# How To Estimate Capital Cost of Pipeline Project

In this post I want to share how to estimate capital cost of pipeline project. For your information, this procedure is for information and general guidance only. Source of this procedure is from Gas Pipeline Hydraulics by E. Shashi Menon. The book was published in 2005. So, the cost might need adjustment due to inflation.

Before we jump into estimation, we need to understand scope of pipeline project to easily define component of cost. There are ten (10) major cost components of pipeline project:

1. Pipeline
2. Compressor stations
3. Mainline valve stations
4. Meter stations
5. Pressure regulating stations
6. SCADA and telecommunication
7. Environmental and permitting
8. Right of way acquisitions
9. Engineering and construction management
10. Allowance for funds used during construction and contingency

# Pipeline

Pipeline material cost consists of cost associated with pipe material (include coating and fittings) and installation cost (or labour cost). Pipe material cost can be estimated from tonnage of pipe. We can use simple formulae to calculate weight of pipe per unit length to get pipe tonnage.

## Pipe Cost

Cost of pipe required for a given pipeline length is found from

PMC = 0.0246 (D-T) TLC

Where:

PMC        = Pipe Material Cost, $L = length of pipe, km D = pipe outside diameter, mm T = pipe wall thickness, mm C = pipe material cost,$/metric ton

For your info, 1 metric ton = 1.1023 ton

Equation above is for pipe only (bare pipe). Generally, pipe is externally coated and wrapped. In the absence of actual cost, we may increase the bare pipe cost by a small percentage, such as 5%.

## Pipeline Installation Cost (Labour Cost)

Pipeline installation cost can be represented in dollars per unit length of pipe. Labour cost will depend on the construction environment, whether the pipeline is installed in open country, fields, or city streets. For estimation purpose, there is historical data available for construction cost for various pipe sizes. The pipe installation cost is expressed in dollar per in. diameter per km of pipe.

Value above must be verified by contractor who are familiar with construction location.

Several other construction costs must be added to the installation costs for straight pipe. These costs include cost for road, highway, and railroad crossing, and river crossing. Compared to the installation cost of a long-distance pipeline, the road and river crossings total might be a small percentage.

# Compressor Stations

In order to provide transportation of gas through pipeline, we have to install one or more compressor stations to provide necessary gas pressure. For accurate results, cost of compressor stations should be developed based on bill and quantity and vendor’s quotation. In the absence of vendor data and for conceptual design only, we can use an all-inclusive price of dollars per installed HP, for example $2000 per HP. This all-inclusive number is expected to include material, equipment, and the labour cost for installing the compressor equipment, piping, valves, instrumentation, and controls within compressor stations. Generally, the$/HP number decreases as the size of compressor HP increases.

# Mainline Valve Stations

Mainline block valves are installed to isolate sections of pipeline for safety reasons and maintenance and repair. In the event of pipeline rupture, the damaged pipeline section can be isolated by closing off the mainline valves on either side of the rupture location.

Mainline valve stations are usually installed at specified intervals along the pipeline. Cost of mainline valve includes mainline valve and operator, blowdown valves and piping, and other pipe and fittings that constitute the entire block valve installation.

# Environmental Permitting

The environmental and permitting costs are costs that are associated with the modifications to pipeline, compressor stations, valve and meter stations to ensure the facilities do not pollute the atmosphere and river. In many cases the cost includes acquisition of land to compensate for the areas that were disturbed due to pipeline constructions.

Permitting costs include:

• Environmental study
• Preparation of an environmental impact report
• Permit for road crossings, railroad crossing, river crossing

The environmental and permitting costs on a gas pipeline project may range between 10-15% of total project costs.

# Right of Way Acquisition

The right of way (ROW) for a pipeline is acquired from private parties and state and local government and federal agencies for a fee. This fee might be a lump sum payment at the time of acquisition with additional annual fees to be paid for a certain duration. The initial cost for acquiring the ROE will be included in the capital cost of the pipeline. The annual rent or lease payment will be included in annual costs, such as operating costs.

For most gas pipelines the initial ROW costs will be in the range of 6 to 10% of the total project costs.

# Engineering and Construction Management

Engineering costs are costs that pertain to the design and preparation of drawings for the pipeline, compressor stations, and other facilities.

The construction management costs include field personnel cost, rental facilities, office equipment, transportation and other costs associated with overseeing and managing the construction effort for the pipeline and facilities.

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On the typical pipeline project, engineering and construction management costs range from 15 to 20% of the total pipeline project cost.

# Allowance and Contingency

In addition to the major cost above, there are other costs that should be included in the total pipeline project cost. These include legal and regulatory costs necessary for filing an application that have jurisdiction over interstate and intrastate transportation of natural gas, as well as contingency costs to cover categories not considered during project conceptual.

Allowance and contingency can range between 15 and 20% of the total project cost.

References:

Menon, E. Shashi, “Gas Pipeline Hydraulics”, CRC Press, 2005.