Effective risk and cost management are paramount concerns for pipeline owners and operators. Leak detection systems (LDS), while having no effect on the probability of a leak occurring, limit the scope of potential damage and reduce risk. The authors propose using a stochastic simulation to quantify the economic effectiveness of these systems in mitigating these low-probability, high impact events for liquid pipelines. When considering any capital investment, it is useful to estimate its expected value; the authors propose using a stochastic simulation to perform an economic analysis on these systems - analyzing the ability of these systems to mitigate the impact of oil spills.

For this methodology, each leak detection system is measured in terms of the reduction to total oil spill impact. This is accomplished by using leak probabilities to generate theoretical leaks that mimic the expected leak behavior of a pipeline. Next, probability maps are used to generate theoretical onset-to-response times, where the generated times mimic the expected behavior of the LDS. These generated values are used as input to a cost model to estimate the total spill costs for each leak, and repeated application results in an expected value for each subsystem. The costs are converted to a present value using the internal rate of return specified by the operating company.

Risk is estimated with and without a proposed change to the current leak detection system; the difference between the two total spill risks is the value or impact of the proposed change. Comparing risk reduction values provides a meaningful way of evaluating LDSs and potential changes to LDSs. Additionally, it can justify the removal of unnecessary LDS components and allow comparison of proposed leak detection projects with other investment options.

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