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1. Introduction - Road to Success - IPLOCA WIKI Collaboration Platform

1.Introduction
CreatedbyHenningDresp,lastmodifiedbyMustafaAbusalahonFeb17,2015

PipelinesandIPLOCA

PipelinesandIPLOCA
PipelineIssuesandChallenges
KeyPrinciples
THEROADTOSUCCESS

Apipelineisafacilitythroughwhichliquids(crudeoiland
petroleumproducts),gases(naturalgas,carbondioxide,steam)or
solids(slurries)aretransported.Althoughotherformsof
transportationareavailable(tanker,road,rail),pipelinesarethe
safestandmostefficientmeansoftransportingcrudeoiland
naturalgasfromproducingfieldstorefineriesandprocessingplants,andofdistributingpetroleumproductsand
naturalgastotheconsumer.

Pipelinesaretheirreplaceablecoreoffluidproducttransportationacrosstheworld.Theyreachbillionsof
consumers,directlyintohouseholdsandcars.Pipelinesareselectedasthemainmodeoftransportationdueto
economicsandsafety.Roadtransportationcostsescalatewithdistance,makingroadthemostcostlyoption.Rail
islessdependentondistance,butstillcostly.Shiptankersarecomparabletopipelinesintermsofcost,butare
limitedbygeography.
Estimatedpercentagesofvolumestransportedbyeachmodeoftransportareshownbelow.

Pipelinesarenotnew.Itisbelievedthatpipelineswereusedfromaround500BCinChinatotransportgas.Since
thenthedesignandconstructiondevelopmentofpipelineshascontinued,andinrecentyearspipelinecontractors
andinvestorsfromaroundtheworldhaveworkedtogetherwithinIPLOCA.
IPLOCAwasformedtoshareideas,engagetheindustryanditsstakeholderstofacilitatebusinessopportunities
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andpromotethehigheststandardsinthepipelineindustry.Withmembersinmorethan40countries,IPLOCA
representssome250ofthekeyplayersintheonshoreandoffshorepipelineconstructionindustryworldwide.

PipelineIssuesandChallenges
Internationalpipelineprojectscanbebothchallengingandrewarding.Challengesarisefromtheinherent
interactionsbetweentheland,thepipelineroute,thecommunitieswhichliveandworknearbyandthefurther
complexitiesofinternationallanguages,cultures,traditions,logistics,regulations,legalsystemsandbusiness
practices.Thepotentialforcatastropheisalwayslurkingcloseathandtocatchthenaveorcomplacentinvestor
andcontractoroffguard.However,whenthesechallengesaresuccessfullyaddressed,leavingapipelinesystem
withsolidintegrityandperformanceaswellassatisfiedinvestors,contractorsandcommunities,projectscanbe
veryrewarding,bothinfinancialtermsaswellasintheesteemaccordedtoallthoseinvolved.
Itisnotalwayscleartoinvestorsorcontractorshowtoovercomethechallengestoreaptherewards.Theybegin
theprojectjourneytogether,oftenenteringatdifferentstagesalongtheway,alwayswitheveryintentionof
reapingtherewards,butalltoofrequentlywithoutanawarenessofthechallengestheyface.Whenachallengeis
encountered,temptationoftenovertakesthecarefullynurturedrelationshipsandgoodintentions,leadingeither
theinvestororthecontractortoexpect,evendemand,thattheotherparttakesomeactiononbehalfoftheproject
toremoveachallenge,withlittleornoeffortontheirownparttoaddresstheverychallengetheyalsoface,being
integrallyinvolvedintheverysameproject.Unexpectedchallengesusuallyleadtomisalignedexpectationsthat
damagetheprojectandtheintendedrewardsforbothparties.
Thisdynamichasnotbeenlostontheindustry,especiallythecontractingexpertswithinit.Contractinglegaland
commercialtoolshavedevelopedtoaneverincreasingsophistication,oftenattemptingtocommitonepartyorthe
othertobearthefullconsequencesofanychallengetheprojectmightencounter,invokingtheinevitabledefensive
reactions.Manyexplicitcontracttermsandconditionscurrentlyinusehavebeencraftedinresponsetovery
specificknownchallenges.Butnotallchallengescanbepredictedinadvanceso,asnewchallengesbecome
morewidelyunderstoodwithintheindustry,moreandmoretermsandconditionsarereactivelydevelopedtotryto
assignthechallengetoonepartyortheother.
Unfortunately,theprojectswhichdiscoveremergingchallengesfirst,orarewithoutbenefitofpriorexperience,find
themselvescontractuallyillequippedtoaddresstheissuesthatarise.Prevailingcontractinglawandpractice
frequentlyfallsbackonobtuseandimpliedcontractualobligations,leadingtoextendedandoftenvenomous
disputes.Therelationshipandinteractionsbetweeninvestorandcontractorquicklybecomealmostentirely
focusedonthedispute,leavingtheprojectvulnerabletofurtherchallengesanddisputeswiththeattendantlossof
therewardsthatenticedbothpartiestoenterthejourneytobeginwith.Adownwardspiraloffailureeasilyand
frequentlyresults.Theprimarybeneficiaryisthelitigationindustryeveryoneelseloses.Variousmethodsof
conflictresolutionornearlitigationhavebeendevelopedandaresometimesemployed,buttheyallsharethe
fundamentalflawofdealingwithconflictsreactively.

KeyPrinciples
Therearethreekeyprinciplesthat,ifrecognizedandhonoured,canpreventinternationalpipelineprojectsfrom
suchasadfate:
1.Projectsareonlysuccessfulwhentheyestablish,nurtureandprotectcloseworkingrelationshipsbetween
investorsandcontractorsbyjointlyanticipatingconflictsandpreparingagreementsandcommercialterms
thatenablepredictable,effectiveandamicableresolution.Unresolvedprojectconflictsduringproject
executionescalateandmultiplyrapidlyastheydamagetheworkingrelationshipsbetweeninvestorand
contractoranddistracttheattentionoftheprojectteamfromotherchallengestocome.
2.Itisfarbettertoproactivelyavoidandreduceprojectchallengesthantoassigntheirresolution,even
amicably,toonlyoneofthepartiesinacontract.Challengesaddeffortandcost,bothofwhichinherently
reducetherewardsforallthepartiesinvolved.Theearlierintheprojectcyclethechallengesare
recognizedandaddressed,themorerewardispreserved.Earlydatacollection,designandplanningduring
projectdevelopmentareessentialinthisrespect.
3.Acontractisnothingmorethanadocumentrecordinganagreementbetweentwoormoreparties.Itis
essentialtoestablishthemutualagreementbeforedevelopingandexecutingthecontract.Suchan
agreementforinternationalpipelineprojectsmustinclude,interalia,howeachpartywilladdressthe
mutuallyidentifiedprojectchallenges,boththoseknownatthetimeandthoseasyetunknown.Ifanexplicit
andmutualagreementbetweenthepartiesdoesnotexistinthefirstinstance,anyattemptbyanypartyto
useacontractdocumenttoforceanactionlaterisunrealistic,counterproductive,abusive,unprofessional,
manipulative,aggressiveandrightfullyinterpretedasapreludeto(commercial)war.

THEROADTOSUCCESS
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Itiswiththesekeyprinciplesinmindthatworkinggroups,drawnfromIPLOCAmembercompaniesandaselect
groupofinternationaloilcompanies,setouttocreatethisguidancedocumentcalledtheTHEROADTO
SUCCESS.Ourcombinedexperiencehasledustorecognizewhywehavestruggledonsomeprojectsbefore,
whymanyprojectshavesucceededandwhatweneedtodoconsistentlytoworktogethermoreeffectivelyand
succeedmoreoften.Itdescribeshowtoanticipateandavoidchallengesbeforebeginningconstruction,howto
conductconstructionworktominimizeexposuretofurtherchallengesand,lastly,howtoreachthemutual
agreementnecessaryasthefoundationforasuccessfulcontract,addressingbothknownandasyetunknown
challenges.ItisourfirmbeliefthattheapproachoutlinedonTHEROADTOSUCCESSwillworkanywhereinthe
worldwithanyinvestororcontractoronanypipelineprojectunderanyformofcontractcompensation.
THEROADTOSUCCESSisfairlysimpleinconcept,butrequiresadegreeoffairmindedandcommercially
maturebehavioursiftravellersaretocompletethejourney.ThejunctionsonTHEROADsimplyare:
1.Properlydeveloptheprojectbeforebeginningconstructionwith,interalia,adequateengineeringperformed
byamultiskilledteamincludingconstructionandenvironmentalinput.
2.Establishaclearbaselinefortheprojectintheconstructioncontracts,includingthescope,therisksandthe
plansforrespondingtothoserisks.
3.Planforalltherisksinvolvedwithinternationalbusiness,butespeciallyforthosethatareuniquetopipeline
projectsbutcommonwithinourindustry.
4.Developcontractagreements,termsandconditionstopredefineresponses,responsibilitiesand
commercialadjustments,readytorespondtounanticipatedprojectchallengesorevents.
5.ImplementbestpracticesinPlanningandConstructionTechniquesandevaluatemeritsoffuturetrendsand
innovativesolutions.

Continuewith2.DevelopmentPhasesofaPipelineProject
Backto0.IplocaObjectivesExecutiveSummaryPreface

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