Gas Pipeline Project Cost Containment Using “Real Time” Dispute Management

Construction in the gas pipeline industry ranks among the riskiest undertakings of any in the energy business, or, arguably, of any industry. There are many risks associated with all phases of the development and capture of new discoveries. These risks run the gamut from discovery and acquisition of the reserve itself, permitting, financing, including the resolution of partnership questions, to design and construction of gas capture and transport. From any perspective, the business itself is fast-paced. Opportunities, when they arise, must be dealt with quickly, in order to gain or maintain a competitive edge.

By its very nature, the question of a competitive edge drives risk. Yet, it also provides substantial reward to those who can successfully navigate the obstacles, and remain focused on a clear and achievable goal. Defining what is clear and achievable is often the most difficult, most onerous, and most expensive activity.

More often than not, new discoveries require the cooperation of partners to bring the product to market. Working relationships historically are established through a variety of methods, and usually include more than a single entity as concept driver. This aggregation of entities in whatever form, in and of itself, often creates additional risk pressures on contract vehicles selected. These relationships might include partnerships, acquisitions, joint ventures or other legal constructs, sometimes with international components, and there is always time pressure on making the pieces fit.

Add to that the financial, environmental, and other regulatory patchworks which must be navigated successfully, the acquisition and confirmation of clear land rights, all of which in today’s world are closely observed and monitored by property abutters, labor and industry groups, politicians or others with powerful voices, and it is easy to understand some of the risk associated with development and construction in the pipeline industry.

The risk clock ticks continuously in the gas pipeline development industry. Time commitments must be upheld on all phases of product development, or investment milestones will not be met, and these pressures must be closely managed in order to keep costs under control. Failures can be devastating.

Perhaps more critical than the development risks may be the risks involved with the design and construction phases. This is why contract delivery systems are experimented with so frequently, with results ranging from very good to extremely poor, depending upon how well risk potentials were identified and mitigated before the work commenced.

Projects involving natural gas development come in spurts as producers scramble to increase capacity in order to capitalize on new discoveries. This congregating of projects puts further strain on an industry which is forced to rely heavily on a small group of designers possessing the specific engineering experience and skill required. This small group of designers is often hard put to keep up with the demand, especially for large development initiatives.

There is an even smaller group of constructors who have (1) the industry knowledge and experience necessary to deliver, (2) the financial wherewithal to carry the load of construction costs, (3) equipment (keeping in mind that most of the equipment is highly specialized for the gas pipeline construction industry), (4) manpower availability to meet the schedule demands, and (5) a willingness to attempt to earn a reward by accepting the risks in this industry.