NACE International’s IMPACT Study Breaks New Ground in Corrosion Management Research and Practice

In 2002 the US Federal Highway Administration (FHWA) released a benchmark study, Corrosion Costs and Preventive Strategies in the United States (Koch et al. 2002), on costs associated with metallic corrosion in a wide range of industries. It revealed that the total annual estimated direct cost of corrosion was $276 billion, equivalent to 3.1 percent of the US gross domestic product (GDP). In addition to detailed cost analyses, the report presented preventive corrosion control strategies.

The study, updated to account for inflation, is still widely used, but there had been no attempt at a more in-depth look at the effects of corrosion as related to corrosion management practices, particularly on a global basis. In October 2014 NACE International, the technical society for corrosion professionals with more than 36,000 members worldwide, initiated the International Measures of Prevention, Application, and Economics of Corrosion Technologies (IMPACT) study. The results were released in March 2016 at the NACE annual conference, CORROSION 2016, in Vancouver, and the report (Koch et al. 2016) is available at impact.nace.org.

This article provides a summary of the scope, approach, and significant findings of the IMPACT study, including corrosion control strategies that could save hundreds of billions of dollars per year.

Scope of IMPACT

A primary goal of IMPACT was to examine the role of corrosion management in establishing industry best practices, enabling maximum cost savings, enhancing public safety, and ensuring environmental protection. The study focuses on segments of four major industries—energy, utilities, transportation, and infrastructure—and features in-depth research and resources in the following areas:

• Updates of the global cost of corrosion
• Assessment of corrosion management practices across various industries and geographies
• A template for corrosion management in the form of a corrosion management system framework and guidelines
• Financial tools that can be used for calculating life cycle costs and return on investment
• Methods for organizations to benchmark their corrosion management programs with others around the world.

Update of the Global Cost of Corrosion

To determine the global cost of corrosion, IMPACT researchers analyzed publicly available studies from around the world. The assessment (included in the report) revealed that the global cost is now an astounding $2.5 trillion, equating to 3.4 percent of a country’s GDP.

The use of corrosion control practices could yield savings of 15–35 percent—between $375 and $875 billion. These costs typically do not include the safety or environmental impacts of corrosion, which can have significant financial, regulatory, and legal consequences for an organization.

Time-proven methods for preventing and controlling corrosion depend on the specific material to be protected; environmental aspects such as soil resistivity, humidity, and exposure to saltwater or industrial environments; the type of product to be processed or transported; and many other factors. The most commonly used methods are organic and metallic protective coatings; corrosion-resistant alloys, plastics, and polymers; corrosion inhibitors; and cathodic protection.¹

The most critical finding of the IMPACT study is that, while it is important to continue investment in technology and systems for corrosion control, it is essential to put this technology in an organizational management system context and justify corrosion control actions by business impact. This can be accomplished through a corrosion management system that is understood and supported at every level of an organization involved in protecting assets. The Corrosion Management System Framework is the core deliverable of the IMPACT study.

The Corrosion Management System Framework

The Corrosion Management System (CMS) Framework is an organizational structure that enables effective corrosion mitigation while providing a positive return on investment (ROI; the benefit, or return, of an investment divided by its cost). The CMS is a set of processes and procedures for planning, executing, and continually improving a company’s ability to manage the threat of corrosion for existing and future assets and asset systems. Figure 1 shows the interrelation of a pipeline operator’s corrosion management and overall organization management systems. Figure 2 presents the CMS pyramid, which is central to the IMPACT findings and recommendations.

Figure 1

Figure 2

Managing the threat of corrosion requires consideration of both the likelihood and the consequences of corrosion events. The report defines the consequence, or impact, of corrosion as the potential or actual monetary loss associated with the safety or integrity of the corrosion event. This value is typically quantifiable by considering lost revenue, cost of repairs, and cleanup costs, as applicable. Another impact is deterioration of an asset to the point that it is no longer fit for its intended purpose (e.g., lost future production).

In general, corrosion threats should be mitigated to a point where the expenditure of resources is balanced against the benefits gained. To determine whether a corrosion management investment is appropriate, it can be compared to the potential corrosion consequence through an ROI analysis. For corrosion management, the costs may include inspection and other maintenance costs. The ROI is not in capital gains but in the avoidance of safety or integrity costs.

Investing in CMS activities such as inspections and maintenance may not prevent all corrosion events because the likelihood of failure is rarely zero. Additionally, the consequences of corrosion events may be compounded by system-related issues such as lack of training, failure to follow procedures, or inadequate emergency response. Therefore, investing in a CMS to frame corrosion activities with the system elements necessary for planning, execution, and continual improvement should be considered part of the ROI.

The IMPACT report provides diagrams that depict CMS components, as well as information on CMS policies, strategies, and objectives; enablers, controls, and measures; risk management; and many other resources to enable companies to incorporate an effective CMS in their organizational structure.

Benchmarking

A critical component of the IMPACT study was to collect data on how organizations in different industries and countries conduct their corrosion control activities, with emphasis on corrosion management practices and their place in an overall organization’s management system.

First, a Corrosion Management Practice Model (CMPM) was developed to provide a repeatable framework for assessing the structure, approach, and features of an organization’s CMS. From there, a 70-question self-assessment survey was developed, encompassing nine management system domains: (1) policy, including strategy and objectives, (2) stakeholder integration, (3) organization, (4) accountability, (5) resources, (6) communication, (7) corrosion management practice (CMP) integration, (8) continuous improvement, and (9) performance measures.

Scores for each of these practices ranged from 0 to 1: 0 reflected no capability and 1 the highest level of capability based on the provided answer options. Table 1 gives an example of a survey question and answer set.

Table 1

The survey was conducted in industries worldwide spanning aerospace and aviation, chemical, petrochemical, oil and gas, and water and wastewater. In addition, focus groups of personnel at various management and technical levels were organized in several industries and countries to provide further insight into their corrosion management philosophies and practices.

After data collection the study team performed a series of analyses, two of which included comparisons across geographical regions and industries, to develop the observations and recommendations detailed in the IMPACT report.

Companies across geographic regions and industries consistently scored lowest on policy and performance measures, and to some extent organization and stakeholder integration. The researchers explain that corrosion technology is addressed in plans, procedures, and working practices, but not normally incorporated in higher management system domains. Corrosion management should incorporate technology as the foundation of a CMS.

Company personnel can take the survey on the IMPACT website and pull up graphs depicting their corrosion management program results compared to others in their industry, geographic region, or overall. Of particular value would be for personnel at various levels in an organization to take the survey and compare results with one another to determine whether there is alignment—or identify gaps in their knowledge and approach to corrosion management.

Assessment of Corrosion Management Practices by Industry/Sector

The results of the survey and the focus group discussions with industry subject-matter experts (SMEs) demonstrated that corrosion management practices vary significantly based on the type of industry, geography, and organizational culture, from the absence of corrosion management to full incorporation of a CMS into an organization’s management system. Even within an organization, significant differences can exist, depending on local culture and practices.

The researchers analyzed the survey results to identify standard and best practices and gaps in corrosion management practices, and recommended mitigation measures for improvement. The study focused on the oil and gas, pipeline, and drinking and wastewater industries, where corrosion has a major impact on safety, the environment, cost of operations, and reputation. The study also reviewed corrosion management practices in the US Department of Defense (DOD).

Oil and Gas Industry

The oil and gas industry is capital-intensive, with assets such as wells, risers, drilling rigs, and offshore platforms in the upstream segment, and pipelines, liquefied natural gas terminals, and refineries in the mid- and downstream segments. Corrosion is a major cost in the operation of oil and gas facilities and most companies have some sort of corrosion control or management program, the complexity of which depends on the size, geographic location, and culture of the organization.

Figure 3

The survey captured self-assessment results from international and national oil companies (IOCs, NOCs) as well as those specializing in intermediate and unconventional oil. Figure 3 is a radar diagram benchmarking the three NOCs and two IOCs that responded to the survey.

Pipelines

Corrosion is a major contributing facture to pipeline failures because of the corrosive nature of their contents, which include dry gas, wet gas, crude oil with entrained/emulsified water, and processed liquids. Appropriate corrosion control technologies and strict monitoring are required to protect these assets, and should be incorporated in a CMS.

Figure 4

One benchmarking effort considered selected onshore pipeline operators in the United States, Canada, and India to discern differences in corrosion management for companies that operate under different regulatory environments (figure 4). The US and Canadian pipeline companies operate under strict national regulations set by the Pipeline and Hazardous Materials Safety Administration and National Energy Board, respectively, whereas the Indian company follows company standards and regulations largely based on internal/local standards and recommended practices. Notwithstanding these differences, all three show similar scores on performance measures, CMP integration, and accountability, and low scores for policy and performance measures.

Drinking and Wastewater Industry

Much of the world’s drinking water infrastructure, with millions of miles of pipe, is nearing the end of its useful life. For example, nearly 170,000 public drinking water systems are located across the United States, and there are an estimated 240,000 water main breaks per year, most of them caused by corrosion.

Failures in drinking water infrastructure result in water disruptions, impediments to emergency response, health issues, and damage to other types of infrastructure, such as roadways. Unscheduled repair work to address emergency pipe failures may cause additional disruptions to transportation and commerce.

In 2012 the American Water Works Association determined that the aggregate replacement value for more than 1 million miles of pipes in the United States was approximately $2.1 trillion if all pipes were to be replaced at once. Since not all pipes need to be replaced immediately, it is estimated that the most urgent investments could be spread over 25 years at a cost of approximately $1 trillion.

Capital investment needs for the US wastewater and stormwater systems are estimated to total $298 billion over the next 20 years. Pipes account for three quarters of these needs.

IMPACT considered a report from Australia’s National Water Commission (2010) that recorded and measured up to 117 indicators from 73 water utilities across the country serving approximately 75 percent of the population. These indicators (and other information) were examined to determine costs associated with corrosion in the following categories:

• Water loss from pipeline failures
• Intangible costs associated with water and sewer pipe failures and replacement
• Water pipeline corrosion repairs
• Sewage treatment costs due to infiltration
• Capital cost for water and sewer pipeline replacements
• Maintenance and repair of water treatment plants
• Maintenance and repair of other assets such as tanks and pump stations
• Maintenance and repair of sewage treatment plants.

The total annual costs of corrosion in Australia in 2010 were estimated to be $690 million.²

Comparison of corrosion management practices of potable water systems in North America and Australia shows that the Australian water companies scored much higher than the North American water industry in continuous improvement, CMP integration, and communication (figure 5). The IMPACT research team found this somewhat surprising considering that the Australian water industry scored low on policy, suggesting that the industry has a limited corrosion management policy, which is considered critical to good corrosion management practices. The American water industry appears to have policies, but implementation can be improved.

Figure 5

US Department of Defense

Since the 2002 FHWA study, which estimated the cost of corrosion to DOD at approximately $20 billion (validated through DOD’s own analyses), the DOD has been developing and implementing a comprehensive corrosion management program.

The IMPACT study stresses the importance of top-down support for a CMS, which is epitomized by the DOD’s program. The Under Secretary of Defense for Acquisition, Technology, and Logistics was a supporter from the start. The program, which ranges from setting policy to calculating the cost of corrosion for projects, assets, and components, is run by the DOD Corrosion Policy and Oversight (CPO) Office and includes all critical components of a CMS.

The IMPACT report reviews the CPO’s strategic plan and organizational structure and describes how it is successfully managing corrosion control activities across all of the services. The DOD estimates its composite ROI for protecting assets (vehicles, aircraft, base facilities, and weaponry) to be 16:1. An appendix in the report features numerous examples of DOD ROI calculations and the cost of corrosion for projects across all areas.

Corrosion Management Financial Tools

Corrosion management includes all activities, through the lifetime of a structure, to prevent corrosion, repair its damage, and replace the asset. These activities—maintenance, inspection, repair, and removal—are performed at different times during the lifetime of the structure.

Some maintenance is a regular activity (characterized by annual cost), inspections are periodic, and repair is done as warranted. Rehabilitation may be done once or twice during the lifetime, and the cost is usually high. Applying different corrosion management methods may positively affect the lifetime of a structure of a particular design without increasing the cost.

To meet corrosion management objectives, tools or methods are available to calculate the cost of corrosion over part or all of an asset’s lifetime. In addition to ROI assessment, these methods include cost adding, constraint or maintenance optimization, and life cycle costing; all are thoroughly described in the IMPACT report, with assistance and tools for integration in a company’s CMS.

Return on Investment

ROI is a primary performance measure used to evaluate the efficiency of an investment (or project) or to compare the efficiency of different investments. An ROI calculation is used along with other approaches to develop a business case for a given proposal. The complex part of ROI is determining cost savings and investment costs. To compare investment proposals, ROI must be annualized or the time over which the ROI is achieved must be stated.

Cost Adding

This method, used by the DOD, calculates the cost of corrosion of an asset or project from the top down (i.e., cost of materials, services, or labor required for the project, typically budgeted by upper management). Programs, projects, and assets are analyzed to determine cost components that are specifically related to corrosion, excluding all others. However, significant gaps usually remain, and these are addressed by looking from the bottom up (i.e., considering input from program-implementing employees on the wisest use of funds). All corrosion-related expenditures are added and compared with the top-down cost assessment.

By comparing the top-down and bottom-up corrosion cost assessments, the DOD has been able to accurately determine direct corrosion costs of a project or asset and to calculate ROI.

Constraint Optimization

A constraint optimization framework is used to determine the optimal corrosion management practice for a specific structure or facility in keeping with a fixed or limited budget. Development of the constraint optimization framework requires three major steps:

1. optimizing expenditures of the structure,

2. maximizing the service level subject to budget constraints, and

3. building a constraint optimization model.

Maintenance Optimization

Maintenance optimization calculates the financial benefit of a maintenance action (i.e., inspect, repair, or replace). When expressed in terms of net present value, the scheduling of maintenance projects can also be optimized. One way to monetize corrosion maintenance decisions is through an assessment of risk, which combines probability of failure and its consequence and can be expressed as a cost.

Life Cycle Costing

Life cycle costing (LCC) is used to determine the corrosion cost of certain assets by examining

• capital cost (CAPEX),
• operating and maintenance cost (OPEX),
• indirect cost caused by equipment failure,
• material residual value,
• lost use of asset (i.e., opportunity cost), and
• any other indirect cost, such as damage to people, the environment, and structures as a result of failure.

The LCC approach makes it possible to compare alternatives by quantifying a long-term outlook and determining the ROI. LCC can be performed by using several costing methods, such as cost adding or the Bayesian network approach.

Education and Training

In the next decade a significant transition and turnover in knowledge will occur in the corrosion community. IMPACT cites workforce studies estimating that approximately 25 percent of the total workforce in the United States is over 50 years old, and the median age of NACE members is 47.

While taking advantage of formal internal and external education and training (E&T) programs, corrosion management systems must have a way to effectively transfer individual and institutional knowledge. Specific on-the-job training and mentoring programs are being used to transfer SME knowledge.

From the report it is apparent that E&T course content is heavily focused on the lower levels of the CMS pyramid, procedures and working practices, with essentially no content on the upper levels of policy, strategy, and objectives. Yet E&T will play an important role in the integration of corrosion management in an organization’s management system.

E&T programs must also prepare corrosion professionals to better communicate to those outside the profession. They should not expect outsiders to learn their technical language.

Finally, corrosion professional societies must emphasize business strategy and/or public policy when advocating positions to those outside the corrosion profession. Using the principles of a CMS will make these arguments more persuasive.

Strategies for Successful Corrosion Management

Realizing the maximum benefit in reducing corrosion costs (both direct and consequential) requires more than technology; it requires integrating corrosion decisions and practices in an organizational management system. This is enabled by integrating a CMS in system elements that range from corrosion-specific procedures and practices up through organizational policy and strategy—i.e., all levels of the CMS pyramid.

It is essential that traditional corrosion management procedures and practices (lower levels of the pyramid) be communicated to policymakers and decision makers (higher levels of the pyramid) in the form and terminologies of organizational policies. Simply, corrosion management practices need to be translated into the language of the broader organization, which must commit to ownership of the CMS activities and processes. This means buy-in at all levels of an organization.

IMPACT provides tools and examples to help facilitate business communications between corrosion professionals and senior management, leading to integration of a CMS throughout an organization’s management system. The US DOD is an excellent example of an organization that effected a cultural change and a commitment to optimization that permitted corrosion management practices to be institutionalized in an entity of its size and diversity.

Industries and governments worldwide will benefit by studying and implementing the findings from the IMPACT study detailed in the publicly available report.

References

Koch GH, Brongers MPH, Thompson NG, Virmani YP, Payer JH. 2002. Corrosion Costs and Preventive Strategies in the United States. Report No. FHWA-RD-01-156. McLean, VA: Federal Highway Administration.

Koch GH, Thompson NG, Moghissi O, Payer JH, Varney J. 2016. IMPACT (International Measures of Prevention, Application, and Economics of Corrosion Technologies) Study. Report No. APUS310GKOCH (AP110272). Houston: NACE International.

National Water Commission. 2010. National Performance Report 2008–2009: Urban Water Utilities. Canberra.

FOOTNOTES