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School of Engineering


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Friday 15 October Tuesday 12 October LATE DATE

MATRIC No. 1003549

SURNAME Maukenov



MSc Petroleum Production Engineering
Full Time
MODULE NUMBER & TITLE ENM203 Вusiness Essentials

ASSIGNMENT TITLE Risk and Uncertainty in Pipeline Transportation


I confirm: (a) That the work undertaken for this assignment is entirely my own and that I have
not made use of any unauthorised assistance.
(b) That the sources of all reference material have been properly acknowledged.
[NB: For information on Academic Misconduct, refer to

Signed …D.Maukenov….............................. Date .12 October 2010

Marker’s Comments

Marker Grade
One of the main directions of oil & gas business is safely delivering
produced petroleum product to the final customer. Although the pipeline
transportation usually relates to the land structures that are always
under observation but it is still risky business as there is always
possibility of failure, leakage of oil products and even disasters.
Accordingly, every project in this area cannot be executed without risk
assessment process and risk controlling programme. This report contains
discussion of risks in pipeline transportation business and ways of dealing
with them. Also report highlights the critical importance of uncertainties
in the projects. As an evidence for provided ideas in the discussion
several examples were given from finished pipeline projects.

There are various definitions of risk. The common definition of risk is
the possibility of an event causing a loss and a possible value of that loss.
It means that the bigger possibility of that event or value of loss then is
the bigger level of risk. The mathematical relationship from the definition
provided is:

Risk=(event likelihood)*(event consequence)

The result from this equation is often shown in quantifiable numbers

such as periodicity of accidents, damages, or economic loss.
In order to deeply assess risks 3 simple questions should be answered:
1. What can go wrong?
2. How likely is it?
3. What are the consequences?
Finding the answer for these questions is actually a risk identification
1. What can go wrong? All risks in pipeline transportation are always
related to a failure. The failure may be the unintentional release of
content, the loss of integrity or breach of technical specification. Also, the
pipeline failure occurs from subjecting to stresses higher than its limits
estimated by project design. (W. Kent Muhlbauer, 2004).
During the risk assessment the question what can go wrong must be
widely answered without missing any possible failure mode, causes and
any threat to the structure, even minor ones. For example, the risk
assessment for construction and operation of gas pipeline project in
Pakistan shows wide range of very complex risk factors (see Appendix A).
(Sajjad Mubin, 2007).
2. How likely is it? It can be seen from the equation of risk that one
of the vitally important factor is probability of an event. Some people
argue that probability is related to statistics, and it relies on measured
data or observed occurrences. Another definition of probability is the
concept of degree of belief. This is strong evidence because it includes
the statistical data as well as the judgement and interpretations.
3. What are the consequences? Consequence implies any kind of
losses. In the pipeline accident (product releasing, fire and explosion)
losses are easily quantifiable (damaged structure, other property; cost of
delay; cost of lost product, cost of sanitization, etc.).
Usually, for evaluation of losses the value of money can be used. This
type of evaluation is not applicable for damages such as human lives or
physical injuries and the pollution of environment. However, it can show
amount of money, which society is willing to pay to mitigate the possible

The next stage after answering the three main risk identifying question
is process of risk assessment. Risk assessing is a process of measuring
it, while the model of risk is a tool for doing measurements. If it is
difficult to do measurement or express in numbers, the reason is lack of
understanding the concept. In fact, only understandable things can be
quantified or measured.
Risk assessment includes identifying the factors or variables that goes
together to create the overall picture of the risk. On the basis of risk
identification the risks can be divided into Risk Breakdown Structure
(RBS) as shown in Appendix A. RBS make things simpler in visualizing
the process of Risk assessment or analysis.
The very important thing in assessing the risk is identifying the
frequency of events without past statistical information. In practice, all
statistical data are collected and then analysed in different ways. The
analysed data was entered to graph with increasing order (Appendix B).
Also, any other methods might be used for further identification of critical
risks. In order to separate most critical risks from minor ones, Pareto
analysis shall be used (20%-80%).
During process of doing measurement there are always arising level of
uncertainty as measurement errors of the tools because of its measuring
limits. In fact, these small amounts of uncertainties have the dramatic
effect on the overall result of project.
It is possible to recognize all the threats to the pipeline. But in the
process eliminating treats, it is impossible to manage and control huge
amount information related to uncertainties involved. Despite the
thousand impacting forces on a structure with “unknown and
unknowable” level, it can be assumed that

Uncertainty = increased risks.

The provided assumption influences risk assessing in various ways.

First, the uncertainties forces assuming carefully the existence of
negative conditions, which encourage the rapid information acquisition.
Also, it also helps to analyse errors. Two possible errors can happen while
assessing condition-saying it is “good” when it is “bad”, and saying it is
“bad” when it is actually “good”. In the first situation, the error will
probably not be discovered until some unlikely event happens. In the
second situation, a condition has an effect of emphasizing the situation
until better data eliminate the “red flag”. So, this approach “guilty until
proven innocent” is actually encourages the reduction of uncertainty.

The final goal of all risk assessment processes is to provide programme

for eliminating identified risks. This programme calls risk management.
Risk management is a reaction to perceive the risk or set of
arrangements to control it. It involves assessing a level of associated risk
with structure and developing and executing actions to deal with current
and future risks.
It is useful to analyse examples from last finished project for better
understanding and seeing the application of risk management. It is
accepted commonly to provide results and recommendations after risk
assessment process, by highlighting most critical risks and compulsory
mentioning other minor risks.
In fact, for evaluation of risks a snapshot of the risk picture at the
moment is always being taken. However, environmental conditions are
usually changing along the length of pipeline. Consequently, during the
project it always must be considered that risk is not a static. Moreover,
risks cannot be explained with ideal mathematical equation, and there is
no universally accepted way of assessing and managing them. There are
no risk assessment methods predicting time and place of pipeline failure.
The failures happen relatively rare and usually because of several safety
provisions breakdown at one time. This makes the situation even
ambiguous and failure prediction almost impossible. Pipeline operators
are trying to capture objectively everything regarding pipeline and its
environment, to use this information as risk content to make better
The purpose of this coursework was to describe main points in risk
assessment and management processes. It was attempted to show
different factors in pipeline projects affecting in risk model and ways of
assessing their possibilities. Although there are hundreds of risk
assessment methods in pipeline transportation, any of these methods
cannot predict time and place of failure. In short, risk assessment and
management are not predicting the time and place of possible failures,
but are collecting all required information and appropriately using it for
making better decisions.
W. Kent Muhlbauer., 2004. Pipeline risk management manual : ideas,
techniques, and resources. 3rd ed. Burlington, MA: Gulf Professional
Sajjad Mubin., 2007. Risk analysis for construction and operation of gas
pipeline projects in Pakistan. [online]. Lahore: University of Engineering
and Technology. Available from: www.uet.edu.pk [Accessed 5 October
Jochen Runde., 1998. Clarifying Frank Knight's discussion of the meaning
of risk and uncertainty. Cambridge Journal of Economics 1998, 22, pp.
Glyn A.Holton., 2004. Defining Risk. Financial Analysts Journal 2004,
Volume 60, number 6, pp. 19-25.
Appendix A

Risk Breakdown Structure of potential risks in gas pipeline construction sector

Appendix B

Plotting of risks on the basis of Risk score.