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

The first pipeline in the USA. Zhao (2000) analysed the diffusion. 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. 2008). Historical pipeline cost data have been analysed and used to estimate the construction costs for the different types of pipeline cost by various researchers. (2003) derived a multiple linear regression model to estimate the CO2 pipeline construction cost.. two-inch in diameter and over 8 km long.246 Z. The dataset also contains the cost information of 15 Canadian pipelines.620 km was for petroleum product and 548. (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. McCoy and Rubin (2008) developed multiple non-linear regression models to forecast CO2 pipeline cost.1 Data sources In this study. The pipelines were completed . 1992. 2003). received MS in Economics from the University of Lausanne and MBA from China Europe International Business School respectively. the pipelines are selected on the basis of data availability. The pipeline dataset includes year of completion. and costs of pipeline cost components. Pipeline cost data are collected from Federal Energy Regulatory Commission filing by gas transmission companies. among which 244. costs and learning curve in the development of international gas transmission lines. Heddle et al. Due to limited offshore pipeline data. 2002). US had a total of 793. corporate governance and real estate mutual funds. shares of pipeline cost components and learning-by-doing in pipeline construction. 1 Introduction Pipelining is an important and economical method to transport large quantities of oil and natural gas in the petroleum industry. 2009). Pipeline cost was compared to LNG and GTL cost as supply options (Gandoolphe et al. pipeline diameters. location of pipelines. Rui et al. His current research interests include: merger and acquisition. only onshore pipelines are collected. Zhang et al. Pipelines in the dataset were distributed in all states in the USA (Alaska and Hawaii are excluded).685 km was for natural gas (Central Intelligence Agency. which are published in the Oil and Gas Journal annual data book (PennWell Corporation. 2009). and the pipeline cost in this paper does not include compressor station cost.285 km of pipelines. was built in 1865 (Scheduble. Various studies on pipeline cost have been conducted by different researchers in different perspectives. A number of data processing and statistical descriptions are applied to the historical data. Parker (2004) used natural gas transmission pipeline costs to estimate hydrogen pipeline cost with the linear regression method. 2 Data sources and cost adjusting factors 2. By 2008. pipeline lengths. Causes of cost differences and learning rate differences are also investigated. 1992. The Oil and Gas Journal annually analysed estimated and actual pipeline cost and forecasts trends for the next year (PennWell Corporation.

right of way (ROW) and total cost. but it was 5. which is the weighted average of the 11 sub-indexes. The index increased slowly between 1990 and 2003. The changes in costs over time can be recorded by the index (Chemical Engineering. Unfortunately. The entire dataset has 412 observations of onshore pipelines. contingencies. telecommunications equipment. allowances for funds used during construction. except for the construction labour and engineering supervision index. accounted costs determined at the time of completion. The soaring index means pipeline construction costs experienced high cost escalation after 2003. The CEPCI has 11 sub-indexes and a composite CEPCI. Indexes between 1990 and 2008 are showed in Figure 1. pipeline coating and cathodic protection. engineering. Miscellaneous cost is a composite of the costs of surveying. taxes. 1992. freight. All pipeline construction component cost are reported in US dollar.Historical pipeline construction cost analysis 247 between 1992 and 2008. and regulatory filing fees. while the index increased sharply after 2003. 2009). the data did not show the construction period. miscellaneous. Material cost is the cost of line pipe. the pipe index annual growth rate was 1. miscellaneous cost and ROW cost (PennWell Corporation. administration and overheads.49% from 2003 to 2008. ROW cost contains the cost of ROW and allowance for damages. Two-stages between 1990 and 2008 can be seen in Figure 1. The total cost is the sum of material cost. . Labour cost consists of the cost of pipeline construction labour.40% from 1990 to 2003.2 Cost adjusting factors All costs are adjusted with the CEPCI – a widely used index for adjusting process plants’ construction cost to 2008 dollars. cost is defined as real. 2009). For example. The five pipeline cost components are: material. supervision. Figure 1 Chemical engineering plant cost indexes between 1990 and 2008 (see online version for colours) 2. labour. Therefore. labour cost. An indication of this is construction cost frequently overran budget during that period.

The structure support index has the highest average annual growth rate of 4. 14-inch. Rui et al. CE index is applied to pipeline miscellaneous and ROW costs.54%. 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 2.8% of the total) pipelines with diameters between 4 inches and 10 inches.1 The distribution analysis of pipelines on year of completion. there are only 24 (5.02% which is higher than the CE index average annual growth rate of 2.29% Process machinery 3. These three types of diameter pipelines add up to 228 (55. Figure 4 displays the histogram of pipelines grouped in pipeline lengths.3% of total).09% 3 Data descriptive statistics In order to better understand pipeline cost. pipeline diameters and pipeline lengths The histogram of pipelines in different years is shown in Figure 2. The pipeline length ranges from .02% Process instruments 1. Pipe index and construction labour index is used to adjust pipeline material and labour cost. the cost data of pipelines are analysed and summarised in terms of pipeline diameters. 18-inch and 34-inch diameter pipelines.94% Electrical equipment 2. while 218 (52. 3. The index is a useful tool to adjust pipeline cost data. and only 6 (1.31% Engineering supervision –0. There are 103 (25% of the total) 36-inch diameter pipelines. pipeline length. To make cost data comparable to each other at the same base.30% Pipe 3.5% of the total) were reported in 1998.04% Buildings 2.10% Construction labour 0.9% of the total) pipelines with diameter between 30-inch and 48-inch.90% Equipment 3. Pipe index average annual growth rate is 3. 56 (13. 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.3% of the total) 30-inch diameter pipelines and 62 (15. Eighteen different diameter pipelines were reported. Figure 3 shows the histogram of pipelines in different diameters.01% Structural supports 4. The annual average growth rate between 1990 and 2008 is shown in Table 1.248 Z. pipeline capacity. different pipeline cost components are adjusted by different indexes to 2008 dollars.04%. year of completion and location.54% Heat exchange and tanks 3.6% of the total) constructed pipelines were reported in 2002. The pipeline’s diameters range from four inches to 48 inches. The distribution of pipeline length is right-skewed.07% Pump and compressor 2. and value of all diameters is even number. Further. Engineering supervision index is almost constant with the lowest average annual growth rate of –0. However. there are only two each of 10-inch. 63 (15.09%.1% of the total) 24-inch diameter pipelines.

6% of the total) pipelines in the 0 to 10 mile group. There are 258 (62. It indicates that majority of the reported pipelines are short pipelines.3% of the total) of pipelines are longer than 60 miles. and 65 pipelines in the 10 to 20 mile group.Historical pipeline construction cost analysis 249 0.01 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) . but only 30 (7.

2000) V = S∗L 2 ⎛D⎞ where S = π ⎜ ⎟ . Figure 5 Histogram of pipeline capacity (see online version for colours) The histogram of pipeline capacity is shown in Figure 5. The distribution of pipeline capacity is right-skewed. L is the pipeline length (ft).270 ft3 to .2 The distribution of pipelines regarding pipeline capacity (pipeline volume) Pipeline capacity is calculated with the following formula (Zhao.511. Figure 4 Histogram of pipelines grouped in lengths (see online version for colours) 3.250 Z. The pipeline capacity ranges from 13. V is the pipeline capacity (ft3).840. Average pipeline capacity is 86. D is the pipeline diameter (ft).088 ft3. S is the pipeline cross-sectional area ⎝2⎠ 2 (ft ).969 ft3 with standard deviation (SD) of 15. Rui et al.

2008). Energy Information Administration (EIA) breaks down the USA natural gas pipelines network into six regions: Northeast. 2010). Based on the regional definition.64% of pipelines’ capacity is larger than 400. The number of pipelines in other regions is between 48 and 55.5 Southwest 30 Louisiana 9. excepting Alaska and Hawaii.000. Central and Western.5 Canada 15 Note: *State has the highest number of pipelines in its region. Midwest.5 Western 48 Washington 11. Figure 6 US natural gas pipeline network region map (see online version for colours) Note: Alaska and Hawaii are not included.29% of pipelines’ capacity is less than 30.215. . Furthermore. These regional definitions are used to analyse geographic difference.3 The distribution analysis of pipeline locations The location information for US pipelines is provided in a state format. A total of 48 states were referred to. 46% of these Northeast region pipelines are located in the State of Pennsylvania.000 ft3. The state grouping is defined based on ten federal regions of the USA Bureau of Labor Statistics (EIA.Historical pipeline construction cost analysis 251 5. 157 (40% of US pipelines) pipelines are located in the Northeast region. 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. and only 3. Thirty (7.000 ft3. but the data did not show a specific province in Canada.727 ft3. The map of regional definitions is shown in Figure 6.5 Southeast 55 Alabama 20. 58.5% of US pipeline) pipelines are located in the Southwest region.691. In this paper. US pipeline data are summarised according to these six-regions (McCoy and Rubin. In addition. Source: EIA (2010) 3. Southeast. Southwest. region distribution of pipelines are summarised and shown in Table 2.000. there are 15 Canadian pipelines.5 Midwest 55 Ohio 18.

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

773.393 ft3 to 48.917. the constructed pipeline volume changed slightly. This section investigates the trend of annual pipeline capacity. however. 2003 and 2008.393 ft3 from 2003 to 2006. After that. The annual constructed pipeline volume exhibited a cyclic characteristic. There are three major peak years in term of pipeline volume constructed: 2000. Then there was a dramatic fall to 7.917. .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) 3.262. The year 1998 has the lowest volume of pipeline constructed.700. 2006 to 2008 saw the biggest increase. with a general trend of growing. the volume increased sharply from 1.168 ft3 to 31.884 ft3. The annual pipeline volume constructed is shown in Figure 12.5 The trend of pipeline capacity over time The size of pipeline capacity was analysed in the above section. Before 1998. from 7.396 ft3 between 1998 and 2003.

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

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

but the labour cost maintained as the no. while the share of ROW cost in Canada share was only 1% of total cost. about 40%. The lower share of ROW cost for Canada pipelines allows us to conclude that Canada has less ROW issues than the US does. the share of material cost increased when pipeline diameter and length increased. The share of ROW cost of US pipelines ranged from 4% to 12% of total cost. the shares of cost components were different for different regions. The share of labour cost is between 34% and 48% in different regions. averaging 40% of total cost. The results agree with the conclusion that the shares of labour and material costs varied by countries (Zhao. In term of pipeline lengths. Furthermore. It also indicates that the share of material cost increased when pipeline diameter increased. 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. Miscellaneous cost was often a small part of the total cost. and the pipeline cost can be reduced by developing technology to produce pipeline materials (Zhao. size.256 Z. Therefore. 2000). 1 cost component for all diameters and lengths. which was constant at 7% regardless of the total pipeline length. 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. The material cost in the Central region made up around 41% of the total cost. Rui et al. the Northeast region had the highest labour cost compared to the other regions. the share of material cost rose from 28% for short pipelines to 35% for long pipelines. which agrees with Zhao’s (2000) finding. 2000). 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% . The high share of labour cost was possibly caused by local high cost of living. with share of the other cost components decreasing except ROW. Hence. while it was only 24% of the total cost in the Northeast and Southeast regions. but the share of miscellaneous cost in the Southeast region reached to 30% of the total cost. even higher than share of material cost. For example. The share of material cost and labour cost were approximately the same for Canadian pipelines. such as improving pipeline production capacity.

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

91 Figure 14 Learning curves of material and labour costs between 1992 and 2008 (see online version for the colours) . The learning curve analysis is. It indicates there was not cost reduction after 100 million ft3. 2005).2 X −0. However. the unit cost did not show cost reduction even increases.93 Labour cost equation : Y = 722. In order to better fit the learning curve.258 Z.19 or Y = −0.01 R 2 = 0. therefore. but the technology or labour learning are going to a more mature phase. and between 70% and 90% for energy technology (Christiansson. 1995). the 1999 data are considered an outlier due to extremely high cost.09 X + 2. 5. The range of progress ratio for technology is between 65% and 95%.8 x −0.2 Selecting pipeline cost data for calculating learning rate The cost data for learning curve analysis has to be recurring cost. the 1999 data is not used for learning curve analysis. only conducted for material and labour costs.19 X + 2. the learning curve analysis does not always strictly agree with this assumption (Schaeffer and de Moor. and the learning curve equations are expressed below: Material cost equation : Y = 103. Figure 14 shows that there was an attractive cost reduction in unit cost before 100 million ft3. Hence. because non-recurring costs will not experience the learning effect (Federal Aviation Administration. 2004). The learning curves of the material and labour costs from 1992 to 2000 are shown in Figure 15. it is assume that learning rates do not change over time. which was considered as a more mature period. Zhao (2000) calculated the learning curve of the total cost without considering this requirement and her results may be less accurate. After 100 million ft3. The pipeline data provide the cost data from 1992 to 2008. The learning curve of the material and labour cost of pipelines constructed from 1992 to 2008 is presented in Figure 14. the learning rate is calculated with data from 1992 to 2000. Rui et al.86 R 2 = 0. However.09 or Y = −0. In the standard experience curve theory. 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.

but learning rates of material cost ranges from 4.1%. The Northeast region had the lowest learning rate of material and labour cost.70%. However. the learning rate of material cost was lower than the learning rate of labour cost in all subgroups except in the Southeast region. In summary. respectively.80% for 20 to 713 miles pipelines.1% respectively. In general.60% and 14.40% and 14.20%. In terms of regions. 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.9. Pipelines in the Southeast and Western region showed higher learning rate of material and labour costs than other regions. For different diameters. the learning rate of labour cost showed a significant difference about 6. the labour cost and material cost will be reduced by 12. lengths and locations are calculated and shown in Table 4.4% and 6. which indicates a very good fit.4% and 6. the results also show that longer pipelines have a disadvantage on learning rate of material cost.00%. same as the finding of Zhao (2000). the results show that the learning rate varied widely in different regions. learning rates of labour cost is between 13. That is. For different pipeline lengths.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. The learning rates of labour and material cost are 12. 6. As expected.10% to 8.00%. . pipeline lengths and the location of pipelines at different degree. the above analysis reveal that learning rates varied by different pipeline diameters.10% and 23. doubling the construction of pipeline volume. But it can be noted that the cost reduction becomes smaller with increasing volume. and the range of the learning rate of labour cost was between 6.60%. the results indicate that longer pipelines can achieve a higher learning rate in labour cost.10% for zero to 20 miles pipeline and 4.3 Learning rate for different pipeline groups The learning rates for different pipeline diameters. the range of the learning rate of material cost was between 1. 5. For all subgroups.

3. The values of coefficients in Table 6 indicate the same conclusion for oil price and pipeline construction cost. There are also many other geographic and environmental factors influencing pipeline cost and cost reduction which need to be identified in specific circumstances. clay soils or soils littered with rock or construction debris will require more horse power and larger machines to lay pipes (Houx. In order to discover relation between gas price or oil price and pipeline construction cost. thicker pipeline wall has to be selected to mitigate societal and environmental risk concern (Sanderson et al.. For example.60% 11. highways.00% Factors causing pipeline construction cost difference Special geographic and surrounding environmental conditions may induce more complexities in pipeline construction. The values of all correlation coefficients in Table 5 are between –0.40% 13. 1992.00% Western 7. rivers or channel crossings and marshy or rocky terrains.70% 20–713 miles 4. square root) are also used to deal with oil/gas price and unit cost data. Therefore. pipelines need to be insulated or built above ground when they pass the permafrost area resulting in additional construction cost.40% 6. reciprocal.60% 22–30 inches 4. these typical non-linear relationships between gas price or oil price and unit cost are also very low. . However. Someone may argue gas price or oil price possible influences pipeline construction cost. exponential. all these factors. In some cold regions.10% Southeast 14. 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. 2009). there is no sufficient evidence that gas or oil price change causes pipeline construction cost change with available data.40% Northeast 1. strongly affect pipeline unit cost (PennWell Corporation. In populated regions.260 Z.80% Midwest 4.20% 0–20 miles 6. It indicates that linear relationship between gas price and pipeline construction cost is very weak. 1999). Heavy.10% 8.10% 12. Rui et al.10% 13.00% 14.60% 34–48 inches 8.80% 15.40% 4–20 inches 7. 2000). and have various degrees of impact on the construction costs.40% 23. 2010). Table 4 All data Diameter Length Region 6 Learning rates of material and labour cost in different groups Average Material Labour 6. Although some argued that population density has less impact on cost than type of pipelines (Zhao.80% 8. the performance of all trenching units is largely dependent on soil type and amount of debris encountered. Roads. respectively.41 to 0. Some non-linear transformations (power.

The average learning rate of offshore pipeline between 1985 and 1998 was 24% (Zhao.21 0. 2000). 1998).15 –0. . Therefore. For example.34 0. offshore pipeline technology has made possible deep-water projects and contributed to lower unit cost.24 Lag 3 years 0..01 –0.06 –0. such as. inspection and welding can be counterbalanced by other factors.17 0. the cost reduction in pipeline transportation is smaller due to less complicated process. As mentioned in unit cost section. In order to fully explain pipeline construction cost difference.17 0.51 –0. the discussions in this section focus on a few identified factors affecting pipeline construction cost difference: development stage of technology. and has less learning effect (Zhao. laying and welding methods. potential market demand also influence learning rate of pipelines.05 Lag 2 years 0. Therefore. such as robotic platforms.34 0. pipeline diameter reductions and expansions and variables types of pipeline bends. Besides geographic.03 Lag 2 years 0. 2003).05 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. expected demand of pipelines will indirectly influence learning rate of pipelines.25 –0. 2000). The history of onshore pipeline was 100 years earlier than the offshore pipeline in the USA. However. The cost reduction through improved technology for laying. Compared to other technologies.14 –0.49 0. S-lay method and J-lay methods were used to install marine pipeline (Gandoolphe et al.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 –0.10 –0.20 Lag 1 year 0. gradual cost reduction is possible by optimising project design and construction.16 –0. inspection activities. onshore pipeline construction is in a more mature stage.03 Lag 1 year 0.03 –0. high strength and thick pipe used to reduce potential risk (Zhao. 2003).41 –0. These technologies may be progressively applied to onshore pipeline to create significant cost reduction. US Department of Energy (DOE.28 –0.02 –0.33 0.26 0.23 –0.08 –0..19 –0. such as LNG process. geographic and environmental condition as well as market situation. environment and technological factors. there are more factors that need to be investigated. 2007) has funded many new projects to develop advanced technologies.06 –0.11 –0. 1998).23 0. pipeline transportation has not seen a major technological breakthrough over the last few decades (Roland.27 0.24 0. potential demand will cause increasing current unit cost of pipelines.10 –0. steel quality and weigh and the period of construction and increasing competition among inspection service companies (Gandoolphe et al. Due to limited information. However.29 0.12 –0.18 Lag 3 years 0. 2000).19 Table 6 Correlation coefficient between oil price and average unit cost Material Labour Miscellaneous ROW Total Lag 0 year 0.28 From technology perspective.

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

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