The Alliance Pipeline story
managing a multibillion-dollar project on a fast track
This paper will address the issues encountered during building of a multibillion-dollar project with minimal staff and a fast track schedule.
The challenges faced by this fledgling company would tax the resources of even the most experienced pipeline companies in North America, yet in the four years from the birth of the company, they have managed to formulate plans, obtain financing and spend much of the C $5 billion required for the project.
That this is no ordinary project needs to be understood to appreciate the accomplishments of the project staff. Therefore, a rather lengthy background is in order.
Story has it that back in 1992, a couple of fellows sat down for a beer in a local watering hole, debating the next steps in supplying gas to a growing U.S. market. With a glut of gas in the Western Canadian Sedimentary Basin and a lack of pipeline capacity, there was plenty to discuss.
Apparently Glen Perry used the back of a paper place mat to sketch what would today become one of the largest pipeline projects in North America and one of the largest construction projects being built on this continent. The concept also was to use nontraditional pipeline technology, with higher pressure and a rich gas stream to improve cost-effectiveness of the system.
From here it was a hard sell, mainly because of the magnitude of the undertaking. The idea was virtually dead, until 1994, when the industry was again facing an overabundance of supply. Glen then approached John Lagadin, who was President of Direct Energy Marketing Limited. John was interested and sent him off with an old colleague, Jack Crawford, to take a closer look at the idea.
Using the best available technology, the proposed pipeline would answer two immediate producer concerns. The pipeline would provide an alternate transportation system to those existing in 1995, and it would allow western Canadian gas producers to more fully realize value for their natural gas and associated gas products (ethane and other natural gas liquids). By the end of 1995, Perry and Crawford had signed up 22 producer companies to fund the Northern Area Transportation Study (NATS), and went public with the idea.
Research showed there was need, and there was supply. The study also examined a route through which the product could move. By early 1996, Alliance Pipeline had been formed and held its Open Season later that year to determine if there was serious interest in shipping gas on the new system. The response was better than expected. Before Christmas, virtually all the capacity of the pipeline had been subscribed for 15 years.
With these long-term commitments under its belt, Alliance set out to get the regulatory and environmental approvals necessary to build the pipeline, and oh yes, raise the $5 billion needed to fund the project.
Some interesting statistics on the proposed pipeline are:
• Length of mainline: 3000 kilometers (1800 miles)
• Diameter of pipe: 36” with some 42” on the northern end
• Maximum Operating Pressure: 1740 psi
• Mainline Compression: 14 stations, with 16 compressor units producing nearly 600,000 hp
• Lateral System Length: 700 kilometers (435 miles)
• Lateral diameter: ranging from 4” to 24”
• Receipt points: 37
• Lateral Compression: seven stations with eight compressor units producing almost 30, 000 hp
• Landowners: almost 6,000.
The pipeline passes through two countries, traversing three provinces and four states. It crosses the property of almost 6,000 of landowners in many jurisdictions such as: counties, towns and villages and traditional aboriginal territories.
Alliance completed comprehensive environmental assessments of the entire pipeline route. This included consideration of soil, water bodies, wildlife and other environmental aspects. Some of the most interesting critters we encountered included: the Indiana bat (which live in Illinois), zebra mussels (which don't have stripes and don't live in Africa), prairie orchids, loggerhead shrikes, (which take great delight in nesting on the proposed right-of-way), and the piping plover (which nests on roads in North Dakota). Believe it or not, we even found a woolly mammoth (dead) in an excavation near one of our compressor stations.
On a more serious note, we employed high standards of environmental mitigation to protect agricultural land, wetlands, river crossings, and native prairie remnants. There were 14 river crossings completed by horizontal directional drilling in the United States and 21 drilled in Canada.
It has been stated that while this project is not complex (it is just a single pipeline with a number of compressor stations and a processing plant at the end), it is BIG. With a mainline length of almost 3,000 kilometers (1,800 miles) and 700 kilometers (435 miles) of lateral pipeline connecting some 37 receipt points, AND being built in just 15 months, there were likely to be some logistical challenges.
The first step was to hire the design engineers, environmental consultants and the land acquisition contractors. The decision had been made by the board of directors to not set up a design organization, with the associated infrastructure, as other pipeline companies had. Rather, this project retained a lean group of professionals to hire contractors and consultants to build the system and hired staff for an operating organization that would run the facilities.
From the very beginning, staffing has been a sensitive issue, as the aim was to keep the staff count low and refrain from building an engineering/construction organization. Many of the people hired for the design/construction phases of the project were selected because of their ability to continue on in the operations phase as well.
Peak staffing in the design/construction phases was approximately 210 and the final operations staffing will be fewer than 250 including staff on both sides of the border, in head offices and in the field maintenance offices. These are very tight parameters for a company building a $5 billion system.
Initially (in 1996), managers were hired for Above Ground Facilities and Pipelines. These people went about selecting design firms for their areas. For the Mainline pipeline, two firms were chosen; one in Canada, Singleton Associated Engineering Limited of Calgary, and one for the U.S. portion, Universal Ensco Inc., of Houston. Both these firms had significant experience in pipeline design and construction and were known to the Alliance people, creating a team relationship from the beginning. The engineering firms set out to select the right-of-way and begin the design process, providing information to Alliance to get the environmental and land programs started. At this point, with preliminary engineering taking place on both sides of the border, our engineering department was still only two persons strong.
One of the most important things Alliance did early in the process was notify people along the potential route of the plans being made. Over the course of the project, this initial series of information sessions, initially in the form of 32 open houses, from Fort St. John, B.C. to Channahon, Illinois, and the continual updates provided to these people on the progress of the pipeline, has paid dividends. There have been many cases where landowners have praised the Alliance effort, saying things like “They told us what they were going to do, they did it, then they came back and checked with us to ensure we were happy with what they did. These people are good neighbors.”
Selection of the routing, and the filing of the application with the Federal Energy Regulatory Commission (FERC) was made December 24, 1996 and started the formal environmental assessment process in the United States. This is a lengthy and thorough process, which culminates in the publication of an Environmental Impact Statement by the FERC to satisfy the National Environmental Protection Act. The CPCN (a Certificate of Public Convenience and Necessity) from the FERC was received in September of 1998.
In Canada, the application to the National Energy Board (NEB) was submitted in early July 1997. A public hearing was convened in Calgary and traveled to several potentially affected communities to determine if there was a need for the pipeline. The major pipelines in Canada intervened most vigorously, as this upstart was threatening their tightly held positions in the transportation of natural gas in Canada. Other debate surrounding the project involved the concept of shipping rich gas and extracting the natural gas liquids (NGL) at the downstream end. After one of the longest hearings ever held by the NEB, the final result was the major pipeline companies withdrew their objections, citing the value of competition, and the producer companies withdrew their objection to the merger of the two largest pipeline companies in Canada. The NEB issued the CPCN for Canada in December 1998, several months later than originally expected under the project plan.
Of course, Alliance had not been sitting idle while all this regulatory process was going on. The original schedule had called for pipeline construction to begin in July 1998 and for completion in the late fall 1999. However, the lengthy regulatory hearing in Canada caused a delay of almost one year.
Recognizing the magnitude of the pipe manufacturing effort, tenders were called in early 1997, and contracts actually awarded in mid-1997 for supply of the pipe, which would be needed in mid-1998, as originally scheduled. The effect of this action was to tie up nearly 60% of the pipe manufacturing capability in North America; in some cases, for as much as 20 months.
The orders were split between two major mills in the U.S. (NAPA Steel in Napa, California and Berg Steel in Panama City, Florida) both of which received the largest orders ever in their history, and two mills in Canada (Welland in Ontario, which supplied 42” pipe for the northern portion, and IPSCO Pipe of Regina, Saskatchewan) which made all the 36” mainline for Canada. The awarding of these contracts (see Exhibit 1), actually disrupted the plans of the two major pipeline companies in Canada and caused some adjustments to be made in the U.S. as well.
The other major action, on the part of Alliance, was to secure the services of the pipeline construction contractors. In Canada, there were only four companies with equipment to handle large-diameter pipe construction. By yearend (1997), three of the four were under contract, effectively tying up 75% of Canadian pipeline construction capacity for the next two years.
In the U.S. there were more than a dozen companies which could do the work, and by the end of 1997, seven of those contractors had agreed to work for Alliance, again tying up a significant portion of the pipeline construction capability of the country (see Exhibit 2).
The delay in getting the approvals, did in fact, mean that a few of these contracts would have to be adjusted, but the contractors and the pipe mills were committed to the project and made adjustments to their schedules. In at least one case, a pipe production adjustment was made, allowing a competitor to have pipe made ahead of the originally contracted commitment to Alliance. This adjustment saved money for Alliance, in not spending money early, and permitted the competitor to continue with its construction program.
Also in parallel with these activities, the selection of design organizations for the mainline compressor stations was taking place. These stations would house nearly 600,000 horsepower of compression capacity. The pipeline (and compressor stations) cross the border, so Alliance decided to employ firms on both sides of the border, and in this case, have them work together on a common design, which would basically be duplicated a dozen times for 12 of the 14 stations. Colt Engineering from Calgary was the Canadian company chosen along with Universal Ensco Inc. in Houston for the U.S. portion. Universal has a staff skilled in compression as well, which Singleton Associated Engineering did not.
The principle environmental consultant selected for the United States portion of the project was NRG, Natural Resource Group from Minneapolis. In Canada the lead environmental consultant was Tera Environmental Consultants from Calgary.
Probably the most critical part of the whole process, after the regulatory approvals, was obtaining the right-of-way easements. Initial surveys indicated that there were close to 6,000 landowners along the proposed routing. This would involve a small army of land agents to approach each of the owners, explain the proposed offer and work out a negotiated settlement for the easement to allow the pipeline to go ahead.
By the end of 1998, six months ahead of construction, the land department (staff of three), supported by two contracted firms, Progress Land, of Edmonton, and Ellis and Associates out of Las Vegas, had obtained approximately 80% of the needed land on both sides of the border. Now with the right of eminent domain, the balance of the land needed could be acquired in time for pipeline construction.
Through all this, the planning department was still only one person, charged with overseeing the production of construction schedules and preparing for the massive construction effort. It may not be fair to say only one person was involved with planning and scheduling, because as you can appreciate, each of the contractors had their own scheduling people. The role of the Alliance Scheduling Manager was to coordinate the efforts of the contractors, allowing them to maintain the detailed schedules. It was not until the end of 1998 that planning staff doubled to its ultimate total of two persons.
Beginning in May of 1999, construction of the mainline pipeline roared to life. The wet spring in both Canada and the U.S. played havoc with a number of the contractors, but by June, there were nearly 7,000 persons working directly on the construction of the pipeline. Including the 10 mainline spreads, 37 receipt points, the gas plant and mainline area offices, there were more than 50 work locations. Progress of the project was recorded in a War Room, using the daily and weekly reports from the construction site. Originally a conference room, the War Room sported detailed plans of all the pipeline spreads and schedules from the various facilities under construction.
Alliance staff still numbered just over 200. During 1999, the company spent $3.2 billion, and in several months, wrote checks in excess of $400 million. These numbers are staggering for even major companies, considering it was primarily on capital accounts, not operations.
By the end of 1999, the contractors were back on schedule and in fact, in the U.S. were ahead of where they had planned to be on at least one of the spreads. The winter program, mainly on soft ground (muskeg) at the northern end of the line, was welded out by mid-February 2000. The lateral program is well in hand, with all winter welding done and more than half the laterals completed. Construction of the natural gas liquids extraction and fractionation processing plant near Chicago is also on schedule as this paper is being prepared.
By mid-March, 2000, Alliance had actually commissioned (or tested) almost 500 kilometers (310 miles) of the mainline. The plan from here on in is to begin the summer 2000 construction program as early as the middle of April, depending on weather, and have all of the mainline completed, ready for commissioning at the end of July. The lateral facilities and pipelines will be completed in August, while the gas processing plant near Chicago will be completed and in the commissioning phase by the end of July. Full operation, moving 1.325 billion cubic feet of natural gas per day, is planned for October 2000.
The key to the success thus far has been the engaging of highly skilled personnel for key roles within the organization. These people have been given the authority to do the job that was needed, without layers of management, each requiring approvals. It is hard to have very many layers when you only have 200 people.
It was pointed out that the good news was, there were no voluminous policies and procedures to hinder the decision-making and flow of paperwork required for approvals. The bad news was there were no policies and procedures to provide guidance to the staff. When a policy was noted as being required, it was developed using the knowledge of key staff, noting the desire not to impede the work with unnecessary approvals or paperwork. In the area of the operating company, it was necessary to develop basic policies ahead of time, again relying on the knowledge and experience of the staff.
It would be the norm for a manager to meet with his or her VP and explain that a certain decision needed to be taken, outline the options and to be told to select the most appropriate one and get on with the job. Each of the people hired at Alliance is very knowledgeable in their field and is there because they wanted the freedom to do the job that needed to be done, unhindered by bureaucracy. It is a model that has worked very well.
The main points we need to understand are actually very basic to project management:
• The scope of the project had been very well defined, including a comprehensive study of the business opportunities, the routing and regulatory requirements.
• Management took extra care to select very experienced and knowledgeable staff that had a vision of the project. Each new hire knew from the beginning that there was a chance the project would not go ahead, and was thereby challenged to make certain it did. There is always a certain motivation in taking on a project of this magnitude, which is seen by many to be almost an impossible dream.
• The staff was given responsibility and authority to do the job that needed to be done.
• Responsible fiscal policy was at all times foremost in the minds of the managers. That is not to say there were not any changes along the way, there were. Each proposed change was considered in a timely manner, taking into account the payback, impact on the overall project and most importantly, the consequences on the overall project of not making the change. The owners were very supportive of decisions recommended by management when it came time to make adjustments.
• Team building within the organization was recognized as a valuable activity from the very beginning. The usual things like a newsletter, golf tournaments and the like were supplemented by a Friday Forum, where the entire company gathered on a regular basis, at lunch, to hear one department tell of what was going on in their area. The company supplied the lunch; a very small price to pay for the enthusiasm generated by knowledgeable employees. In addition, a series of quarterly offsite project reviews and even a two-day retreat, to refocus direction, paid dividends. A Short Term Incentive Plan for employees, based on achievements, also did not hurt when it came to motivating staff.
While the project is not complete, at this point (early April 2000), it is on, or ahead of, schedule and within the overall budget and project funding as well as on target for full operations.
As a follow-up, we need to complete the application for PMI‘s “Project of the Year.”
Proceedings of the Project Management Institute Annual Seminars & Symposium
September 7–16, 2000 • Houston, Texas, USA