Improving Contract Strategy to Enhance the Viability of the Oil Transportation Pipeline Business
Abstract
The oil pipeline transportation business faces increasing structural pressure due to declining upstream production, rising operation and maintenance costs from aging assets, and oil price volatility affecting revenue stability. This study aims to formulate adaptive and sustainable contract strategies for the TS Segment as the Oil Transportation Agreement approaches its expiration in 2026. A qualitative case study approach was employed, supported by quantitative analysis. Data were collected through semi-structured interviews, company records, and relevant literature. The analysis included thematic analysis, strategic frameworks (VRIO, PESTLE, stakeholder mapping), and financial evaluation using Discounted Cash Flow simulations, followed by Multi-Criteria Decision Analysis with the Kepner–Tregoe method. The results indicate that the existing commercial model is misaligned with the fixed-cost nature of pipeline operations, leading to revenue volatility and cash flow uncertainty due to oil price-linked tariffs and the absence of long-term capacity commitments. Financial simulations show that a fixed-per-volume tariff provides the most stable performance, generating consistent positive returns above the cost of capital. Strengthening contract structures through long-term capacity commitments and improved minimum payment mechanisms further enhances revenue certainty. These findings highlight the importance of aligning tariff design and contract structure with cost characteristics to ensure business sustainability.
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