Corrosion Cost and Impact
Australasian Review 

Background

The Australian Corrosion Association (ACA) is a not-for-profit association that disseminates information on corrosion and its prevention or control by providing training, seminars, conferences, publications and other activities. The ACA commissioned Resona to investigate the impact corrosion has on a range of Australia’s and New Zealand’s national infrastructure assets. The ACA’s mission is to reduce and mitigate the effects of corrosion in Australasia. By undertaking this report, the ACA is aiming to elevate the discussion around the timely, cost effective prevention of corrosion while highlighting the annual financial impact corrosion has on our national assets. The overall objective is to provide a resource that will help ensure corrosion is managed sustainably and cost effectively to ensure the health and safety of the community and protection of the environment.

Research from NACE International indicates that the effects of corrosion can contribute between 3.5 per cent to 5.2 per cent (average of 4.35%) of global gross domestic product. If these results are extrapolated for Australia’s GDP, this equates to a high estimate of $78 billion per annum being spent on remediating assets affected by corrosion. While New Zealand has a smaller economy, using the same estimated impact, the cost of corrosion is approximately $NZ16 billion.  The NACE study postulates that using available corrosion control practices, it is estimated that savings of between 15- 35% of the cost of corrosion could be realised (i.e. between US$375 and $875 billion annually on a global basis).

Corrosion occurs in many sectors. While the NACE research identifies the estimated total cost to a country, the actual costs are borne by various sectors within each country. This study has prioritised the following sectors as being prone to corrosion-related issues, and therefore to costs:

  • Oil and Gas
  • Water and Wastewater
  • Construction and Infrastructure
  • Defence

Other sectors may be subject to corrosion and the associated costs to maintenance/ repair, such as the automotive and agricultural sectors. As there is relatively limited data published regarding the costs in these sectors, they may be the subject of future investigation.

Calculating Corrosion Cost and its Impact. 

There are various methods that can be used to calculate the cost of corrosion to the economy as a whole or to any sector within the economy. Each method incorporates varying complexity, and each risks inclusion or exclusion of cost components such as indirect or remedial costs. 

In the Oil and Gas industry, corrosion impacts on pipelines, refineries, and petrochemical plants. It is generally caused by water, carbon dioxide and hydrogen sulphide, and can be aggravated by microbiological activity. The costs associated with corrosion can be grouped as follows:

  • The loss of the oil or gas product
  • Direct costs (e.g. design, cost of inhibitors)
  • Indirect costs (e.g. plant shutdowns, maintenance labour)
  • Remediation costs

Calculation of the costs of any of these components is complex. There is minimal data in the literature that measures the costs to the economies of Australia or New Zealand. In Australia, the cost of corrosion mitigation and repair in the Oil and Gas industry was estimated in 2013 to be $A20 billion

Water and Wastewater infrastructure is extensive across both Australia and New Zealand. The causes of corrosion in the water and wastewater industries vary based on both the material used in the infrastructure and whether that infrastructure is used for water or wastewater. 

In Australia, the value of sewer infrastructure in 2001 was estimated to be worth $A28 billion. The New Zealand stormwater infrastructure has an estimated replacement value of $NZ8.6 billion, while the wastewater infrastructure has an estimated replacement value of $NZ15.8 billion. 

In Construction and Infrastructure, corrosion rates vary considerably based on geographic factors. Latitude and distance from the coast are the primary causes of variation, while vegetation, humidity and landforms all have an effect. In New Zealand, building codes vary based on the perceived corrosion risk.

There are no comprehensive details associated with the costs associated with corrosion. The cost of corrosion-related maintenance of infrastructure (e.g. bridges) in Australia is currently estimated to be $A8 billion. This does not include the cost of corrosion to housing.

Steel and reinforced concrete are the primary materials that are at risk of corrosion in major infrastructure. Bridges are commonly identified in the literature as being at risk of corrosion. In New Zealand, in 2004, a bridge that was constructed from precast pre-tensioned concrete was found to have corrosion in the steel. Following investigation of the structure, a further 137 bridges were identified as being at risk, with corrosion subsequently found in 29 bridges. Other infrastructure at risk of corrosion includes electricity transmission lines, dams, water storage tanks and diversion walls. The costs associated with identification and remediation in any one situation are likely to be in the millions, or tens of millions.

In housing, there are a range of corrosion risks including fasteners, roofing and joinery.

Corrosion poses a severe threat to the operational readiness of defence forces. A cost analysis of corrosion prevention was conducted on four RAN frigates. Depending on the costing method, the cost of corrosion across the RAN in 2015 was between $A137 and $A242 million64. The RAAF has planes with a range of ages. Older airframes can suffer from corrosion that leads to nonconformance. The cost of corrosion over a two-year period was $A2.49 million. For new airframes, improved components incorporating carbon composites are causing significant issues due to galvanic corrosion around metallic fasteners.

Methods of Cost Calculation

There are various methods that can be used to calculate the cost of corrosion to the economy as a whole or to any sector within the economy. Each method incorporates varying complexity, and each risks inclusion or exclusion of cost components such as indirect or remedial costs. When considering the total cost of corrosion to the sectors of the Australian and New Zealand economies, it is important to note that different sources are likely to have implemented different costing methods, and as a result, a meta-analysis of these data may lead to data with a notable but indeterminant margin of error. 

For calculation of corrosion costs, there are a range of factors that need to be considered. Across all sectors that are included in this study, there is a pre-determined economic life for There are a range of methods that can plausibly be used to measure the total cost, as outlined in Cassidy (2015). This paper identifies a range of cost methods used in identifying the total cost of corrosion. While the article is written from a military perspective, the cost options can generally be applied to other sectors. 

None of the methods are particularly accurate in measuring the indirect costs of corrosion. These may be significant in situations where the corrosion has resulted in a failure of infrastructure, where the failure has led to environmental damage, the need for use of alternate infrastructure, or in extreme events, the loss of life.

  1. Input/ Output 

This approach is a general equilibrium model; and is used by the US National Bureau of Standards. In this model, each aspect of production is rated as the proportion of total costs for $1.00 of output – effectively identifying the percentage of output that is attributable it each input. The value for each input is called the coefficient. 

Each input coefficient is adjusted to identify the proportion of cost that is specifically related to corrosion. For example, the cost of the protective coating on a steel pipe is only present to mitigate the risk of corrosion. Therefore, the cost associated with the coating is removed from the coefficient for piping. Once all modified costs associated with corrosion have been removed, the coefficients are adjusted to add to $1.00. This cost represents the cost for the product in the absence of corrosion. 

The primary drawback of this approach is the ability to identify the cost of the mitigation associated with corrosion prevention as part of each coefficient. Indirect costs are not measured. The variability in cost associated with sourcing the various cost coefficients may vary based on unrelated variable factors (such as transportation). As a result, there will always be variability in the data for each coefficient, making this approach less than ideal.

  1. Net Present Value

This approach was used by NACE when assessing corrosion costs in the USA across 26 industry sectors. Costs generated using the Net Present Value approach are based on three stages:

  1. Determination of the cash flow for corrosion related activities
  2. Calculation of the present value of the cash flow
  3. Calculation of the annualised equivalent rate

The drawbacks of the approach include the lack of inclusion of training, facilities, and test equipment. Indirect costs are also not included.

  1. Top-Down

This approach has a starting point of identification of all annual cost associated with an output. As this is the total cost, the cost of corrosion management and maintenance must be lower than this. The costs associated with the output that have nothing to do with corrosion are removed. This provides an efficient assessment of the cost of corrosion, without the need to identify all the costs that are directly or indirectly associated with corrosion. While the approach is reasonably simple to implement, it cannot identify the drivers associated with the cost of corrosion.

  1. Bottom-Up

This approach aggregates all costs associated with individual corrosion events, including corrosion-related labour, and material costs components of the events. The starting point is to measure all maintenance activity, then separating corrosion-related maintenance from other maintenance activities. Other direct costs are also allocated.

While this approach is comprehensive, it is time-consuming to manage, and presumes all relevant labour and material costs can explicitly be allocated to corrosion maintenance in any one project.