And–just as important–would the rate be low enough to attract sufficient commitments from crude oil shippers? First, we need to know the operating costs–the annual out-of-pocket cost of actually running the pipeline (sometimes including having to heat the pipeline–or add diluent or lubricant–to keep heavy oil flowing). 990 million. Then we add 6.5% of that capital cost to the answer for fixed operating expenses, to arrive at the dollars the pipeline needs to charge in a year to achieve its 10% IRR. The end result is that we need an annual revenue level that will reimburse all the operating costs, pay off the original investment over 20 years, and earn a 10% IRR. 4.41 per barrel­­–to make the developer whole for the investment and out-of-pocket expenses over a 20-year life. That can just be a constant annual revenue level, designed like a house payment plus expenses. So now, the annual volume is 73 million barrels times 60%, or 44 million barrels. So for the last step, turning all of this into a rate, it goes like this: At 200 Mb/d, full (100%) use of the pipeline would mean it would move 73 million barrels a year (200 Mb/d x 365 days).

The IEA admits that there will be a slowdown, but is still optimistic on production growth, with gains of 1.1 mb/d in 2020, compared to 1.6 mb/d this year. The U.S. is set to become the biggest oil producer by 2020, according to the International Energy Agency/IEA. Americans have this need for oil to drive our cars everywhere so we are handcuffed to the regions which harvest it. Obviously, one of the more important aspects of gas powered RC cars is the engine. Using an FPSO offshore is, therefore, a more convenient and practical solution than the more traditional methods, and it’s cost effective too. In addition to knowing the capacity and capital cost of the pipeline, we need to know a couple of other important things to be able to establish what the pipeline’s rate would be. If it will charge by the barrel that actually flows, we need to estimate the pipeline’s “load factor,” or the average flow divided by the capacity. Second, we need to recognize that the pipeline won’t always run at full capacity. We’ve run it roughly against a sampling of MIDI projects, and our answers were in the middle of the CAPEX levels they report, so it’s a good rule of thumb.

986 million. Wow, it’s getting easier to spend a billion bucks all the time. To do that, we need to determine the period of time over which we would like to recover our capital costs, as well as establish a reasonable IRR. A final–and critically important–consideration is whether the pipeline project’s rates need regulatory approval. Even if we have no interest in building the pipeline ourselves, we need to know how much money a developer would have to raise and commit to do it to provide us with service. So in a simple example, a 50-mile, 6-inch-diameter line would have 50 times 6, or 300, inch-miles. For one example, rocky ground is more expensive to work with than nice soft prairie soil. In other words, don’t sweat the small stuff when the rule-making thumb is at work. Today, we get to the heart of the matter: What per-barrel rate needs to be charged for a pipeline project to be worthwhile to the developer? Now to the task of estimating our per-barrel rate.

The question is: Is now one of those times for quality Oil and Gas MLPs? So now we want a 20-inch pipe to move light crude 500 miles. One preliminary warning: We noted that this series on oil pipeline economics is similar in a lot of ways to our But I Would Pipe 500 Miles series on the economics of natural gas pipelines. So before relying on a formula like this, be sure to check how it works for some other pipelines in the same area or route, of about the same size. A 6-inch pipe would have a capacity of 18,000 bbl/d (remember, 6 squared, divided by 2, times 1,000 — the flip-side of the sizing formula above). Can this all be turned into one big formula? There is a difference between the mineral owner and land owner and one that is very important to the Landman. Under Alberta law, landowners can’t refuse companies wanting to develop oil and gas below the surface of their land. Disasters in the upstream oil and gas industry can be caused by equipment failure, human error, hurricanes, tsunamis, earthquakes and various unpredictable events. And we’re starting to see layoffs in the industry. While the industry cannot change the properties of the rock, it can develop new techniques to remove more oil from the rock.

We went through a geometry exercise to confirm an already-popular industry rule-of-thumb for estimating the diameter of the pipe to reach a certain capacity. But what about our big, 20-inch, 500-mile pipe to bring Bakken crude to the world? For another, Beverly Hills is a lot more costly to pipe under than is open ground in Texas. Fill out the Form on my site page to get our FREE Investor Kit, which has a lot of valuable the information to get you started. We have also included an example of this form to show you what you will be looking for. We use it as a mesh pad where we stack the crimped strips to form a pad. A typical assumption is that they’ll use it at 60% percent of capacity, or a 60% load factor. But if the shippers will just pay as they go, based on actual use, we have to estimate how often they’ll really use the pipeline.