Pipeline Project Proposal:

I have reviewed the options for constructing a natural gas pipeline from our well to the refinery,
and have determined which route will be the most cost-effective. Please find in the attached
report a description of the various route options and their projected prices for construction.
Base construction costs:
$480,000 per mile across BLM land
$840,000 per mile across private land
$4,500,000 one-time cost to drill east through the mountain
$600,000 EIS associated with drilling through the mountain
$100,000 per month x 8 month delay for EIS

Option 1- 8 miles west, 16 miles south, 40 miles east @ $480,000 per mile across BLM land
= (8+16+40)480,000 = $30,720,000.
8

Well

Private Land

16

40

Refinery

Option 2- 32 miles east, 16 miles south @480,000 per mile on BLM, plus costs associated with
drilling through the mountain: $4,500,000; $600,000 EIS; and 8x $100,000 for delays
= (32+16)480,000 + 4,500,000 + 600,000 + 800,000 = $28,940,000.
32

Well

Private Land

16

Refinery

Option 3- The distance from the well directly across the private land to the refinery is calculated
to be: 32+ 16= C. C= 165 miles @ $840,000 per mile across private land
= 165(840,000) = $30,052,753.62
Well

165
Private Land

Refinery

Option 4- 16 miles south @ $840,000 per mile across private land, plus 32 miles east across
BLM land @ $480,000 per mile
= 16(840,000) + 32(480,000) = $28,800,000.
Well

16

Private Land

32

Refinery

While initially option 4 looks like the best choice, a more careful calculation reveals that a
diagonal path southeast across the private land, to a point on its edge whence we turn east toward
the refinery, turns out to be the most cost-effective option. I calculated the direction and distance
of that path as follows:

Let there be a distance x, whose endpoint X falls on the line between the point S created by
heading due south from the well W, and the point R created by the refinery.

Well

(256+x)

256

Refinery
S

32-x

Our goal is to find the placement of that point, to which we can run our pipe, before turning east
to the refinery, in order to minimize the overall cost. Without knowing where that point may lie,
we can create a cost function which tells us the overall cost at any given point of X:
xR = 32-x;

Wx = (256+x)

C(x) = ((256+x))(840,000) + (32-x)(480,000)

By finding the derivative of the cost function we can find where the cost is neither decreasing
nor increasing, but has been minimized at a zero-slope tangent line.
C(x) = (256+x)^-(2x)(840,000) 480,000 = 0
C(x): 840,000x(256+x)^-1/2 = 480,000
C(x): (256+x)^-1/2 = 480,000/840,000 = 12/21
C(x): (21x/12) = 256 + x
C(x): 441x/144 144x/144 = 256
C(x): 297x/144 = 256 .. x = 36864/297
C(x) = 0 when x = 36864/297 11.14
The cost will be minimized when x 11.14 miles, which is to say, there will be 19.49 miles of
pipe diagonally across the private land, and 20.86 miles of pipe across the BLM land.
Plugging this x value back into our cost function gives us
C(36864/297) = (840,000)((256+ (36864/297) ) + (480,000)(32-36864/297) =
$26,389,560.28

To achieve this optimal scenario we need to set the pipeline at an angle 55.18 southeast from the
well, a calculation made by use of the sine function. It will run 19.49 miles across private
land, at which point it will head due east for another 20.86 miles across BLM land to the
refinery.
Well
55.18
19.49

Refinery
11.14

20.86

Graph of the cost function:

C(x) = ((256+x))(840,000) + (32-x)(480,000)

(11.14, 26,389,560)