Analyzing Contingency Cost Risks in a Pipeline EPC Project Using a Monte Carlo Simulation

Abstract

Indonesia was the eighth largest exporter of liquefied natural gas in 2021, with a total export volume of 14.6 billion m3. Therefore, transporting natural gas becomes an essential program to support the increase of liquefied natural gas. Through the Cooperation Contract Contractors (CCC), a cooperation contract between government of Indonesia (GoI) and Oil Company, the government appoints the engineering, procurement, and construction (EPC) contractor to build the pipeline. However, EPC contractors are at significant risk in calculating contingency costs resulting in cost overruns. This study identified contingency risk factors, determined the most effective risks, and developed contingency costs for EPC pipeline projects. A literature review was conducted, a probability matrix for risk ranks was developed, and Monte Carlo simulation was used. The results indicated that there are risk factors significantly influencing the calculation of contingency costs for EPC pipeline projects, namely changes in the scope of work, delays in permits from the government or regulatory authorities, issues with local communities and the project environment, delays in the construction work, and the material delivery of long-lead items. Based on these factors, the contingency cost risk in a pipeline EPC project determined using Monte Carlo simulation was 14.87%. Before utilizing risk modeling, an efficiency of 4.23%, or a cost savings of $3,323,064.71, was achieved. For future research, it would be preferable to simulate more than three sample EPC projects to analyze variances in contingency costs.