,000,000 67 1,477,612
http://bit.ly/2Jf2PJD Roadrunner Pipeline Fermaca (50%), ONEOK (50%) Proposed 475,000,000 321.9 1,475,614
https://bit.ly/2Q6HN32 Cactus 2 Oil Pipeline Plains All American Pipeline Proposed 1,100,000,000 829 1,326,900
http://bit.ly/2PAwBhO Neka Jask Pipeline National Iranian Oil Company Proposed 2,000,000,000 1515 1,320,132
http://bit.ly/2RwyZTT Hon La-Thakhek Oil Pipeline Petro Lao Proposed 380,000,000 306 1,241,830
http://bit.ly/2JdfKfr Arctic Fox Pipeline Fairbanks Pipeline Company Proposed 1,000,000,000 827.2 1,208,897
http://bit.ly/2Prs29D Iron Horse Pipeline Tallgrass Energy (50%), Silver Creek Midstream (50%) Proposed 150,000,000 128.7 1,165,501
http://bit.ly/2PeJ36P Knight Warrior Pipeline Blueknight Energy Partners Proposed 300,000,000 257.5 1,165,049
https://bit.ly/2Ps2Yz6 Salina Cruz-Tapachula Gas Pipeline Afinan Proposed 442,000,000 440 1,004,545
http://bit.ly/2DHBYSf Western Slopes Pipeline APA Group Proposed 450,000,000 450 1,000,000
https://bit.ly/2pU3kjO Natuna-West Kalimantan Gas Pipeline TBD Proposed 550,000,000 687 800,582
http://bit.ly/2z11vIV Yamoussoukro-Ferkessédougou Petroleum Products Pipeline Petroci Proposed 250,000,000 357 700,280
http://bit.ly/2oZrgBj Queensland Hunter Gas Pipeline Hunter Gas Pipeline Pty Ltd Proposed 500,000,000 825 606,061
https://bit.ly/2CgE7ak Central Kalimantan-South Kalimantan Gas Pipeline TBD Proposed 97,000,000 162 598,765
http://bit.ly/2RwKV8k Barauni-Guwahati Gas Pipeline Proposed 414,900,000 750 553,200
http://bit.ly/2JeJZTg Mountaineer Gas Pipeline IGS Utilities Proposed 45,000,000 90.8 495,595
http://bit.ly/2RDXjUf Contai-Paradip-Dattapulia Gas Pipeline H-Energy Proposed 333,858,720 705 473,558
http://bit.ly/2RtwnWW Mehsana-Bhatinda Gas Pipeline Gujarat State Petronet; Indian Oil; Bharat Petroleum; Hindustan Petroleum Proposed 955,674,720 2052 465,728
http://bit.ly/2JgXd1u Doosan Bobcat Pipeline MDU Resources Group Proposed 13,800,000 33.8 408,284
http://bit.ly/2PzmJVt 2021 NGTL System TransCanada Proposed 140,000,000 350.8 399,088
https://bit.ly/2IYxniG West Kalimantan-Central Kalimantan Gas Pipeline TBD Proposed 516,400,000 1800 286,889
http://bit.ly/2RzT8ss India-Myanmar-Bangladesh Gas Pipeline GAIL, ONGC, Bangladesh Petroleum Proposed 50,139,288 7000 7,163

Articles and resources

References

  1. 1.0 1.1 1.2 1.3 1.4 Natural gas pipeline profits, construction both up Oil & Gas Journal, accessed November 2018
  2. Historical Pipelines Construction Cost Analysis Research Gate, accessed November 2018
  3. What are stranded assets? The London School of Economics and Political Science, accessed November 2018
  4. Macroeconomic impact of stranded fossil fuel assets Nature, accessed November 2018
  5. Report Finds Major Banks Ramped Up Fossil Fuel Financing to $115 Billion in 2017 Oil Change International, accessed November 2018

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