244

Int. J. Oil, Gas and Coal Technology, Vol. 4, No. 3, 2011

Historical pipeline construction cost analysis
Zhenhua Rui*
Department of Mining and Geological Engineering,
University of Alaska Fairbanks,
Duckering Building 418, P.O. Box 750708,
Fairbanks, Alaska 99775, USA
Fax: +1-907-474-6635
E-mail: zhenhuarui@gmail.com
*Corresponding author

Paul A. Metz
Department of Mining and Geological Engineering,
University of Alaska Fairbanks,
Duckering Building 313, P.O. Box 755800,
Fairbanks, Alaska 99775, USA
Fax: +1-907-474-6635
E-mail: pametz@alaska.edu

Doug B. Reynolds
School of Management,
University of Alaska Fairbanks,
P.O. Box 756080, Fairbanks, Alaska 99775, USA
Fax: +1-907-474-5219
E-mail: dbreynolds@alaska.edu

Gang Chen
Department of Mining and Geological Engineering,
University of Alaska Fairbanks,
Duckering Building 315, P.O. Box 755880,
Fairbanks, Alaska 99775, USA
Fax: +1-907-474-6635
E-mail: gchen@alaska.edu

Xiyu Zhou
School of Management,
University of Alaska Fairbanks,
P.O. Box 756080, Fairbanks, Alaska 99775, USA
Fax: +1-907-474-5219
E-mail: xzhou2@alaska.edu

Copyright © 2011 Inderscience Enterprises Ltd.

Historical pipeline construction cost analysis
Abstract: This study aims to provide a reference for the pipeline construction
cost, by analysing individual pipeline cost components with historical pipeline
cost data. Cost data of 412 pipelines recorded between 1992 and 2008 in the
Oil and Gas Journal are collected and adjusted to 2008 dollars with the
chemical engineering plant cost index (CEPCI). The distribution and share of
these 412 pipeline cost components are assessed based on pipeline diameter,
pipeline length, pipeline capacity, the year of completion, locations of
pipelines. The share of material and labour cost dominates the pipeline
construction cost, which is about 71% of the total cost. In addition, the learning
curve analysis is conducted to attain learning rate with respect to pipeline
material and labour costs for different groups. Results show that learning rate
and construction cost are varied by pipeline diameters, pipeline lengths,
locations of pipelines and other factors. This study also investigates the
causes of pipeline construction cost differences among different groups.
[Received: October 13, 2010; Accepted: December 20, 2010]
Keywords: pipeline cost; cost analysis; distribution; learning curve; cost
difference.
Reference to this paper should be made as follows: Rui, Z., Metz, P.A.,
Reynolds, D., Chen, G. and Zhou, X. (2011) ‘Historical pipeline construction
cost analysis’, Int. J. Oil, Gas and Coal Technology, Vol. 4, No. 3,
pp.244–263.
Biographical notes: Zhenhua Rui is a PhD student in Energy Engineering
Management at the University of Alaska Fairbanks. He also received his
Masters in Petroleum Engineering from the same university, in addition to a
Masters in Geophysics from China University of Petroleum (Beijing). His
current research is the engineering economics of the Alaska in-state natural gas
pipeline.
Paul A. Metz is a Professor of Department of Mining and Geological
Engineering at the University of Alaska Fairbanks. He received his PhD from
Imperial College of Science Technology and Medicine, and MS in Economic
Geology and MBA from the University of Alaska. His research interests
include: market and transportation analysis of mineral resources; analysis of
transport systems; engineering geological mapping and site investigation; and
mineral and energy resource evaluation.
Doug B. Reynolds is a Professor of School of Management at the University of
Alaska Fairbanks. He received his PhD from the University of New Mexico.
His research interests include oil production and energy economics. Some of
his papers include an explanation of how one energy resource can subsidise the
cost of an alternative energy resource and how an energy theory of value can be
approximated by defining energy grades for energy resources.
Gang Chen is a Professor of Department of Mining and Geological Engineering
at the University of Alaska Fairbanks. He received his PhD in Mining
Engineering from Virginia Polytechnic Institute and State University; He
received his MS in Mining Engineering from the Colorado School of Mines.
His research interests include: rock mechanics in mining and civil engineering;
mine ground engineering; frozen ground engineering and GIS application in
mining industry.
Xiyu Zhou is an Associate Professor of Finance at the School of Management
of the University of Alaska Fairbanks. He received his PhD of Business
Administration (Finance) from the University of North Carolina. He also

245

2 Data sources and cost adjusting factors 2. Pipeline cost data are collected from Federal Energy Regulatory Commission filing by gas transmission companies. The Oil and Gas Journal annually analysed estimated and actual pipeline cost and forecasts trends for the next year (PennWell Corporation. The purpose of this paper is to conduct a comprehensive analysis on pipeline costs from 1992 to 2008 with various perspectives: the distribution of pipelines. US had a total of 793.620 km was for petroleum product and 548. The dataset also contains the cost information of 15 Canadian pipelines. Historical pipeline cost data have been analysed and used to estimate the construction costs for the different types of pipeline cost by various researchers. which are published in the Oil and Gas Journal annual data book (PennWell Corporation. 2009). (2007) calculated share of material cost using pipeline cost between 1993 and 2004 and indicated that share of material cost is constant for the same diameter pipelines. The first pipeline in the USA. A number of data processing and statistical descriptions are applied to the historical data. His current research interests include: merger and acquisition. was built in 1865 (Scheduble.. location of pipelines. 2002). Zhang et al.285 km of pipelines. Pipeline cost was compared to LNG and GTL cost as supply options (Gandoolphe et al. received MS in Economics from the University of Lausanne and MBA from China Europe International Business School respectively. Parker (2004) used natural gas transmission pipeline costs to estimate hydrogen pipeline cost with the linear regression method.246 Z.685 km was for natural gas (Central Intelligence Agency. costs and learning curve in the development of international gas transmission lines. 1992. 2008). two-inch in diameter and over 8 km long. and costs of pipeline cost components. the pipelines are selected on the basis of data availability. 2009). Heddle et al. Various studies on pipeline cost have been conducted by different researchers in different perspectives. Zhao (2000) analysed the diffusion. Pipelines in the dataset were distributed in all states in the USA (Alaska and Hawaii are excluded). Causes of cost differences and learning rate differences are also investigated. among which 244. 1992. Rui et al. and the pipeline cost in this paper does not include compressor station cost. only onshore pipelines are collected. (2003) derived a multiple linear regression model to estimate the CO2 pipeline construction cost. pipeline diameters. corporate governance and real estate mutual funds. 2003). The pipeline dataset includes year of completion. Due to limited offshore pipeline data. By 2008.1 Data sources In this study. McCoy and Rubin (2008) developed multiple non-linear regression models to forecast CO2 pipeline cost. The pipelines were completed . 1 Introduction Pipelining is an important and economical method to transport large quantities of oil and natural gas in the petroleum industry. shares of pipeline cost components and learning-by-doing in pipeline construction. pipeline lengths.

except for the construction labour and engineering supervision index. administration and overheads.49% from 2003 to 2008. Unfortunately.Historical pipeline construction cost analysis 247 between 1992 and 2008. ROW cost contains the cost of ROW and allowance for damages. The soaring index means pipeline construction costs experienced high cost escalation after 2003. . and regulatory filing fees. An indication of this is construction cost frequently overran budget during that period. 2009). right of way (ROW) and total cost. 1992. Labour cost consists of the cost of pipeline construction labour. The total cost is the sum of material cost. supervision. labour cost.2 Cost adjusting factors All costs are adjusted with the CEPCI – a widely used index for adjusting process plants’ construction cost to 2008 dollars. the data did not show the construction period. The five pipeline cost components are: material. the pipe index annual growth rate was 1. Therefore. Figure 1 Chemical engineering plant cost indexes between 1990 and 2008 (see online version for colours) 2. The entire dataset has 412 observations of onshore pipelines. labour. miscellaneous cost and ROW cost (PennWell Corporation. allowances for funds used during construction. pipeline coating and cathodic protection. Material cost is the cost of line pipe. while the index increased sharply after 2003. freight. but it was 5. Two-stages between 1990 and 2008 can be seen in Figure 1. 2009). miscellaneous. Indexes between 1990 and 2008 are showed in Figure 1. The index increased slowly between 1990 and 2003. cost is defined as real. The changes in costs over time can be recorded by the index (Chemical Engineering. Miscellaneous cost is a composite of the costs of surveying. which is the weighted average of the 11 sub-indexes. The CEPCI has 11 sub-indexes and a composite CEPCI. All pipeline construction component cost are reported in US dollar. telecommunications equipment.40% from 1990 to 2003. accounted costs determined at the time of completion. engineering. contingencies. For example. taxes.

54%. there are only two each of 10-inch.10% Construction labour 0.90% Equipment 3. These three types of diameter pipelines add up to 228 (55.01% Structural supports 4.1% of the total) 24-inch diameter pipelines. Figure 4 displays the histogram of pipelines grouped in pipeline lengths.3% of total).3% of the total) 30-inch diameter pipelines and 62 (15. The structure support index has the highest average annual growth rate of 4. To make cost data comparable to each other at the same base.02% Process instruments 1. 14-inch. pipeline capacity. However. year of completion and location. There are 103 (25% of the total) 36-inch diameter pipelines. 18-inch and 34-inch diameter pipelines.9% of the total) pipelines with diameter between 30-inch and 48-inch. Further.5% of the total) were reported in 1998.54% Heat exchange and tanks 3. 56 (13. Pipe index average annual growth rate is 3. The index is a useful tool to adjust pipeline cost data. Pipe index and construction labour index is used to adjust pipeline material and labour cost. CE index is applied to pipeline miscellaneous and ROW costs.248 Z. The pipeline’s diameters range from four inches to 48 inches.04% Buildings 2. pipeline diameters and pipeline lengths The histogram of pipelines in different years is shown in Figure 2.09%. The annual average growth rate between 1990 and 2008 is shown in Table 1. It indicates that some specific diameter’ pipelines are constructed more than other diameters and more large-diameter pipelines are constructed than small-diameter pipelines in the last two-decades.29% Process machinery 3. pipeline length. The pipeline length ranges from .31% Engineering supervision –0. Engineering supervision index is almost constant with the lowest average annual growth rate of –0. Table 1 Annual average growth rate of the chemical engineering plant cost index Index type Annual growth rate Index type Annual growth rate CE index 2.09% 3 Data descriptive statistics In order to better understand pipeline cost. 63 (15.04%.94% Electrical equipment 2. Figure 3 shows the histogram of pipelines in different diameters.1 The distribution analysis of pipelines on year of completion.8% of the total) pipelines with diameters between 4 inches and 10 inches.02% which is higher than the CE index average annual growth rate of 2. Eighteen different diameter pipelines were reported. the cost data of pipelines are analysed and summarised in terms of pipeline diameters. 3. and value of all diameters is even number. Rui et al. different pipeline cost components are adjusted by different indexes to 2008 dollars. and only 6 (1.30% Pipe 3. there are only 24 (5.6% of the total) constructed pipelines were reported in 2002. while 218 (52. The distribution of pipeline length is right-skewed.07% Pump and compressor 2.

There are 258 (62. and 65 pipelines in the 10 to 20 mile group.6% of the total) pipelines in the 0 to 10 mile group. but only 30 (7.3% of the total) of pipelines are longer than 60 miles. It indicates that majority of the reported pipelines are short pipelines.01 mile to 713 miles. Figure 2 Histogram of pipelines between 1992 and 2008 (see online version for colours) Figure 3 Histogram of pipelines in diameters (see online version for colours) .Historical pipeline construction cost analysis 249 0.

270 ft3 to . L is the pipeline length (ft). 2000) V = S∗L 2 ⎛D⎞ where S = π ⎜ ⎟ .2 The distribution of pipelines regarding pipeline capacity (pipeline volume) Pipeline capacity is calculated with the following formula (Zhao.969 ft3 with standard deviation (SD) of 15. S is the pipeline cross-sectional area ⎝2⎠ 2 (ft ).511.250 Z. Average pipeline capacity is 86. Figure 4 Histogram of pipelines grouped in lengths (see online version for colours) 3. D is the pipeline diameter (ft). V is the pipeline capacity (ft3). The pipeline capacity ranges from 13. The distribution of pipeline capacity is right-skewed.840. Rui et al.088 ft3. Figure 5 Histogram of pipeline capacity (see online version for colours) The histogram of pipeline capacity is shown in Figure 5.

In this paper.000.5 Southeast 55 Alabama 20.5 Midwest 55 Ohio 18. A total of 48 states were referred to.000 ft3. 157 (40% of US pipelines) pipelines are located in the Northeast region. 58. Furthermore. Based on the regional definition. The state grouping is defined based on ten federal regions of the USA Bureau of Labor Statistics (EIA. Energy Information Administration (EIA) breaks down the USA natural gas pipelines network into six regions: Northeast.3 The distribution analysis of pipeline locations The location information for US pipelines is provided in a state format. but the data did not show a specific province in Canada. Southeast.691. Central and Western. Midwest. US pipeline data are summarised according to these six-regions (McCoy and Rubin.215.5 Western 48 Washington 11. 2008).Historical pipeline construction cost analysis 251 5. These regional definitions are used to analyse geographic difference.64% of pipelines’ capacity is larger than 400.29% of pipelines’ capacity is less than 30. Southwest. . The map of regional definitions is shown in Figure 6. Table 2 Region Number of pipelines in regions and states Number of pipelines State* Number of pipelines Central 52 Colorado 15 Northeast 157 Pennsylvania 72. Source: EIA (2010) 3. and only 3.5 Canada 15 Note: *State has the highest number of pipelines in its region. Thirty (7.5% of US pipeline) pipelines are located in the Southwest region. excepting Alaska and Hawaii.5 Southwest 30 Louisiana 9. there are 15 Canadian pipelines. The number of pipelines in other regions is between 48 and 55.000. region distribution of pipelines are summarised and shown in Table 2. 2010). Figure 6 US natural gas pipeline network region map (see online version for colours) Note: Alaska and Hawaii are not included.000 ft3.727 ft3. In addition. 46% of these Northeast region pipelines are located in the State of Pennsylvania.

The majority of cost distribution is concentrated on the left of the figure. indicating more cases of low cost and few relative high cost. Similar trend exists in the histogram of length group (Figure 4) and the histogram of pipeline capacity group (Figure 5). Figure 7 Histogram of material cost (see online version for colours) Figure 8 Histogram of labour cost (see online version for colours) . Rui et al. 3.252 Z.4 The distribution analysis of pipeline individual cost components The histogram of cost of pipeline cost components are shown in Figure 7 to Figure 11. These figures illustrate that all distributions of pipeline cost components are right-skewed. It seems that pipeline length or pipeline capacity may play a significant role in determining pipeline construction costs.

168 ft3 to 31.Historical pipeline construction cost analysis Figure 9 253 Histogram of miscellaneous cost (see online version for colours) Figure 10 Histogram of ROW cost (see online version for colours) 3. The year 1998 has the lowest volume of pipeline constructed. with a general trend of growing. This section investigates the trend of annual pipeline capacity. Before 1998.5 The trend of pipeline capacity over time The size of pipeline capacity was analysed in the above section.884 ft3.393 ft3 from 2003 to 2006. the constructed pipeline volume changed slightly. 2006 to 2008 saw the biggest increase. The annual pipeline volume constructed is shown in Figure 12. After that. There are three major peak years in term of pipeline volume constructed: 2000. 2003 and 2008.396 ft3 between 1998 and 2003. . Then there was a dramatic fall to 7. from 7. The annual constructed pipeline volume exhibited a cyclic characteristic.917.917.393 ft3 to 48.700. however.262.773. the volume increased sharply from 1.

Figure 13 shows the annual average unit cost of pipeline cost components. Unit cost is calculated by dividing cost by volume. the average unit cost in material. The years of 1999. similar to the change in constructed pipeline volume. the change was dramatic. $24/ft3.254 Z.6 The trend of average unit cost over time The unit component costs of pipeline are an important parameter for estimating pipeline costs. ROW and total cost were $18/ft3. Figure 11 Histogram of total cost (see online version for colours) Figure 12 Annual constructed pipeline volumes (see online version for colours) 3. $14/ft3. 2002 and 2007 were . and were more stable compared to the other cost components. After 1998. miscellaneous and total cost are in a similar pattern. In this section. the trend of unit component costs of pipeline over time is analysed. labour. $5/ft3 and $61/ft3 respectively. All cost components changed slowly before 1998. Rui et al. For all 412 pipelines. miscellaneous. Unit costs of labour. But material and ROW unit costs changed more gradually. which fluctuates widely.

Table 3 shows that the share of cost components varied under different situations. This evidence indicates that expectation of increased pipeline construction induced an increase in the current unit cost. labour and material costs dominate the pipeline cost. The higher expected demand in labour would cause labour shortage. miscellaneous cost and ROW cost. In order to better understand the influence of individual cost component for different pipeline groups. which was almost three-times as high as the bottom point of $39/ft3 in 1998. labour cost. and the labour cost is still the highest cost for all groups except for the Central region group. pipeline lengths and location of pipelines are analysed in this section. Generally. The highest unit total cost was reached $109/ft3 in 1999. All these factors together resulted in high cost one year before the peak year in constructed pipeline volume. Results are shown in Table 3. The sum of material and labour cost can sometime reach up to 80% of the total cost. Material cost has the second highest share of 31% of the total cost. It indicates that share of cost components related to pipeline . Miscellaneous cost was about 23% of the total cost. and the competitive salary and benefits had to be paid in order to hire or keep more skilled labourers. the labour cost has the highest share of 40% of total cost. Miscellaneous cost also increased due to more demand. Figure 13 Annual average unit cost of pipeline cost components (see online version for colours) 4 The share of cost components for different pipeline groups As mentioned above.Historical pipeline construction cost analysis 255 the three-major peak years in unit total cost. but this cost includes material cost. By contrasting Figure 12 and Figure 13. the share of each component cost of pipeline diameters. For all onshore pipelines. the average pipeline unit cost of total cost is $ 61/ft3. the share of material cost increased from 19% for small-diameter pipelines to 34% for large-diameter pipelines. In term of pipeline diameters. while the share of other cost components decreased. Material suppliers would raise prices with expectation for more demand the next year. one can find that these three-peak years in unit total cost occurred all one year before the peak years in constructed volume. ROW cost accounts for an average of 7% of the total cost.

It also indicates that the share of material cost increased when pipeline diameter increased. The share of labour cost is between 34% and 48% in different regions. and the pipeline cost can be reduced by developing technology to produce pipeline materials (Zhao. Rui et al. The results agree with the conclusion that the shares of labour and material costs varied by countries (Zhao. The share of ROW cost of US pipelines ranged from 4% to 12% of total cost. such as improving pipeline production capacity. 2000). For example. 2000). Hence. the shares of cost components were different for different regions. In term of pipeline lengths. Miscellaneous cost was often a small part of the total cost. which agrees with Zhao’s (2000) finding. studies on share of cost components will provide useful information for pipeline companies to estimate pipeline cost and reduce the total cost by some actions. Therefore. the share of material cost rose from 28% for short pipelines to 35% for long pipelines. even higher than share of material cost.256 Z. while the share of ROW cost in Canada share was only 1% of total cost. 1 cost component for all diameters and lengths. It also support that the shares of cost components vary in different regions of US local regions or countries with no pipeline producing capacity may have high material cost. Table 3 All data Diameter Length Region The shares of pipeline cost components for different pipeline groups Average Material Labour Miscellaneous ROW 31% 40% 23% 7% 4–20 inches 19% 43% 28% 9% 22–30 inches 28% 38% 26% 8% 34–48 inches 34% 40% 20% 6% 0–60 miles 28% 41% 24% 7% 60–160 miles 31% 39% 23% 7% 160–713 miles 35% 39% 20% 7% Central 41% 38% 18% 4% Northeast 24% 43% 27% 6% Southeast 24% 34% 30% 12% Midwest 26% 37% 27% 11% Southwest 31% 41% 23% 5% Western 32% 48% 13% 8% Canada 39% 40% 19% 1% . which was constant at 7% regardless of the total pipeline length. but the labour cost maintained as the no. size. the share of material cost increased when pipeline diameter and length increased. Furthermore. The share of material cost and labour cost were approximately the same for Canadian pipelines. The lower share of ROW cost for Canada pipelines allows us to conclude that Canada has less ROW issues than the US does. with share of the other cost components decreasing except ROW. averaging 40% of total cost. the Northeast region had the highest labour cost compared to the other regions. The high share of labour cost was possibly caused by local high cost of living. while it was only 24% of the total cost in the Northeast and Southeast regions. about 40%. but the share of miscellaneous cost in the Southeast region reached to 30% of the total cost. The material cost in the Central region made up around 41% of the total cost.

The learning curve is normally exhibited in power function form and linear function form. Some of major reasons for learning-by-doing effect are: intensive use of skilled labour. a high degree of capital. It is possible that no further improvement in cost reduction occurs for existing and mature technology (Grubler. a 20% learning rate implies the cost is reduced to 80% of its previous level after a doubling of cumulative capacity. research and development intensity. The consistence in improvement is expressed as the percentage reduction in cost with doubled quantities of product. The learning curve is derived from historical observation to measure learning by doing. There are significant cost improvements during R&D phase followed by more modest improvement after commercialisation. The unit costs typically decline with cumulative production. accumulated learning has a start-up and a steady period. 2b and 1–2b are called progress ratio and learning rate respectively (Federal Aviation Administration. X = log X . C = log (T↓ 1) . It is the same for technology development. fast market growth and interaction between supply and demand (Wilkinson. The power function form is shown below (Federal Aviation Administration. 2005): Yx = T1 i X b where Yx is the average cost of the first X units. For example. Y = bX + C where Y = log Yx . The learning curve effect is a complicated process. 2007). 2005). In addition. Learning curve function is normally expressed in log-log paper as a string line. . 1998).1 Introduction to learning curve The productivity of technology and labour normally increases as workers engage in repetitive tasks. 2005). 1998). The longer technology has been in operation. Take the logarithms of the both sides to get a straight line equation. The commercialisation of technology in the oil and gas market is costly and time intensive with an average 16 years from concepts to widespread commercial adoption (National Petroleum Council. 2005. b is a constant reflecting the rate costs decrease from unit to unit. 2005). The constant percentage is called the learning rate. 2000). T1 is the theoretical cost of the first production unit. Straight lines are more easily for analysts to extend beyond the range of data (Federal Aviation Administration. and it is helpful for cost estimators and analysts. The learning curve theory is based on these assumptions: 1 the unit cost required to perform a task decreases as the task is repeated 2 the unit cost reduces at a decreasing rate 3 the rate of improvement has sufficient consistency to allow its use as a prediction tool (Federal Aviation Administration. International Energy Agency. X is the sequential number of the last unit in the quantity for which the average to be computed.Historical pipeline construction cost analysis 5 257 Learning curve (learning-by-doing) in pipeline construction 5. the smaller the cost decreases (Zhao. The cost reduction is significant in the start-up period and modest in the steady period (Grubler. 2000).

The miscellaneous and ROW costs as well as the total cost are not qualified for the learning curve analysis due to inclusion of non-recurring costs. the 1999 data is not used for learning curve analysis.258 Z. The range of progress ratio for technology is between 65% and 95%.19 X + 2. It indicates there was not cost reduction after 100 million ft3. Rui et al. 2004). 2005).09 or Y = −0. the unit cost did not show cost reduction even increases. the learning rate is calculated with data from 1992 to 2000. The learning curve of the material and labour cost of pipelines constructed from 1992 to 2008 is presented in Figure 14.01 R 2 = 0. because non-recurring costs will not experience the learning effect (Federal Aviation Administration.2 X −0.86 R 2 = 0. The learning curves of the material and labour costs from 1992 to 2000 are shown in Figure 15. Hence. it is assume that learning rates do not change over time.09 X + 2. However. In order to better fit the learning curve. The pipeline data provide the cost data from 1992 to 2008. and the learning curve equations are expressed below: Material cost equation : Y = 103.93 Labour cost equation : Y = 722. but the technology or labour learning are going to a more mature phase. After 100 million ft3. the learning curve analysis does not always strictly agree with this assumption (Schaeffer and de Moor. Figure 14 shows that there was an attractive cost reduction in unit cost before 100 million ft3. therefore. The learning curve analysis is.91 Figure 14 Learning curves of material and labour costs between 1992 and 2008 (see online version for the colours) . 5.2 Selecting pipeline cost data for calculating learning rate The cost data for learning curve analysis has to be recurring cost. However.19 or Y = −0. only conducted for material and labour costs. 1995). which was considered as a more mature period. and between 70% and 90% for energy technology (Christiansson. the 1999 data are considered an outlier due to extremely high cost.8 x −0. Zhao (2000) calculated the learning curve of the total cost without considering this requirement and her results may be less accurate. In the standard experience curve theory.

. the range of the learning rate of material cost was between 1.00%.20%. the results show that the learning rate varied widely in different regions. 6. learning rates of labour cost is between 13. the results also show that longer pipelines have a disadvantage on learning rate of material cost. That is. doubling the construction of pipeline volume. The Northeast region had the lowest learning rate of material and labour cost. However. lengths and locations are calculated and shown in Table 4. same as the finding of Zhao (2000).3 Learning rate for different pipeline groups The learning rates for different pipeline diameters.10% to 8.9.60% and 14. the learning rate of labour cost showed a significant difference about 6.40% and 14.1% respectively. But it can be noted that the cost reduction becomes smaller with increasing volume.4% and 6. respectively. In general. As expected. the labour cost and material cost will be reduced by 12. For all subgroups. A plausible explanation for this finding would be that a large amount of pipeline built in the Northeast region makes Northeast region reach a more mature stage earlier and faster than other regions.1%.00%. the above analysis reveal that learning rates varied by different pipeline diameters. the results indicate that longer pipelines can achieve a higher learning rate in labour cost. In terms of regions.70%.10% for zero to 20 miles pipeline and 4. and the range of the learning rate of labour cost was between 6.10% and 23. 5. For different diameters. which indicates a very good fit. but learning rates of material cost ranges from 4.60%.80% for 20 to 713 miles pipelines. For different pipeline lengths. pipeline lengths and the location of pipelines at different degree.4% and 6. the learning rate of material cost was lower than the learning rate of labour cost in all subgroups except in the Southeast region.Historical pipeline construction cost analysis 259 Figure 15 Learning curves of material and labour costs between 1992 and 2000 (see online version for colours) Both R2 (coefficient of determination) are higher than 0. In summary. Pipelines in the Southeast and Western region showed higher learning rate of material and labour costs than other regions. The learning rates of labour and material cost are 12.

70% 20–713 miles 4. and have various degrees of impact on the construction costs. It indicates that linear relationship between gas price and pipeline construction cost is very weak.00% Western 7.00% Factors causing pipeline construction cost difference Special geographic and surrounding environmental conditions may induce more complexities in pipeline construction. In order to discover relation between gas price or oil price and pipeline construction cost.. Table 4 All data Diameter Length Region 6 Learning rates of material and labour cost in different groups Average Material Labour 6. Roads.10% Southeast 14. In some cold regions.3. clay soils or soils littered with rock or construction debris will require more horse power and larger machines to lay pipes (Houx.20% 0–20 miles 6. There are also many other geographic and environmental factors influencing pipeline cost and cost reduction which need to be identified in specific circumstances.10% 12. there is no sufficient evidence that gas or oil price change causes pipeline construction cost change with available data. 1999). 2000). highways.60% 34–48 inches 8. . rivers or channel crossings and marshy or rocky terrains.60% 11. reciprocal.41 to 0. Heavy.40% 4–20 inches 7.80% Midwest 4.10% 13.40% Northeast 1. Therefore.80% 8. 2010). Someone may argue gas price or oil price possible influences pipeline construction cost. pipelines need to be insulated or built above ground when they pass the permafrost area resulting in additional construction cost. thicker pipeline wall has to be selected to mitigate societal and environmental risk concern (Sanderson et al. the performance of all trenching units is largely dependent on soil type and amount of debris encountered. all these factors.40% 6. However.40% 23. Some non-linear transformations (power. respectively. In populated regions. 2009).00% 14. Rui et al. Although some argued that population density has less impact on cost than type of pipelines (Zhao. For example.80% 15.40% 13. strongly affect pipeline unit cost (PennWell Corporation. the correlation between gas price or oil price and lag zero year to four-years average unit costs from 1992 to 2008 are analysed and shown in Table 5 and Table 6. square root) are also used to deal with oil/gas price and unit cost data.10% 8. 1992. these typical non-linear relationships between gas price or oil price and unit cost are also very low. The values of all correlation coefficients in Table 5 are between –0. The values of coefficients in Table 6 indicate the same conclusion for oil price and pipeline construction cost.260 Z. exponential.60% 22–30 inches 4.

05 0. onshore pipeline construction is in a more mature stage. offshore pipeline technology has made possible deep-water projects and contributed to lower unit cost.19 –0. These technologies may be progressively applied to onshore pipeline to create significant cost reduction. pipeline diameter reductions and expansions and variables types of pipeline bends. However. potential demand will cause increasing current unit cost of pipelines.23 0.15 –0.06 –0. The average learning rate of offshore pipeline between 1985 and 1998 was 24% (Zhao.28 From technology perspective. there are more factors that need to be investigated. 2000). such as. S-lay method and J-lay methods were used to install marine pipeline (Gandoolphe et al.28 –0.26 0.05 Lag 2 years 0. environment and technological factors.24 Lag 3 years 0. However.16 –0. inspection activities.33 0.11 –0.03 Lag 1 year 0.25 –0.49 0. Compared to other technologies. potential market demand also influence learning rate of pipelines. pipeline transportation has not seen a major technological breakthrough over the last few decades (Roland.34 0. 2007) has funded many new projects to develop advanced technologies.01 –0. . high strength and thick pipe used to reduce potential risk (Zhao. the cost reduction in pipeline transportation is smaller due to less complicated process.27 0. laying and welding methods.34 0. gradual cost reduction is possible by optimising project design and construction.. 2003).18 Lag 3 years 0. The cost reduction through improved technology for laying.20 Lag 1 year 0.10 –0. and has less learning effect (Zhao. such as robotic platforms. 1998).03 Lag 2 years 0. inspection and welding can be counterbalanced by other factors. the discussions in this section focus on a few identified factors affecting pipeline construction cost difference: development stage of technology. 2003).29 0. geographic and environmental condition as well as market situation.02 –0. the pipeline installing cost in Norwegian part of North Sea in 1998 was 44% lower than the corresponding cost for Statpipe in 1985 (Roland.Historical pipeline construction cost analysis Table 5 261 Correlation coefficient between gas price and average unit cost Material Labour Miscellaneous ROW Total Lag 0 year –0.03 –0.06 –0.51 –0.23 –0.14 –0. US Department of Energy (DOE. Besides geographic. Therefore.08 –0. such as LNG process. 2000). The history of onshore pipeline was 100 years earlier than the offshore pipeline in the USA.41 –0. In order to fully explain pipeline construction cost difference.12 –0.17 0.19 Table 6 Correlation coefficient between oil price and average unit cost Material Labour Miscellaneous ROW Total Lag 0 year 0. As mentioned in unit cost section.10 –0. 1998). Therefore. expected demand of pipelines will indirectly influence learning rate of pipelines. 2000).21 0.17 0. steel quality and weigh and the period of construction and increasing competition among inspection service companies (Gandoolphe et al. Due to limited information.24 0. For example..

and the range of cost of pipeline cost components was very large.grounds-mag. Gandoolphe. but about 40% of them were located in the Northeast region. available at http://www. McCoy. 1–5 June. MIT LFEE 2003-003 RP. R. Japan.html (accessed on 3 January 2007). 52. pipeline capacity and location of pipelines are analysed. E.C. available at http://www. Appert. (1995) ‘Diffusion and learning curves of renewable energy technologies’. A.. DOE (2007) ‘Transmission. pp.gov/pricing/index.go (accessed on 9 January 2010). O.219–229. Chemical Engineering (2009) Chemical Engineering’s Plant Cost Index. locations of pipelines (Table 4). Heddle.com/pci (accessed on 4 January 2010). Paris.S. site characteristics and market condition are identified as the factors influencing pipeline construction cost difference. Grounds Maintenance. and Klett. International Energy Agency (2000) Experience Curves for Energy Technology Policy. H.gov/library/publications/the-world-factbook (accessed on 9 January 2010).3% of pipelines were less than 20 miles. M. The distributions of cost of pipeline cost components were all right-skewed (Figure 7 to Figure 11).000 ft3. Grubler.htm (accessed on 9 January 2010). France. Federal Aviation Administration (2005) FAA Pricing Handbook. G.doe. The trend of annual constructed pipeline volume and annual average unit cost indicates that expecting of increased pipeline demand will causes increasing currently unit cost. the distribution of pipelines in term of year of completion. (2003) ‘The challenges of future cost reductions for new supply options (pipeline. available at https://www. 2. S.cia. Austria. Houx.gov/programs/oilgas/delivery/index.000. Shares of cost components are different for various pipeline diameters. (2008) ‘An engineering-economic model of pipeline transport of CO2 with application to carbon capture and storage’.fast. LNG. (1998) Technology and Global Change. Concluding summary Based on historical data collected from Oil and Gas Journal. pipeline diameters. GTL)’. available at http://www. 78. Among the data examined. available at http://www. J.faa. available at http://www. 2. Energy Information Administration (EIA) (2010) ‘Natural gas transportation maps’. and Rubin. Tokyo. No. Working paper.che. The pipelines were located across the USA. The material and labour cost are major component of pipeline construction (Table 3). Massachusetts Institute of Technology. Christiansson. and Dickel. Vol. Herzog.T. International Journal of Greenhouse Gas Control. pp. S. Laboratory for Energy and Environment.com/mag/grounds_maintenance_trench_warfare (accessed on 9 January 2010). Furthermore. Rui et al. pipeline lengths and locations of pipelines. development stage of pipeline technology. International Institute for Applied System Analysis.. (2010) ‘Trench warfare’.eia.9% of them had a diameter of 30 inches or larger and 58% of pipelines’ capacities was less than 30. .262 7 Z. pipeline lengths. Cambridge University Press. L. (2003) The Economics of CO2 Storage.doe.95–126. pipeline lengths. distribution and storage’. Paper Presented at the 22nd World Gas Conference. Results of learning curve analysis show that learning rate also varied by pipeline diameters.fe. References Central Intelligence Agency (2008) The World Factbook.

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