Pipeline Closure Cost-Sharing Evaluation


Farallon evaluated the cost savings realized in the closure of inactive fuel pipelines resulting from relocation of active fuel pipelines at a fuel storage facility in the Alaska Aleutian Islands. 

The pipeline removal, closure, and rerouting activities were required by the Alaska Department of Environmental Conservation to address concerns about the condition of the aging pipelines and the potential for leaks.  Farallon’s client, a major distributor of petroleum products in Alaska, entered into a Cost-Sharing and Cooperation Agreement with the former facility operator that defined financial responsibilities for environmental investigation and cleanup costs. Farallon was called on to provide technical support for mediation of the agreement.

Almost 28,000 linear feet of pipeline was removed or closed in-place by the former facility operator.  To facilitate closure activities, the current facility operator permanently rerouted several active pipelines.  In evaluating the cost savings resulting from the relocation of the active pipelines, Farallon reviewed invoices pertaining to pipeline removal, closure, and relocation to develop a baseline of actual costs incurred.  Farallon then applied industry-standard engineering cost-estimating methods to determine the additional cost that would have been incurred to remove the inactive pipelines if the active pipelines had not been rerouted.

Farallon estimated that nearly $2 million of additional costs for inactive pipeline closure would have been incurred without the rerouting of the active pipelines.  The additional costs would have resulted from the need to work around active pipelines, and to remobilize at a later date to remove the active pipelines that eventually would require closure.  Farallon’s engineering estimates are being used by the client during ongoing cost‑sharing negotiations between the current and former operators of the facility.