Project Management Institute

In the pipeline

GREG LAMBERSON President, International Construction Consulting, Tulsa, Okla., USA

GREG LAMBERSON President, International Construction Consulting, Tulsa, Okla., USA

“THE KEY IS TO GET YOUR PEOPLE, EQUIPMENT AND RESOURCES IN PLACE WHEN AND WHERE YOU NEED THEM SO THAT EVERYTHING ELSE CAN FALL INTO PLACE.”

THE MOST INTENSE PRESSURES SOMETIMES COME FROM OUTSIDE THE CORE GROUP OF KEY PROJECT PLAYERS.

BY KEN SILVERSTEIN · PORTRAIT BY BARRY CHAMPAGNE

When it comes to projects that involve worldwide resources and stakeholders, project managers know the drill: Plan early, rally support and appease critics. Without a proactive strategy, ventures could languish and excessive costs could accrue.

This is especially the case in pipeline projects. Stakeholders must be wooed before the engineering and logistics of pipelines can be considered. If authorized, the project is studied and designed before managers are in a position to recruit well-trained workers, synchronize management philosophies and work to ensure the timely arrival of material, parts and equipment.

Consider the 663-mile pipeline from Chad to Cameroon in West Africa. The necessary US$3.7 billion in financing was secured in 2001, and the pipeline is expected to become operational in 2003. It was a combative process, drawing fire from environmentalists and human rights activists alike. In the end, key partners like Shell and Elf Aquitaine dropped out. But proponents that include not only oil companies but also African governments and the World Bank were able to overcome the opposition's claims that the project would spawn corruption and poison the landscape.

Altogether, World Bank, which is helping to finance the project, estimates that annual government revenues to Chad alone would increase by 50 percent in four years or about US$8.5 billion over the project's 25-year life cycle. Similarly, Cameroon should reap a gain of at least US$900 million during that time. While about 150 families have been displaced and farmers have lost access to some of their land, the builders—ExxonMobil, Chevron and Petronas of Malaysia—are compensating them for their losses.

The project involved three large contracts: field facilities to drill the oil, the pipeline to transport it and an intermediate pump station to build the pressure to move it off-shore. “Rarely is it smooth sailing,” says Greg Lamberson, president of International Construction Consulting based in Tulsa, Okla., USA, and a project and construction management consultant for ExxonMobil. Lamberson was approached by the joint venture construction team to put together an execution plan and to oversee the three major components.

Once the permitting, financing and engineering are in order, “the key is to get your people, equipment and resources in place when and where you need them so that everything else can fall into place,” he says. “You may find obstacles in [the client's] lack of understanding or commitment to the project or even a nonexistent infrastructure. That's why you need contingencies. Ultimately, you make sure you do whatever is required to get it there when you need it.”

Contentious Opposition

Last-minute environmental opposition also is holding up a project in Ecuador that was once thought to be a done deal. An international consortium led by Occidental Petroleum is investing more than US$1 billion to build a pipeline that would serve the 12.5 million people there.

Part of the pipeline must pass through a delicate rain forest to avoid major population centers—something that Occidental showed authorities in its environmental impact statement. Still, about 2,500 residents say rare species would be threatened and are demanding that the energy company be stopped.

However, proponents such as Gene Ackerman, a project manager in Galveston, Texas, USA, argue that benefits outweigh environmental risks, stressing that the pipeline would create 55,000 new jobs, reduce unemployment by 1.5 percent and raise $350 million in new tax revenues.

“Some will try and preserve the Ecuadorians in their native state at the expense of modern conveniences,” says Ackerman, who will conduct seismic testing in the area.

The European Union, conversely, is opening up its gas markets in a move to facilitate competition and to adequately supply key markets in Ecuador. The obstacles to success are less about environmental hazards and more about protectionism.

Gas use in Europe has risen 50 percent in the last five years, necessitating new construction. Through a combination of government regulation, legal proceedings and private initiatives, project managers are destined to see increasing activity there. Already, Russia's Gaprom is expanding its 4,000-mile Yamal-Europe pipeline that will extend from Poland into eastern Germany where it will connect with the western European gas grid. Likewise, new pipeline projects are planned that would link the Caspian Sea, the Middle East and Africa with continental Europe.

MARKET NEED

Estimates for natural gas, crude oil and refined products pipelines that are underway or planned for construction outside North America total nearly 79,000 miles, or 127,000 kilometers, according to Pipeline & Gas Industry. Current construction mileage is about 9,500 miles, or 15,200 kilometers. In the United States alone, about 25,000 miles of natural gas pipelines will be constructed by 2010 and another 13,000 miles by 2015, according to Industrial Research Information.

TERRY FITCH Manager of Gas Control, Williams Pipeline

TERRY FITCH Manager of Gas Control, Williams Pipeline

“WE ARE THROWING PIPE IN THE GROUND AS FAST AS WE CAN GET IT APPROVED.”

Clearly, an increased demand for natural gas by power plants support the construction of new pipelines. The paradox is that officials won't authorize projects without firm contracts while energy companies won't sign on until deals are permitted. The dilemma is perpetuated because of regulatory and environmental challenges as well as incumbent intransigence.

“We are throwing pipe in the ground as fast as we can get it approved,” says Terry Fitch, manager of gas control for Williams Pipeline, a division of Williams Energy which owns and operates more than 19,000 miles of liquids pipelines throughout the United States. If energy companies invest in transportation contracts, the infrastructure will get built, he adds.

Although often unpredictable, the pipeline permitting process is becoming less onerous. Not only is the demand for natural gas expected to rise 62 percent in the next 20 years, but clean air issues now are paramount. Project managers have thus enlisted some environmentalists to promote new natural gas pipeline construction as a way to lessen the dependence on other fossil fuels.

As a result, the U.S. Federal Energy Regulatory Commission (FERC) has approved 65 such projects in the last 5 years and 25 more await permission. In a rare but significant instance where all factors came into alignment, FERC recently agreed in just three weeks to a petition filed by Williams to expand its Kern River pipeline serving California. Typical timeframes range from four to 18 months, depending on project size and issues involved.

“Once an application meets all our filing requirements, we first evaluate the market need for the project and whether there is sufficient financial support without subsidies by existing customers,” says Robert Cupina, deputy director of the Office of Energy Projects at FERC. “We then turn our attention to environmental and land use issues, and we are encouraging developers to resolve those issues before they file for a certificate. Finally, we balance benefits against any adverse effects in reaching a final decision”

Stamina is critical. Williams won approval in December 2000 to enlarge its Transco pipeline from Pennsylvania to New Jersey—after four years of negotiation. The MarketLink project, which is to be completed in November 2002, had been opposed fiercely by landowners who recalled a gas explosion along the proposed route in 1994.

Similarly, the 753-mile Gulfstream Natural Gas System, a joint deal between Williams and Duke Energy, was approved years ago and is scheduled to become operational in June 2002. However, it is now at risk because of those who oppose drilling near the shorelines of Florida. While the U.S. Department of the Interior compromised and negated 75 percent of the drilling area, the oil companies are now concerned that they won't have enough product to transport. If the pipeline can't collect those “tolls,” then its financing would be jeopardized.

It's about massaging all the vested interests and being willing to compromise, says Max Acosta, a Lockport, La., USA-based project manager affiliated with the pipeline project.

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PRASANTA KUMAR DEY Professor of Management Studies, University of the West Indies

PRASANTA KUMAR DEY
Professor of Management Studies, University of the West Indies

THE SHORTEST DISTANCE BETWEEN TWO POINTS AND ROUTING ALONG A RAILWAY OR MAJOR HIGHWAY IS PREFERABLE. BUT IT'S NOT ALWAYS POSSIBLE BECAUSE OF WILDLIFE AND AQUATIC CONCERNS.

Even in Africa and parts of the Middle East where investment in drilling and pipelines once carried colonial overtones, the markets have become receptive to and, in most cases, depend on foreign investment, says ExxonMobil's Lamberson. Many less-developed countries will remain unappealing because of poverty and poor regional integration. Still, if project managers are to prevail in those regions, they must present a compelling case economically and deliver high-quality service.

Meeting Objectives

Companies wouldn't be investing billions in new pipelines if they didn't expect a fair rate of return. To set a schedule that is feasible, Ian Henderson, senior consultant with CSC Project Management Services in Calgary, Canada, says project managers must learn the ropes of the regulatory process and perform lots of advanced planning before beginning construction. It entails getting good engineering and lining up qualified contractors and workers. Turnover, poor weather and logistical impediments can be overcome, he says.

Geneering Projects Ltd., Alberta, Canada, adheres to that philosophy. Over the past year, 97 percent of its pipeline projects were completed on time and under budget, says Gene Belanger, general manager for the firm. For instance, the company, just completed a pipeline running through four river crossings and over mountainous terrain in record speed and for about US$2 billion less than expected.

“The industry is getting much better at staying on time and on budget,” notes Chuck Law, head of engineering and business development for ForeRunner Management Lakewood, Colo., USA. PM

Editor's Note: For more on oil pipeline projects, see the December 2001 issue of the Project Management Journal, which contains an article co-written by Prasanta Kumar Dey and Soumitra Shankar Gupta, “Feasibility Analysis of Cross-Country Petroleum Pipeline Projects: A Quantitative Approach,” p. 50.

Ken Silverstein is an award-winning journalist who has written for the Journal of Commerce, Utility Business and Upstream. With a background in economics and public policy, he has spent much of his career as a writer, Washington, D.C., USA bureau chief and editor for publisher Primedia.

GO WITH THE FLOW

Once a market need for a new pipeline is established, potential routes are determined by looking at the predicted flow of crude oil or gas from a producing field to a refinery or power plant—before it is distributed to population centers. Potential routes then are chosen based on construction costs, projected residents and probable returns.

Certainly, the shortest distance between two points and routing along a railway or major highway is preferable, says Prasanta Kumar Dey, professor of management studies at the University of the West Indies. But it's not always possible because of wildlife and aquatic concerns, as well as issues involving rights-of-way. Project managers must therefore approach the regulators with jurisdiction over such proposals and learn the potential pitfalls.

Field surveys and environmental impact statements must be performed. While the degree of permissiveness varies in different regions of the world, overall there must not be any significant effect on either the natural habitat or the landowners who lease their rights-of-way. Typically after months of wrangling—if not years—the common solution is to reroute the pipeline to accommodate all concerns.

“Constructing pipelines is like trying to herd cats,” says Ben Cooper, executive director of the Association of Oil Pipelines in Washington, D.C., USA. “Attack issues and offer solutions up front to minimize any delays.”

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

PM NETWORK | FEBRUARY 2002 | www.pmi.org
FEBRUARY 2002 | PM NETWORK

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