Use of Life Cycle Costing in New and Mature Applications
Authors: Winkel J.D. 
Published: December 2007

A comprehensive materials selection study was completed during the conceptual phase of the Ekofisk Redevelopment Project. This project, which is slated for deployment in the Norwegian North Sea in 1998, makes extensive use of life cycle costing (LCC) to achieve an optimum mix of materials and equipment. Various examples of LCC analyses will be presented, including determination of the best piping materials. One key limitation of the life cycle method is the need to accurately determine a material's expected working life and maintenance requirements. This is not a problem for the redevelopment project since a considerable amount of in-service data has been obtained from existing platforms, both at Ekofisk and other locations. However, extension of this materials optimization approach to downhole applications, such as new water injection schemes, will need to take into account much more limited operational data. Some possible ways of meeting this challenge are suggested.

Introduction:

The LCC method is very useful for making various engineering decisions. There is nothing new about this method (which calculates the net present value of both capital and operating expenses over the whole life of the project), except the degree to which it is now being applied to offshore engineering decisions. This will be illustrated by considering materials selection decisions made in connection with Operating the Phillips Group's mature Ekofisk Complex and design of the new Ekofisk Redevelopment Project (Eko II).

An advantage of the LCC method is that it provides a structured way of weighing all significant technical and cost inputs. Cost Savings which cannot always be intuitively projected can often be found as a result. For the Eko II project significant savings were quantified in such applications as process piping and flowline selection, while experience with other applications such as purchase of various equipment packages, surface treatment, and seawater piping systems has also generally been positive.

LCC method - general:

There are some general limitations the reader will want to consider when using life cycle analyses to facilitate materials screening or procurement decisions. Results will be qualitative, project-specific, and dependent on the accuracy of key input data. These limitations are discussed below and in the following examples.

LCC results are most often qualitative in nature. The uncertainties associated with operating lifetimes, equipment reliability, impacts of future technology, and other inputs are large enough that an accurate estimate of whole life costs is unattainable. However, alternative solutions can usually be compared with a high degree of reliability by ensuring that the levels of uncertainty are comparable for all alternatives being considered and by running additional sensitivity cases.

LCC results will usually be project-specific. The value of weight savings, for instance, may vary considerably between a floater, or tension-leg platform, and a conventional fixed platform. Piping costs will also depend on platform type and layout.

The accuracy of the LCC estimate will depend on how precisely several key inputs can be defined. These include discount rate, predicted service life, initial procurement and subsequent replacement costs, among others. Each of these inputs, in turn, will likely depend on several technical and commercial factors. These may include design parameters (temperature, pressure, media, etc.), corresponding corrosion rates for given materials, procurement volumes, market conditions, and so forth.

LCC is a current industry "buzz-word" and its use is becoming widely accepted. One significant development has been NORSOK Standard P-CR-002 which provides a uniform approach for applying LCC to systems and equipment.

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