construction of an oil pipeline

8/16/2019 Construction of an Oil Pipeline

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CONSTRUCTION OF AN OIL

PIPELINE

MADE BY:

MAHRO AIMAN CE-56/2014-15

AAKEFA QAISER CE-57/2014-15

CASE STUDY


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INTRODUCTION

The Proposed Project consists of the construction of a sixteen-inch pipeline

from the location of a refinery to a consuming center about 525 miles away.

The pipeline would carry white oil products-primarily kerosene, motor

spirit, and aiation fuel.

The present distribution is by railway.

Trucks howeer, carry almost all of the traffic within a radius of !5" miles

of the refinery and some traffic to een more distant consumption centers

since the railway is not always able to proide sufficient tank-wagons.

16 !"# 525 milesRefnery ConsumingCenter


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CAPITAL COSTS

The capital costs of the project are estimated at $s%"" million.

&t consist primarily'

The pipeline ($s)"" million*

The transportation and laying of the pipeline ($s)"" million*

Pumps, including ade+uate standby capacity ($s%" million*

Terminal tankage and railway facilities ($s !"5 million*

onstruction of the project is estimated to take two years.

The life of the pipeline is estimated at thirty years and that of the pumps at fifteen

years.


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To calculate the economic costs, two adjustments are needed.

irst duties and other taxes amounting to $s5 million must be deducted.

/econd, the foreign exchange component is estimated at about $s0l2

million.

1t a shadow rate for foreign exchange of !.5 times the official rate, these

costs amount to $s2! million, or $s)"% million more than the financial

costs.

The total economic costs are thus $sl,!)0 million ($s%"" million - $s5

million $s)"% million*.

The salage alue at the end of the project3s life of the pumps installed in

year 24 is estimated at $s)" million


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OPERATIN$ COSTS

The annual operating costs of the pipeline (excluding depreciation* are estimated

at $s2 million in the first year of operation.

$ising gradually with the growth of traffic and reaching $s0". million after

additional pumps are added and full capacity is reached.

The economic costs, adjusted for taxes and foreign exchange costs, are estimated

to be !" percent higher .


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%ALUE OF SURPLUS ROLLIN$ STOCK

&f the pipeline is built, about 2,5"" tank-wagons and thirty-three diesel locomoties becomes surplus.

The economic alue of the thirty-three locomoties is estimated at $s!).4 million.

The railway estimates that the best alternatie is to dispose of !,""" tank-wagons forabout $s4","""each, bringing total reenues of $s4" million.

To meet the increased re+uirements it is estimated to rise gradually from )" tank-wagons

per year with the disposition of an additional !0" wagons in year !", the total surplus

would be absorbed.

Taking into account their age, condition, and replacement costs, the alue of these tank-

wagons is estimated at $s5,""" each.

1n amount of $s)"",""" annually has been deducted for storage costs.


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NUMBER AND VALUE OF SURPLUS

LOCOMOTIVES

AND TANK-WAGONS


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TRAFFIC

The area sered by the pipeline has been diided into four separate 6ones ofconsumption.

/ince 6one ! is within a radius of !5" miles of the refinery, howeer, petroleum is

distributed in the 6one by truck7 this is expected to continue een after the

construction of the pipeline since trucks can proide direct distribution to many

points.

The pipeline traffic has been projected to reach !.45 million tons, or about )"

million ton-miles, in the opening year of the pipeline (year )*.

&t is expected to grow at an annual rate of !" percent.


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ESTIMATE OF TRAFFIC AND OF TANK-&A$ON

AND LOCOMOTI%E REQUIREMENTS


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LOCOMOTIVES:

9ne locomotie is re+uired to haul about seenty-fie tank-wagons. The annual

haulage capacity of a locomotie for thirty-six trips is thus 5",""" tons.

The alue of the thirty-three locomoties existing at the beginning of year ), taking

into account their age and replacement costs, is estimated at $s0.2 million each, or a

total of $s!).4 million.

The capital cost of a new locomotie is estimated at $s5.5 million. :educting

$sl.) million for duties and taxes and shadow pricing the foreign exchange

component of $s).4) million make the economic costs $s4.%) million.

;1$: 1&


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COMPARISON OF TRANSPORT COSTS

VIA OIL PIPELINE AND RAILWAY


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OPERATIN$ COSTS

TANK-WAGONS

The direct operating costs of a tank-wagon, especially repair and maintenance,

amount to $s2,0"" annually.

@ith an allowance for taxes and duties and for the foreign exchange component,

the economic costs are about $s2,555.

or the 2,"" tank-wagons in year ), the operating costs are thus $s.2 million.

LOCOMOTIVES

The direct operating costs of a diesel locomotie, including primarily fuel and

maintenance, amount to $s!.)5 million annually.

@ith adjustments for taxes and foreign exchange costs, the economic costsamount to $sl. million.

or the thirty-six locomoties re+uired in year ), the operating costs are thus

$s02.! million.


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OTHER COSTS

the railway incurs other costs such as the maintenance of track, the operation

of signaling and communication e+uipment, and administratie expenses.

The railway estimates these costs at $s"."2 a ton-mile.

The railway estimates that the marginal costs-that is, the amount that could be

saed-are 55 percent of the aerage cost or $s"."!5 a ton-mile.

or the )" million ton-miles carried in year ) this means a cost of $s!!."

million


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COMPARISON OF PIPELINE ( RAIL COSTS

The net present costs of carrying the petroleum traffic by railway for the next

thirty years amount to about $sl,5). million compared with pipeline costs of

only $s!,!).! million, with both costs discounted at !2 percent7 the net present

worth of the pipeline is $s)40.4 million.

Transport by railway is thus about )" percent more expensie than by pipeline,

and the pipeline project seems well justified.

1t an percent discount rate, the net present worth of the pipeline is een greater,

at $s52.) million. The internal rate of return is then about ! percent.

&f the turnaround time of tank-wagons could be reduced from ten days to seen

and one-half days, the number of wagons and locomoties re+uired would be

reduced by 25 percent, though the reduction in operating costs would be less.


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/ince the aerage round trip is almost %"" miles, this implies a daily moement of

about !45 miles

/uch an improement in efficiency reduces net present railway operating costs from

$sl,5) million to about !,24" million.

1t the same time it increases the net costs of the pipeline since the si6e of the surplus

rolling stock, the alue of which has been credited to the pipeline, is also reduced by 25

percent7 the amount inoled (discounted* is about $s5l million.

The pipeline costs thus go up to about $sl,220 million, compared with $sl,24" million

for the railway, and the adantage of the pipeline is sharply reduced, although it is still

justified because pipeline cost is less than railway cost.

The capital costs of the pipeline account for more than %" percent of total discounted

pipeline costs.


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The leel of traffic affects railway costs almost proportionally while pipeline costs are largely fixed and hae little relation to traffic.

The case for a pipeline thus becomes stronger the greater the traffic. &n iew

of the large net present worth of the pipeline, construction of the pipeline is

justified een at a lower traffic leel.

&t seems likely that the pipeline can proide more reliable serice than the

railway and thus reduce the need for storage capacity.

The pipeline is less flexible, howeer, and therefore inoles a greater risk.

#ut a pipeline proides an alternatie transport mode if the railway is

incapacitated.

CONCLUSION


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THANK YOU)

construction of an oil pipeline

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