To contractors and consultants, last year's Enron Corp. debacle looms like an 800-pound gorilla over the natural gas pipeline market. "Ever since the Enron deal, we've seen most of our clients cut back on their capital spending," says David L. Edgar, manager of pipelines for Mustang Engineering Inc., Houston. "We've seen companies that had pipeline projects [planned] shut them down, which caused us to reforecast our revenue for this year." Because many energy companies were tarred with Enron's brush, "financing is real hard to come by," says Lonnie Hamilton, vice president of business development for Willbros Engineers Inc., Tulsa, Okla.

(Photo courtesy of the GulfStream Natural Gas Systems LLC)

But more than Enron is to blame for the slowdown. Steve Dracos, senior vice president for business development at Houston-based Universal Ensco Inc., recalls that last summer the company bid a 380-mile pipeline and an 800-mile pipeline, but "then the powerplant market fell out from under" those projects. Operators try to cut down on long lead times by commissioning design services years before a project's scheduled construction start, but continuing a pattern familiar to E&C firms serving the industry, many of those proposals eventually fizzle for financial or other reasons, Dracos says.

SPECIAL DELIVERY Turnkey approach for compressor stations is gaining favor among owners looking for one-stop shopping.

Taking the long view during the current downturn, E&C firms are gearing up for renewed activity. "We are doing more upfront planning and project management for jobs of all sizes," reports J. Daniel Pigott, vice president for corporate engineering at Blue Bell, Pa.-based Henkels & McCoy. "It puts more pressure on finding and lining up the qualified resources for these projects."

Owners' interest in one-stop shopping is drawing both plaudits and skepticism. Turnkey delivery for compressor stations is becoming more popular, says Bob Sprick, vice president of business development for Gulf Interstate Engineering Co., Houston. "Typically a construction contractor would receive a package of a couple of hundred drawings that we would have prepared," Sprick says. "Now, a lot of the operating companies are providing no more than a set of P&IDs [piping and instrumentation diagrams] and preliminary plot lines. The bottom line is, we're going to price in the risks associated with the project and pass them on to the client."

So far, says Sprick, "We haven't seen the trend on the pipelines to go to [engineering, procurement and construction delivery] as we have on compressor stations." Still, EPC delivery is increasing in popularity. In a step toward raising Willbros' stake, "We're doing more and more projects where we're partnering with the client and sharing risk and sharing rewards," says Hamilton. "If the project's right, we might even take an equity position."

(Photo courtesy of the GulfStream Natural Gas Systems LLC)

But some remain skeptical. Owners' efforts to transfer risks associated with right-of-way acquisition and permitting "is something that we don't like as an engineering services company," says Mustang's Edgar. In a practice referred to as "reverse auctioning," operators are inviting bids on services like inspection and right-of-way location. "That makes it very, very competitive," Edgar says. "We see guys bid low enough that we know they're losing money." Operators are thinking twice about this strategy, since it can lead to reduced quality of services, he says.

Even as EPC delivery gains momentum, Edgar estimates that "90% of the clients still do [project delivery] the traditional way," providing a contractor with a complete set of design drawings. In an unusual strategy that Sprick says will "take a little bit of risk off us," the owner will reimburse Gulf Interstate on a lump-sum basis for overhead and fees on a forthcoming pipeline project in Northern California, and on an hourly basis for direct costs. If actual work-hours exceed the estimate, Gulf Interstate will be reimbursed on a direct-cost basis. Sprick calls this approach "a good way to share risks" and to "make sure we're not building in too many contingencies for the price."

Along with project delivery, technology continues to evolve. In a dramatic reversal from only a decade ago, global positioning systems account for about 90% of pipeline surveying, with conventional methods now used just 10% of the time, says Dracos. Clients want data like pipeline depths, joint numbers and weld locations to be recorded electronically and fed directly into their geographic- information-systems databases, Dracos says.

HIGHER STRENGTH. The continuing development of high-strength, high-yield pipe heads the list of trends in materials. Strong steel means less steel, and lower pipeline cost. Steel pipe rated X70–so called because it can tolerate 70,000 psi before deforming–is already in common use. The next step will be pipe rated X80, and X120 is on the horizon.

(Photo courtesy of the GulfStream Natural Gas Systems LLC)

As this higher-strength steel pipe raises tolerances, "Mechanized welding and ultrasonic welding inspection continue to take a bigger and bigger place in our industry," says Dracos. Mechanized welding helps eliminate variability and improves consistency and quality control, he says.

Advances are also on the way for plastic pipe, which now accounts for 90% of distribution lines, says Jim Albrecht, a spokesman for the Gas Technology Institute, Des Plaines, Ill. Although maximum strength today for plastic pipeline is about 100 psi, GTI is working with manufacturers to develop 300-psi pipe. Manufacturers are also testing ways to incorporate a magnetic element as the plastic is extruded so that pipe can be located without maps, Albrecht says.

On the equipment track, executives cite the increased use of directional drills as offering both cost and regulatory benefits. Says Mustang's Edgar: "If you're crossing a creek or a marsh area, it makes the permitting agency happier that you're not cutting the river or cutting the creek."

Regulatory issues continue to be a frequent stumbling block. "If we have a project in which we're responsible for engineering and right-of-way, now you're having to deal with multiple agencies for approvals on the same project," says Henkels & McCoy's Pigott. And contractors must often shrink work areas to minimize environmental impact, a requirement that raises costs and stretches out construction schedules.