In designing large-scale pipelines and facilities, a common trade-off involves cost versus risk. The conservative design margins of the past may today be the tipping point in making projects non-economic. This paper aims to identify critical factors for facilities design projects with an objective to increase the confidence in our go-to-purchase decisions. A practical decision making procedure applicable to flow assurance problems in general is presented that considers both rigorous multiphase pipeline simulation as well as facilities costs. A case study previously published in a PSIG paper is revisited to illustrate how these concepts may be applied in sizing a slug catcher.
As the transport of oil and gas products in a multiphase manner is increasingly stretched over greater distances with development in more hostile environments, so too has the importance of sustaining reliable operations. The flow assurance discipline tackles these challenges using scientific methods to design reliable systems and infrastructure while identifying the inherent risks involved in production from such environments. As engineers, we formulate system designs and operating procedures to manage all risks involved. One common trade-off in this domain is cost versus risk. Overly conservative design margins may result in projects that are uneconomic. We have recently seen deep water offshore systems re-designed to be sanctionable with substantial cost reductions being achieved.
During 2015, a relatively small number of major projects made Financial Investment Decision (FID) approval due to the low price of oil. Deepwater projects were hit the hardest with just a handful being given the go-ahead, the most significant being BP's West Nile Delta in Egypt and Shell's Appomattox in the deepwater Gulf of Mexico.
One theme shared by all projects that did manage to achieve commercial approval was significant cost savings. For example, Shell cited an overall cost reduction of 20% for Appomattox , driven by design optimization and supply chain savings. BP cut less than 10% from its original budget for the Egyptian West Nile Delta project at FID , which seems low in comparison. But closer inspection showed that they had opted to re-phase expenditures significantly, reducing the upfront scope and cost. In addition, the project had a contracted gas price floor, thus providing some revenue protection from further market deterioration. It is estimated that Shell's Appomattox has a Net Present Value (NPV, see appendix for more details) breakeven of $50/bbl , which set a new benchmark for deepwater FIDs. However, it is one that still remains out of reach for most other projects. Pre-FID deepwater projects have an average NPV breakeven of $65/bbl . This means significantly more cost reduction is necessary - at least another 15-20% – before the stricter investment hurdle rate is met.
Current market conditions clearly drive cost-based project reviews and eventual re-design. Furthermore, the ability to optimize costs at the concept development stage of projects is now a key element of the project approval process.