Stop competing, start collaborating

Audrey Raj

June 1, 2016

We have the saying “digital oilfield” within the industry, but does it exist in reality? Audrey Raj reports.

Technip CEO Thierry Pilenko.  Images from OTC Asia.

With offshore projects in Asia Pacific targeting increasingly complex reservoirs and deepwater environments, execution risk is clearly increasing, not to mention costs overruns. Other industries have had the successes with repeatable models to drive down costs and ensure that standardization occurs at every part of the value chain. However, despite many years of effort, the oil and gas industry remains somewhat elusive.

While we have seen operators and the supply chain working together to develop fit for purpose designs to bring back expenditures, we need more of this in today’s low oil price environment. As technology and manufacturing developments can be unpredictable, sharing the risk as well as the rewards could just be a win-win strategy for all.

Although, essentials like collaboration, standardization and innovation have become more important than ever, so has the need for behavioral change across the board. This was echoed by industry experts at the 2016 Offshore Technology Conference Asia (OTC Asia) held in Kuala Lumpur, Malaysia; and the 18th International Conference & Exhibition on Liquefied Natural Gas (LNG 18) held in Perth, Australia.

SapuraKencana CEO Tan Sri Shahril Shamsuddin. 

Behavioral change is key

If the industry is leading on to find cost cure, it must look at things that are sustainable. In the very short term, all operators are doing what they have to do, which is trying to extract cost savings as quickly as they can.

“But in many cases those savings are absolutely not sustainable,” warned Technip CEO Thierry Pilenko. “Cost reduction is not happening throughout the industry because people are still behaving the old way, which is to reduce cost of individual elements instead of rethinking the entire system. This is where working on the behavior is going to be as important as actually trying to react in a very short-term,” he suggested.

In terms of innovation, there are areas in which Asia is at the edge and at the same time lags, such as fluids and subsea valves, to name a few. The region is also a fast growing research and development hub for many service companies.

Looking on a global scale, Pilenko said there is no monopoly of innovation in the world anymore. For example, if we look at the efficiency and innovation, and the technology integration deployment that exists in Brazil today, its way beyond most of the developments seen in the Gulf of Mexico.

“In terms of standardization, simplification and innovation, it is to the point that some of the things we are now developing in Brazil like flexible pipe technologies, can be now deployed in the rest of the world,” he said

“And this is what is happening in Asia. We should not forget that Asia is the place where the first two floating LNGs are being constructed today. Big in Malaysia is the PFLNG SATU, and the next one very soon in Australia is a much larger unit. So, I think there is no single place in the world that can say there is a monopoly of technology innovation,” Pilenko said.

Voicing concern about standardization, Petronas’ CEO for upstream Datuk Mohd Anuar Taib said that while standardization is already taking place in the sector, more can be achieved only if the supply chain lets go of the “yes, I agree to standardization, but on my standards” thinking, which is sometimes against standardization.

Although, this is true to some level, the supply chain doesn’t feel empowered to challenge its own standards, Pilenko countered. He said this is where we have to measure behavioral change, so that not only oil companies feel that they can allow the entire supply chain to challenge the way they work, but supply chain members feel empowered to do that as well.

“This is not the way this is happening for two reasons,” Pilenko said. “First, is because we have put in place processes across the supply chain that has been there for 20 years. The second thing is we are passing down the supply chain very contradicting messages and I need to talk about that.

“We cannot say that we are here, we all love each other and we are going to have a new way to work. And at the same time, the first groups that you see are lawyers and contract managers saying these are the new terms and conditions, which by the way you have to abide to, otherwise you are immediately excluded. And those terms and conditions are the worst that we have seen in 30 years,” he said.

Another area to look into is over the years we have also broken up the value chain and this has increased the management costs of the contracts itself, added SapuraKencana CEO Tan Sri Shahril Shamsuddin.

“For example, if you have 10 contracts, you have 10 lawyers, and if you have a 1000 contracts, we have a 1000 lawyers saying that we have to take on the return that we need and safety margins along the way,” he said.

“And here is where we have to examine how much of that access costs we have seen since 2004. These are opportunities that if we come together and say lets do blocks of management together; we would actually achieve the savings that we need,” he suggested.

Digitalization

GE Oil & Gas CEO Lorenzo Simonelli. 

If we examine how technology priorities are changing in the oil and gas industry, we see the industry working with the service sector and thinking largely of three things - standardization, cost optimization and the importance of big data automation.

The oil and gas industry is potentially behind some of the other sectors. When you look at the aviation or power sector, the usage of big data is much more pronounced.

“We have the saying of a digital oilfield within the industry, but has that really proved out to be the case,” asked Lorenzo Simonelli, CEO of GE Oil & Gas. “Others are ahead of us and we have got an opportunity to go forward and start to take on best practices from other industries,” he said.

“We have operational islands that are being created. When you think about the way in which this industry works, you got individual consortiums that are running fields, offshore or onshore. These are micro ecosystems that are very independent in nature.

“And we have got to find a way in which we can bring those together and have the ecosystems talk to each other, so as to better predict and have a better outcome at the end of the day. Therefore, we have to break the operational islands that exist within our industry, and big data enables us to do that,” he explained.

For example, on a weekly basis an offshore well would generate millions in revenue. Should that well go offline, it’s a very significant impact on the bottom-line of an operator. However, if there is consistency in monitoring the well, reducing the time of which it goes offline is achievable. Currently, there is over a 100,000 pieces of rotating equipment in the industry and two million miles of pipelines.

Simonelli said a world of tomorrow is where an inspection service is the aspect of a drone flying on an offshore platform being able to sense what’s happening to the corrosion of the metal. Or an ROV that is automated and positioned down deepwater monitoring a platform. Basically, being able to provide that information back into a database, which then correlates it with the total architecture of a platform. That’s the world we are going to - a world where we can connect all of the devices, gain meaningful information and provide better outcomes.

Schlumberger’s vice president for data and analytics, Arun Narayanan said big data, machine learning, internet of things, and the ability to analyze a lot of streaming information with compute power that is available to us is what’s going to make that change “In our opinion, there is going to be significant changes happening in the IT and digital space,” he said.

Innovate to reduce costs

If we cut through the clutter and look at what’s happening in the liquefied natural gas (LNG) landscape, it comes down to a market going through a characteristic down cycle as well. If gas prices continue to be depressed, some producers may pull the plug on LNG projects that have not gone through with final investment decision (FID).

Shell CEO Ben van Beurden highlighted that in meeting future demand, projects with the lowest production costs have a much more competitive advantage. “That’s one reason to drive down capital costs, but it’s not the only one,” he said.

“Costs also need to come down to make gas competitive with other sources of energy such as coal and renewables. So, our industry needs to continue to innovate to drive down capital costs across the LNG value chain, from upstream development to liquefaction, shipping and regasification.”

The most important areas to focus on are design, engineering and construction. LNG plants have become more expensive because more time is taken to engineer them, due to lower productivity and complex locations.

“We need to reverse this trend,” van Beurden proposed. “Standardization of design, engineering and construction is one key factor. Another is working more effectively and efficiently in the supply chain.”

He said that Shell is playing its part in these areas, and a case in point is the firm’s floating LNG (FLNG) project, Prelude, designed to open up remote gas fields considered too costly or difficult to develop in the past.

Well into its construction phase, Prelude is now a standardized design. Depending on the composition and location of gas reservoirs, Shell can add different pre-designed topside modules and offloading systems. And working with strategic suppliers, the project also led to spinoffs.

“Let me give you an example,” van Beurden said. “Prelude is designed to export LNG, LPG and condensate from resource-rich gas fields. But there are also a lot of so-called lean gas fields which do not produce as much LPG and condensate. To produce more LNG instead, we’ve made some changes to the Prelude design and developed FLNG Lean. We expect FLNG Lean to be cost competitive for larger, lean gas fields.”

Like Shell, Woodside Energy is also planning to drive down costs over the next two to three years with step-changing technological advances. CEO Peter Coleman said their company is aiming to position itself for FID so that it can provide LNG supply in the early to mid-2020s when the market will be demanding it.

“By technological advances, I mean concepts like the next generation of modular construction for LNG developments, near shore and FLNG, and using data science to enhance reliability of our assets,” he said. “We’ll be driving home our technology advantage and aiming to have developments decision-ready for the next cycle.”

According to John Berry, Ambassador of the US to Australia, American companies are making an investment of over US$100 billion in Australia’s LNG sector, creating thousands of jobs helped to spur innovation and growth.

“Game-changing developments are taking place right now,” he said. “Australians and Americans have pioneered innovative technology required to keep costs low, improve efficiency, and minimize environmental impact.

“And across Australia, US companies are breaking new grounds. ConocoPhillips developed new flare technology for its Curtis Island LNG facility and supports a carbon offset program in West Arnhem Land.

“In Western Australia, Chevron is eliminating up to four million ton of greenhouse gas emissions at Gorgon by utilizing state-of-the art carbon capture and sequestration technology. Instead of being released in to the atmosphere, carbon emissions are captured and trapped in an underground reservoir,” he added.

Conclusion

To some extend there is obviously a clear gap between operators and service companies when it comes to the ability of the sector to provide services at competitive rates. Standardization is our rapidly changing world of digitization, experts say, as it can lead to some great inventions. It is also similar to collaboration in the sense that operators and the supply chain need to be resistant to common approaches.

People, too, play an important role in the oil patch. From project management to effective strategies and new innovations, people are key to drive operational excellence. The reality is due to mass layoffs, today we are losing a lot of seasoned oil workers with specialized skills. Will that hinder achieving operational excellence in the long-term?