Controlling Costs and Risks in Construction of the Trans-Alaska Oil Pipeline

DescriptionThe discovery of the Prudhoe Bay oil field was announced in March of 1968 by Atlantic Richfield Company (ARCO) and Humble Oil and Refining Company (later Exxon). The estimated 10 billion barrels of oil made this by far the largest oil field ever discovered in North America.

The discovery came at a very opportune time. Many of the traditional suppliers of the United States’ oil needs were beginning to reduce supplies and increase prices. Development of Prudhoe Bay was seen as a national priority in the struggle to replace the oil and control the cost.

While the timing of the discovery was opportune, the location was problematic. The Prudhoe Bay field lies on the North Slope of Alaska, several hundred miles inside the Arctic Circle. Not only is the location remote but it experiences some very harsh climate extremes. All ocean going transport lanes are ice-bound most of the year, so moving the oil from the field by ship was ruled out.

Eight hundred miles south, in Valdez, was the nearest ice-free port. It was eventually determined that building a pipeline to and a tanker terminal in Valdez was the best solution to the problem of bringing Prudhoe Bay oil to America.

GoalsThe Trans-Alaska Oil Pipeline Construction Project had one main goal: to build a system that would move the huge amounts of oil from the mostly inaccessible oil field on the North Slope to the ice-free port of Valdez where it could be loaded onto tanker ships for transport to the lower 48 states.

Included within this main goal were these others:

Satisfy the environmentalists demands by protecting the environment

Satisfy Alaska Natives’ demands by providing them with jobs and contracts

Build a system to endure the extreme climate conditions and natural hazards of the land

Build it quickly in order to satisfy the nation’s growing demand and to help control costs.

Cost ControlThis project cost $8 billion in 1977. At the time it was the largest privately funded project ever completed.

Some of the methods of cost control were:

Joint VentureThe huge cost of the project would have severely stressed any one company, even the world’s largest, Bechtel. Originally contracted as the Construction Manager, Bechtel subsequently formed a joint venture with other companies and continued as the Construction Technical Services provider.

Advance PurchaseIn a move that was partly unintentional, an advance order for $100 million worth of 48 inch steel pipe was delivered from Korean mills in 1969. Even after factoring in the cost of storage for the unexpected five years wait time, this represented a significant savings when compared to what the cost would have been nearer to the actual start of construction.

Project Labor Agreement (PLA)The size and complexity of this project meant that schedule delays would be very expensive. A PLA was entered by management and the labor unions to avert any delays stemming from labor disputes. The cost to the Joint Venture for higher (some said extravagant) wages was willing paid in exchange for a very hard prohibition of work stoppages.

Robust DesignDuring the planning phase, due consideration was given to planning for the operational life of the project. Important aspects of the pipeline were manufactured to significantly higher use ratings and quality standards in order to ensure a longer useful life and less costly maintenance during that life.

Preventative MaintenanceIn conjunction with the robust design, an extensive preventative maintenance program was part of the pipeline design. Together these two design features gave the pipeline an essentially endless useful life at relatively minimal cost.

Risk ControlOn a project employing up to 21,500 people at any given time and lasting multiple years, the number of risks to be managed would be in the hundreds, if not thousands.

Some of the major ones and how they were managed are:

Lack of expertiseNo one had ever built such a large pipeline in the Arctic. To mitigate this risk companies with expertise in Arctic construction but not pipelines entered into joint venture contracts with companies that had experience in large pipeline construction but not in Arctic regions. By pooling their knowledge and resources they could expect to be more able to address the unique challenges of this project.

Work stoppagesWith such a large workforce, and much of it unionized, there was a great risk of work coming to a halt over labor disputes. To avoid this risk, management entered into a private Project Labor Agreement (PLA) with the unions. In exchange for prohibiting organized work stoppages the unions were granted lucrative wages and benefits and promised very favorable work conditions.

Destruction of the permafrostMuch of the 800 mile long pipeline was built over terrain permeated with ice, known as permafrost. The name derives from the fact that it never melts, except for maybe a few inches at the surface. Experience had shown that even minor disturbances of the surface could trigger vast sinkholes of muddy sludge

to form. To avoid this disastrous outcome, several innovative techniques were used.

Two of them were:

in sections of permafrost where the pipe ran underground, large scale refrigeration plants pumped coolant alongside the buried pipe to keep the permafrost frozen, and

in sections of permafrost where the pipe ran aboveground, the pipe was supported by rails mounted between vertical support members (VSMs). These VSMs were sunk from 25 to 60 feet into the permafrost and used a passive refrigeration system to maintain the permafrost temperature.

EarthquakesEarthquakes were not so much of a risk during the construction of the pipeline, but they are an ever-present threat during the operational phase. Among several fault lines crossed is the Denali Fault, site of the 7.9-magnitude Denali Quake of 2002. In that quake, all but minor damage to some support structures was avoided. This was accomplished by:

designing into the pipeline some carefully planned features to allow the earth underneath the pipeline to move without affecting the pipeline, and

including in the operational plan for the pipeline preventative maintenance routines specifically aimed at keeping the pipeline in the best possible condition. These routines are augmented by constant monitoring of conditions and the ability to rapidly control the flow of the oil.

ReferencesThe Management of Construction, A Project Life Cycle Approach by F. Lawrence Bennett – online PDF version

Mastering Revit Architecture 2008 by Tatjana Dzambazova, Greg Demchak, and Eddy Krygiel – online PDF version

Fact Sheet Trans Alaska Pipeline System on the BP website

Useful Life of the Trans-Alaska Pipeline by J. David Norton, P.E. and Janna Endell Miller, P.E. – online white paper

Timeline: The Alaska Pipeline Chronology on the PBS website

Trans-Alaska Pipeline on the Bechtel website

History of the Trans-Alaska Pipeline System by L.J. Clifton and B.J. Gallaway – PDF of a draft white paper on the TAPS Environmental Impact Statement public relations website

Trans-Alaska Pipeline System – Wikipedia article