pipelines | North America


Figure 3: Comparison of North American transportation costs by mode Transportation mode Cost per barrel


Distance


Pipeline Rail


Barge Road Tanker $7 per barrel


$15.50 to $31 per barrel $4 per barrel.


Details not available Sources: US DOT, AAR, US Coast Guard


“Rail has cheaper capital costs than pipelines but costs more to operate,” says Steven Paget, director of energy industry financial and investment service provider FirstEnergy Capital. The capital cost of pipeline construction is certainly


eye-watering. For example, TransCanada estimates the capital cost of constructing the Keystone XL Phase Four 1,179-mile (1,897 km), 36-inch-diameter crude oil pipeline at $7.6bn. Oil shipments by rail have ballooned with the


development of new shale oil fields in North America. Carrying oil by rail requires dedicated oil tank rail cars costing between $120,000 and $175,000 each, according to industry experts. Warren Buffet’s BNSF railway recently announced plans to buy 5,000 new tank cars to transport crude oil, placing an estimated investment cost on the project of $1bn. In addition, there is the cost of locomotives and track to consider. A single track freight line with a few locomotives and simple signalling running across a flat, geologically sound, sparsely populated landscape might be built for as little as $2m per kilometre, including electrical and mechanical equipment, according to railway-technical.com. A typical diesel locomotive costs between $1.75m to $2.3m. Turning to tanker barges and coastal freighters, a


second-hand 2,760 ton river tanker with a cargo capacity of 2,736 ton/3,684 cbm may cost around $600,000. As for coastal fuel carriers, coastal tanker operator American Petroleum is currently building four State Class vessels, each with a carrying capacity of 330,000 barrels, at a total cost of $214m. According to Haartztankersales.com, a road tanker


tractor unit and transport trailer with a capacity of 43,000 litres will cost around $143,000 to buy, or around $1,683 per week to lease. These costs do not take into account the public cost of traffic jams, crumbling roads and the not insignificant cost of road repairs, mainte- nance and upgrades to cope with new oil traffic. The Texas Legislature, for example, has budgeted $450m to cope with new shale oil being moved by road from the Eagle Ford formation. Funding the expansion of North America’s energy


infrastructure is becoming increasingly difficult as the traditional lenders – banks – adapt to increased capital


24 PIPELINE COATING | May 2014 1,179-mile


Keystone XL pipeline 800 miles


600 nautical miles Details not available


ratio requirements. The new sources of infrastructure finance that are stepping in to fill the gap include private equity firms, pension funds and insurance companies seeking a regular income. KKR, for example, plans to invest $2bn in infrastructure, while Calpers is planning to increase its funding for infrastructure from 2% to 3%. A recent as a decade ago, the big issue In North


America was to simply ensure oil and gas was delivered to the people that needed it and, in general, energy companies faced very little resistance to projects that helped accomplish this goal . As FirstEnergy’s Paget says: “Seven years ago, there was almost no permitting risk around new energy transportation initiatives. Now permitting risk is probably the single largest risk facing new energy transportation projects. Investors can no longer assume that a commercially secured energy project will be permitted.”


Changing priorities Priorities have changed for both energy transport regulators and operators. “The main safety issue in all cases is to avoid a product release, particularly one onto third-party property,” Paget says. As a consequence, construction plans for new pipelines are being exam- ined closely by environmentalists, landowners and indigenous First Nations seeking to prevent or delay projects. TransCanada’s Keystone XL pipeline, which crosses the Canadian-American border and so has to undergo detailed environmental impact assessment, is perhaps the prime example of how long a decision can be held in the balance. In the latest in a long-running series of delays, President Obama has deferred a final decision until after the next election. However, the proposed 610-mile $2.6bn Sandpiper pipeline, which is designed to transport oil from the Bakken region to Lake Superior, falls under state jurisdiction so requires neither the President’s permit nor a comprehensive environmental impact statement. Pipeline operational regulation is also an issue as far as opponents are concerned. At present, day-to-day operational regulation of US pipelines lies in the hands of a patchwork of federal and state agencies that some argue are inadequate and lacking in public scrutiny. At Federal level, the US Department of Transport’s Pipeline and Hazardous Materials Safety Administration (PHMSA) subjects only 7% of natural gas lines and 44% of all hazardous liquid lines to regular and rigorous inspection, leaving it to the discretion of pipeline companies to manage their assets. A recent US Government Accountability Office (GAO)


report estimated that of the roughly 230,000 miles of gathering lines that connect wells to process facilities


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