RISK ANALYSIS AND MODELING FOR CONSTRUCTION AND OPERATION OF GAS PIPELINE PROJECTS IN PAKISTAN

Sajjad Mubin Russian State University of Oil and Gas, Moscow, Russia Construction of Oil and Gas Pipelines Department 65-Lininski Prospect, Moscow, Russia sajjadmubin@yahoo.com

Introduction
Looking its high energy demand, Pakistan is planning to import natural gas through pipelines from neighboring countries. The infrastructure of gas pipeline is also being developed in the country. During the last 10 years the network of main and distribution gas pipeline has been expanded by 85%. But the geological, geographical, geopolitical and climatic conditions are tough for the construction of pipelines. There is always risk of earthquake, landslides and floods. Instable Government policies, high rate of inflation, rapid change in material prices are also important risk factors. Looking the current geopolitics situation there is a persistent threat of terrorism in the country. All these factors make the situation very complex in quantifying the risk factors especially when the project is gas pipeline where the impact factor of risk exponentially rise in case of risk occurrence. Moreover, due to the absence of modern project or risk management techniques the projects are usually not completed as they were planned.

Objectives

To identify and classify the associated risks. To quantify the associated risks for the pipeline projects on the basis of historical data. Risk Modeling and Monte Carlo simulation by using computer programme Riskyproject. To identify critical risks and to separate the most critical risks from the trivial many for the construction of pipeline project especially in the northern areas of Pakistan

NATIONAL ENERGY SCENARIO

Source of Energy Natural Gas Oil Coal Hydropower Nuclear Power LPG and others Share (%) 50,4 29.40 7,60 11,00 1,3 0,4 Energy Sources Proved oil reserves Oil production Oil use Proved gas reserves Gas exploitation Proved Coal reserves Reserves & Production 290,65 mln b 65385 bpd 361400 bpd 32,928 TCF 3826 MMCF/year 3362 mln Ton
2005 .
49,70%

1,50%

13,00%

51,50% 34,00%

2,50% 3,00% 32,00% 11,40%
1,40%

OIL PIPELINE NETWORK OF PAKISTAN

The oil and gas pipeline network in Pakistan is being developed to deliver the crude or refined oil to the end user in the interior region of Pakistan. The main oil pipeline network is expanded upto 2200 km . KMK pipeline: 864 , Karachi Mehmodkot; MFM pipeline: 360 , Mehmodkot Faisalabad Machiki; White pipeline: 817 , Karachi Mehmodkot; KPK pipeline: 22 , Korangi Port Qasim. Future expansion in oil pipeline network in Pakistan with estimated cost
Proposed route of pipeline Faisalabad-Kharian Faisalabad-Sahiwal Mehmodkot-Peshawer Length 190 km 90 km 430 km Estimated Cost 100 Million $ 50 Million $ 185 Million $

GAS PIPELINE NETWORK OF PAKISTAN

SNGPL and SSGC are two mainly responsible public limited companies for construction, operation and maintenance of gas pipelines in northern and southern regions of the country respectively. The total network of main pipelines is almost 9,000 km (SSGNP share 6121km and SSGC share 2942km) and distribution network 70,000 km. In addition, SNGPL is expanding its transmission system by 1,045 km, increasing the network to 7,309 km. However, SSGC will add 608 km of transmission pipeline, expanding its network to 3,550 km by 2010 from 2,942 km this year.

Geological and geographical conditions of Pakistan are very complex for the construction of oil or gas pipeline projects. Almost 50 % of the total area of Pakistan is mountainous. In northern areas specially different chains of mountains coming from different directions are meeting. There is also an extensive net work of wide rivers and canals in Pakistan.

year

Financial loss (bn Rs) 9.08 7.04 5.92 5.52 12.72 64.84 41.44 data not available data not available 15.96

Human loss

Effected area (2) 7,000 8,000 29,065 16,200 13,645 32,000 11,952 data not available data not available 4,400

1950 1955 1956 1973 1975 1976 1978 1981 1982 1988

2,910 679 160 74 7 126 425 393 82 350 508

1992
1995 2001 2005 2007

56.00
7.00 10.3 20.0

1,008
591 231 520 45

15,140
6,518 9,850 5,691

DEVELOPMENT OF RISK MANAGEMENT MODEL

The main objective of model development is to reduce or compensate losses, or damage due to the occurrence of the unwanted risks. At the same time it is also required to develop different mechanisms and strategies (risk transfer, risk reduction, risk distribution, avoidance, risk enhancement), which are most appropriate with the situation and environment of the project (system). The following aspects are associated directly or indirectly to the risk management of a project. Scope management Financial management; Resource (material, machine and manpower) management; Time Management; Quality management; Communication and information management.

Input Organizational environmental factor Organizational process of assets Project scope management Project management plan

Process

Out put

Planning meeting and Risk analysis Management Planning course of Plan action

Input

Process

Out put Risk Register

Organizational environmental factor Information collection Organizational process of assets Project scope management Project management plan Risk Management plan Documentation review Assumption analysis Checklist analysis

Input Organizational process of assets Project scope management Project management plan Risk Management plan Risk Register

Process Risk probability and impact assessment Probability and Impact matrix Risk data quality assessment Risk categorization

Out put Risk Register (updates)

Risk Breakdown Structure (RBS)

Risk Breakdown Structure

Socio-Political Risk (Category-1) Change in Government Policies

SocioEconomical Risk (Category-2) Economic instability

Organizaltional Risk (Category-3) Contractactual relationship

Investment Risk (Category-4)

Technological Risk (Category-5)

Security Risk (Category-6)

Natural Disasters (Category-7)

Ecological Risks (Category-8) Deterioration to natural resources

Credit availabity

Design not in time

War

Earthquake

Public safety and security

Change in economic policy Change in material prices

Unrealistic resource planning

Fluctuation in currency

Complicated site conditions

Terrorism

Flood

Loss of precious animal and plant species

Undue Political influence

Change in scope

Financial and commercial

Accident on site

Landslides

Stabilazation or recultivation

Strickes, Lokout

High inflation rate

Unavailability of labor resources

Deinvestment in the market

Loss or damage to machine resources

Unexpected weather condition

Damage to water resources

Market recession

Project not completed in time

Loss of Financial Partnership

Loss of human resourc

Horrican, wind stroms

Risk Assessment
Risk assessment is defined as a feasible detrimental outcome of an activity or action. Risk assessment process required two items The magnitude (Impact) of the possible adverse consequence (risk), and The likelihood (probability) of occurrence of each consequence. Risk = P x I
Possibility of occurrence very high chance High chance Greater chance Possible Likely Unlikely Probability (P) 90 % 75% 60% 45% 30% 15% Type and level of risk Impact When maximum impact on scope, time and cost High impact on scope, medium impact on time and lesser impact on cost High impact on time, medium impact on scope and lesser impact on cost When high impact on cost of the project, medium impact on time and lesser impact on scope. Impact Factor (I) 0,9 0,6 0,3 0,1

Usually the risk are analyzed on the basis of PMI defined P and I values. However historical data can be used to convert event into probability. For accurate calculation, of p values the appropriate law of probability should be used depending upon characteristics of the data.

70,000 60,000 50,000 40,000 30,000 20,000 10,000 0,000 0

800,0

Series2 Eartquake frequency v/s intensity y = 119,2e-1,1623x

700,0

600,0

500,0

1991-92 1992-93 1993-94 1994-95

400,0

1995-96 1996-97 1997-98

300,0

1998-99 1999-00 2000-01

200,0

Maximum Minimum Average

100,0

0,0 0 5 10 15 20 25 30 35 40

 ($)
700 600

($)

500 400 300 200 100 0

1990 1991 1992 1993 1994 1995 1996

y = 121,7e 0,1015x R2 = 0,9461

6,00 5,00

/
y = 2,675e 0,0348x R2 = 0,7629

1997

1999

2000

2001

2002

2003

2004

2005

Price per ton (PKR)

4,00 3,00 2,00 1,00 0,00

Yearly change in econimc parameter

14,00% 12,00%

%age change Inflation

10,00% 8,00% 6,00% 4,00% 2,00% 0,00%

1990 1992 1994 1996 1999 2001 2003

1990

1991

1992

1993

1994

1995

1996

1997

1999

y = 4,2494e
2

Year

2000

R = 0,8852

2001

2002

2003

2004

0,2015x

2005

2006

2005

Identification of critical risk and risk mitigation process

Once the project is selected for execution the critical risks are identified. Critical risk are the risks with highest risk score in the risk register. Therefore they are the most probable events impacting strongly on the project. The strategy is set by the organization to eliminate, mitigate, distribute or transfer risk to another party. The course of action of the any organization or participant (consultant, contractor, client or owner) participating in the construction process of oil and gas pipeline can adopt one or combination of course of action given below, depending upon the type of project, location and circumstances. 1. 2. 3. 4. 5. Distribution of risk between participants of the project; Risk Transfer; Contingency Budget; Risk reduction; (root cause reasons) Risk avoidance;

USE OF COMPUTER SOFTWARE (Risky Project 13.1) MODELING OF MUREE-RAWAT GAS PIPELINE PROJECT

Monte Carlo simulation, randomly generates values for uncertain variables over and over to simulate a model. For each uncertain variable possible values with a probability distribution are defined. The type of distribution selected is based on the conditions surrounding that variable. Distribution types include:

Simulation calculates multiple scenarios of a model by repeatedly sampling values from the probability distributions for the uncertain variables and using those values given in programme Riskyproject (data of real project) Sensitivity analysis Success rate of completion Critical risks affecting cost Critical risks affecting duration of project Critical activities. Most probable duration Most probable cost of the project Most probable date of completion of project.

The Monte Caqo simuation on 30,000 iteqation was done on Muqee Gas pipeine data and qesuts aqe shown in the figuqe beow.

 C = CP C = {M SP , M

SE,

M Org , M inv , M Tech , M

Sec

,M

Nat,

Eco}.

CP

M SP = 1 (r1, r2, r3, r n) .................................................... M

Eco=

8 (z1, z2, z 3, z n)
SE,

C = CP C= { SP , C = C CP = (CP)

Org , inv , Tech ,

Sec

, Nat,

Eco}

(CP)

RESULTS AND RECOMMENDATION

Probability of risk occurrence P comes out to be the function of project duration T both during construction and operation phase. However Intensity of destruction or Impact is a function of enterprise environment. Three most critical tasks calculated by Risky Project are Excavation, Transportation of Material and Stringing of pipelines. The most critical risks come out to be change in economic parameters, Change in design and scope, earthquake and terrorism during construction and operation of gas pipelines. Considering all risks the probable values to project completion calculated by Risky project is 460 days however the base project duration is 390 days. Similarly the project cost with out risks is 350,00,000 however, with risks it is 391,00,000. On the basis of that contingency budget of project can be formulated to cater the risk. The secondary risks like change in material prices, construction not finished in time or budget and design not in time can be reduced or transferred to the other party or organization by contract. However SNGPL is designing, constructing and operating gas pipelines so risk can be eliminated by strengthening the internal organizational capacity for design, construction and operation. Organizational or technological risk like insufficient resource planning or project management, change in scope etc can be eliminated by improving the process or application of new technologies available in this field. New state of the art technologies are helpful in managing change at any stage of the project. Historical data of river flows shows that the flood has probability of 95% of occurrence between June to August. This risk can be minimized during construction phase by rearranging the construction schedule. Other risks like landslides are associated with floods, rain fall or earthquakes.

REFERENCES

ACKNOWLEDGMENT Mr. Pervaiz H. (Chief Engineer, Projects) and Mr. Waqar Ashraf (Dy. Chief Engineer Projects) SNGPL, Head Office Lahore, Pakistan are acknowledged for providing project data only for research purposes. The Computer Laboratory of Gubin State University, Moscow, Russia is acknowledged for support with computer programming and use of programme Riskyproject. CONTACT: Sajjad Mubin (Phd Student) Gubkin State University of Oil and Gas, 65-Lininsky Prospect, Moscow, Russia www.gubkin.ru Email: sajjadmubin@yahoo.com