Another Perspective

By Sarah O. Ladislaw and Frank A. Verrastro, Center for Strategic & International Studies

The winds of change are once again blowing in Venezuela. The recent announcement of Hugo Chavez’s passing has opened up a host of questions about the future leadership of Venezuela and the potential impact this leadership transition could have on Venezuelan oil production and global oil markets.

Venezuela is one of the largest oil and natural gas resource holders in the world. It is among the world’s largest oil producers (13th) and exporters (10th) and has historically been one of the United States’ largest sources of oil imports (fourth behind Canada, Saudi Arabia, and Mexico). Ever since the failed coup and the subsequent strike that brought about a short collapse in oil production in 2002, followed by nationalization of the oil sector, onlookers have been waiting for indications that the regime’s approach to energy production would either fail once and for all or that some political change would bring about reform and rejuvenation of the energy sector. A political transition in Venezuela is now upon us but how it evolves could mean a lot for the energy sector and global energy markets.

Despite its enormous oil resources, Venezuela’s oil production (regardless of whose figures you use) has long been in steady decline. In 2011, liquids production was 2.47 MMb/d , down a million barrels per day since 1999. Some of this is reflects the changing cost and economics of Venezuelan oil production, but field decline is significant and expertise and reinvestment are questionable and looking harder to come by. The internal technical and managerial capabilities of state run oil and gas company PDVSA have deteriorated since the 2002 strike and aftermath. Increasingly, PDVSA relies on contractors, as well as other private company partners, to keep the fields in production, but reports state that contractors have not been paid in months and that the political uncertainty in the country has even driven routine decision making to a halt.

The sustained political uncertainty has also slowed investment; Russian and Indian companies were planning to invest in Venezuela’s oil fields but so far have withheld incremental new money. China has not announced a new line of credit or extensions on its development-linked financing since last April.

At the same time that production is dropping, highly subsidized domestic consumption of oil is increasing while revenue from exports is also declining. The United States remains the largest recipient of Venezuelan oil exports at 950,000 b/d in 2011, roughly 40%, plus another 185,000 b/d from the Caribbean that was Venezuelan sourced but those volumes area down as US demand has declined and other crudes have become available.

Venezuela’s next largest export destinations are the Caribbean (31%) and then China (around 10%). Venezuela sells to many of its Caribbean neighbors at below market rates due to extremely preferential financing relationships, including additional heavy subsidies for Cuban exports. All of this culminates in an outlook for continued decline in oil production and a worsening economic outlook for Venezuela during a politically difficult time.

However, conventional wisdom argues that maintaining oil production is in the interest of any regime. Revenue from oil production is such a large part of Venezuela’s government balance sheet that no leadership could survive for long without a sustained cash flow that oil exports bring. The converse of this argument is that revenues generated by the energy sector are such an important source of power and influence in Venezuela that there is potential for infighting over control of the sector. Moreover, the potential for strikes or instability among groups involved in the sector (some of whom have not been paid) could have additional negative impacts on production.

While oil markets have so far taken the news of Chavez’s demise in stride (many claim because the news was largely expected, others because the political outcome is still so uncertain) an actual disruption in Venezuelan production could add pressure to an already difficult market outlook. The last year has produced a number of supply disruptions around the world from OPEC, the Middle East North Africa region, as well as non-OPEC sources. If the economic outlook continues to improve and yield an increase global energy demand, if Iran sanctions remain in place, and if Venezuelan production be compromised, then oil prices would experience much more significant upside pressure from any new disruptions.

Even under the best of circumstances, reform in the energy sector will take a long time to emerge. The damage that has been done to not only PDVSA but to the institutions of the state and civil society could take years to rehabilitate. A few key reasons for this include:

1) Revenue from the oil and gas sector that is diverted for political purposes and not reinvested in a way that will drive new production will be hard to direct back to useful investment in the sector;

2) Much of the private sector has been driven away from investment in Venezuela and may be reluctant to return, or for the companies in country to re-invest in the short-term given their experience in the 2000s;

3) Oil field mismanagement and damage may have likely occurred over the last decade, and it will take time and investment to revitalize;

4) Many of Venezuela’s core assets are in technologically complex and capital-intensive heavy oil projects that take time and resources to develop and must now be viewed in light of the global array of upstream options that are now on the table for international oil investors as compared to a decade ago;

5) Some of Venezuela’s current commercial relationships on the upstream or export side may have to be revisited in light of a more commercially-based hydrocarbon policy;

6) Venezuela’s energy sector is dominated by the state’s decisions and management, and it will take time to replace the managerial competency that once existed; and

7) Highly subsidized oil is a key feature of Venezuelan society and the political will to reform the entire energy sector into one that is more market-based and open to private investment will necessarily have to feed into the domestic demand-side of that equation.

What about Venezuela’s relationship with the United States? Over the last 10 years the sustained trading relationship between the United States and Venezuela has been one of the stabilizing forces in an otherwise contentious and sometimes volatile relationship. US refineries in the Gulf Coast are specifically designed to process Venezuela’s sour and medium to heavy crude and serves as its natural market.

Despite oil production being down, the United States still imports just under a million barrels of crude per day from Venezuela (down from a peak of 1.4 MMb/d in 1997) and, as stated earlier, the government of Venezuela is highly dependent on those revenues for their ongoing stability, especially as revenue from other exports and domestic consumption decline. As we look ahead to another period of transition in Venezuela, it is important to be mindful of the potential for disruption and to look for ways to mitigate the impacts of such disruption, but it is equally important to remember the trade ties that bind the two countries for the time being and to find opportunities to drive change in a positive direction.

Time may be limited in this regard because the US domestic production outlook is changing thanks to tight oil development in the United States and the influx of Canadian oil sands, both of which are giving US refiners more options in terms of the crudes they use and more decisions to make about how they want to configure their refineries going forward. A future in which Venezuela is no longer as competitive in its natural market in the United States would change the outlook for Venezuelan crude marketing decisions.

The long-term outlook for Venezuela’s continued oil market production is changing both in commercial and political terms. The situation has looked unsustainable for a long period of time but has managed to persist longer than most people though it would. Only time will tell if the upcoming leadership changes will bring a new chapter for Venezuela.

Sarah O. Ladislaw is co-director and senior fellow with the Energy and National Security Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Frank Verrastro is senior vice president and James R. Schlesinger chair for energy and geopolitics at CSIS.

A new study finds proposed tax would hurt manufacturing growth, jobs, and energy prices.

SOURCE: The National Association of Manufacturers

On Feb. 26, 2013, the National Association of Manufacturers (NAM) released a study conducted by NERA Economic Consulting that showed a carbon tax would have a devastating impact on manufacturing and jobs. The report, titled Economic Outcomes of a US Carbon Tax, found that levying such a tax would impact millions of jobs and result in higher prices for natural gas, electricity, gasoline and other energy commodities. Manufacturing output in energy-intensive sectors could drop by as much as 15% and in non-energy-intensive sectors by as much as 7.7%.

“The notion that some policymakers have in Washington that an economy-wide tax of this nature is a good idea is flatly wrong,” said NAM president and CEO Jay Timmons. “Our nation’s economy and family budgets can’t take it. As consumers of one-third of our nation’s energy supply, manufacturers and our employees will struggle with higher energy prices. A carbon tax will severely harm our ability to compete with other nations.”

Other key findings of the report include the following:

• A carbon tax would lead to lower real wage rates because companies would have higher costs and lower labor productivity. Over time, workers’ incomes could decline relative to baseline levels by as much as 8.5%;

• The impact on jobs would be substantial, with a loss of worker income equivalent to between 1.3 million and 1.5 million jobs in 2013 and between 3.8 million and 21 million by 2053;

• Any revenue raised from the carbon tax would be far outweighed by the negative effects on the economy;

• A carbon tax would have a negative effect on consumption, investment, and jobs, resulting in lower federal revenue from taxes on capital and labor; and

• The increased costs of coal, natural gas, and petroleum products due to a carbon tax would ripple throughout the economy, resulting in higher production costs and less spending on non-energy goods.

“For manufacturers, a carbon tax would cause a net negative impact on output and productivity as the higher energy costs it imposes would ripple through all their supply chains,” said NERA senior vice president Anne E. Smith who conducted the research for the NAM. “In turn, higher production costs and reduction in output would ripple through the rest of the economy, reducing household incomes and consumption. A carbon tax would negatively impact the US economy as a whole under both scenarios examined in this study.”

The study looks at two carbon tax scenarios: one levied at US $20 per ton increasing at 4% and the other designed to reduce carbon dioxide emissions by 80%. Both cases would have a negative impact on the economy. Please click on the links for the executive summary and full report and for information on 10 hard hit states.

Oil sands energy will continue to be produced without the Keystone XL pipeline – it‘ll just go to China instead of the US.

By Shannon Brushe, Oil Sands Fact Check

In a brief video appearance for The Nation last week, 350.org president Bill McKibben echoed a common theme for anti-Keystone XL activists, “If Keystone [XL] doesn’t get built, it’s clear that banks and others will pull financing and the era of [oil] sands expansion will be done.”

If a decision released last week by the US Committee on Foreign Investment (CFIUS) is any indication, McKibben couldn’t be further from the truth.

Amidst the intense press interest (if not actual participant interest) leading up to last Sunday’s anti-oil sands rally in Washington, CFIUS quietly approved the sale of oil sands operator Nexen Inc. to CNOOC, one of China’s major state-owned oil companies, for $15 billion.  And if you don’t think China’s interest in acquiring one of Canada’s most prolific oil sands producers was in any way related to China’s interest in acquiring some of that supply, well – we have a bridge somewhere in Manitoba you might be interested in buying.

Of course, the Nexen purchase isn’t the first time a major Asian country has laid down some serious cash to acquire critical assets and interests in Canada’s oil sands region. Over the past three years, and not even counting the Nexen deal, Asian investments in Alberta’s oil patch have exceeded US $15 billion – with several of these deals involving off-take and supply provisions that envision a future in which foreign parties take direct delivery of Canadian energy that might have otherwise come to the US. The chart below lays out some of the top deals:

Asian-based Investment in the Canadian Oil Sands, 2010-12

*Not all inclusive. Investment numbers in approximate US dollars.

Not only is China’s energy demand predicted to grow 60% by 2035, but with Keystone XL (KXL) held up in an unprecedented four-plus year review, Asian investors have been courting Canada with generous offers to secure a guaranteed market for oil sands crude now and into the future. With the Nexen deal, China’s government alone will control almost 10% of oil extraction in the oil sands. As Nature magazine recently mused:

“[T]he pipeline is not going to determine whether the Canadian [oil] sands are developed or not.”
Sure, pipeline opponents say they are focused on the climate implications of Keystone XL, and certainly not Asian foreign investment. But they don’t appear to understand the two are very much intertwined. Following are the scenarios to consider.

Scenario 1: KXL is denied

In the event that Keystone XL is not approved by the administration, Canada will have its biggest economic incentive yet to approve infrastructure to transport oil sands crude westward to Asian markets. A CIBC report estimated that in 2012, Canadians lost $50 million per day because of restricted access to foreign markets.

Rather than moving south to Gulf Coast refineries, oil sands crude would be refined in countries like China where current emissions standards allow three times more sulfur dioxide than in the US. Although China recently announced stricter regulations, Beijing has already admitted that implementation will be delayed. Without firm regulations in place, there is no financial incentive for Asian refineries to meet higher environmental standards – and a country that produces 25% of global GHG emissions already (tops in the world) will have an even greater and more reliable supply of oil to import.

Scenario 2: KXL is approved

On the other hand, if President Barack Obama approves Keystone XL, the US will have the means to transport oil sands crude to state-of-the-art refineries in the Gulf that are specifically outfitted to refine heavy oil and are subject to increasingly stringent state and federal environmental standards.

Moreover, we will have the benefit of creating jobs and economic opportunity that no other pending project can offer, including:

• 20,000 construction and manufacturing jobs created to complete the full line;

• 117,000 new US jobs supported over the next 15 years attributable to oil sands development linked to the project;

• $20 billion injected into the US economy; and

• 40% of US imports from the Persian Gulf displaced, further strengthening our national and energy security.

The root of the argument against Keystone XL can be traced to one basic assumption – namely, that stopping the pipeline would somehow stop the oil sands from being developed. This assumption is pure fantasy. Oil sands development won’t be limited by the absence of Keystone XL; instead, it will be diverted to markets that have showed a willingness to invest and an equal propensity to slow-walk environmental regulations.

As the Washington Post editorial board so aptly put it last week, “Mr. Obama should ignore the activists who have bizarrely chosen to make Keystone XL a line-in-the-sand issue, when there are dozens more of far greater environmental import.”

And as was clearly communicated today by TransCanada President of Energy and Oil Pipelines Alex Pourbaix during a media roundtable with the National Association of Manufacturers, American Petroleum Institute and the US Chamber of Commerce, “You’ve seen the prime minister, our energy minister, our foreign affairs minister – all say the stated priority for Canada is to continue to develop this industry. It’s incredibly naive for people to suggest that delaying or denying one pipeline would result in the cessation of this business in Canada.”

By Evalyn M. Shea, President and Founder, Shea Writing and Training Solutions Inc.

Multiple studies confirm what we in the oil and gas industry already know: our industry has a tarnished image and a bad reputation. News of record-breaking profits in the oil and gas industry is met with derision, yet when a technology company breaks profit records, everyone cheers.

Sadly, mistakes and accidents happen. When these happen at an overseas manufacturing plant, at a sugar plant, on a cruise ship, or to an airplane manufacturer, there is a temporary loss of reputation; but the whole industry isn’t tarnished. When an incident occurs in the oil and gas industry, there is renewed vitriol that fuels ongoing and continual contempt, anger, and scorn.

Why is that?

For over 20 years, I have worked in the oil and gas industry and have met thousands of people who work in it. I have never met anyone who didn’t care deeply about safety for people and for the environment. Most of the people I have met and worked with are nice people, too—the kind you’d be pleased to invite home for dinner or out to watch a ballgame. I don’t think it is the people who are disliked individually, but somehow when we are grouped together in an industry, we are painted in the worst light.

Does this hurt us? Yes. Just look at the current and growing shortage of people to work in this industry. Our poor reputation makes it difficult for us to do our jobs on the macro level, and it creates an inefficient use of resources and human capital. It is important for us as an industry to improve our image and our reputation.

This may seem a daunting task, but I believe not only that we can, but we must do it. How? As an industry and as individuals (people and corporations), we must be willing to be vulnerable.

Being vulnerable means not being defensive. It means being willing to engage in open and honest dialogue. It means admitting mistakes, and it means admitting that we might not know it all.

Being vulnerable may sound risky, but we are used to risk. Our industry is filled with risk. We risk millions of dollars searching for oil and gas, and we don’t always find what we seek. Many of the activities we engage in are inherently risky to human life and the environment. We have learned from past incidents and have developed safeguards to prevent and mitigate future risk.

Yet we don’t talk about this outside of our industry. To the outsider, we are perceived as an industry that doesn’t value human life or the environment and that reaps tremendous profits from the land and pockets of everyone else.

We can change this perception by being more open and sharing our whole story. This means really listening to what those outside the industry are saying about us. Invite them to industry conferences. Don’t just show them what we are doing – include them in the discussion. We need to listen to their concerns and demonstrate a thoughtful response to their arguments. By being respectful, we open the door to sharing our ideas.

Let’s use that open door and be transparent about what we are doing. Yes, the industry sometimes makes big profits, but these profits are needed to fund exploration and research and to offset potential big losses. We can admit that we don’t know it all and that we sometimes fail. We are not invincible. But that makes us more human, more approachable. After all, people tend to cheer for the underdog. By being vulnerable, we demonstrate our courage and strength in a way that makes us accessible – not closed, hostile, or self-justifying.

With a collaborative open and honest dialogue, we can debate the value of independence from foreign sources of oil and gas and evaluate the risks we are willing to undertake for that independence. By being open to discussion, we create a pathway to talk about the benefits we all derive from the oil and gas industry. An educated public can better weigh the pros and cons in the debate so that together we can create the best results for us as a nation, not just as individuals, special interests, or an industry.

It is clear that the current approach isn’t working. We must do more. We must do whatever it takes, and that means we must be willing to be vulnerable. What is the worst that can happen? We are already at the bottom of the list in terms of reputation and image. Our society’s dependence on the oil and gas industry for fuel, energy, and products will not go away, in spite of those who would wish it otherwise. We can afford to take the risk of being vulnerable because we know that the law of supply and demand proves that our industry will not go away in our lifetimes. Our rewards are a positive image, a valued reputation, and a cooperative environment.

There will always be people on both sides of any issue, some of whom are dogmatic, refusing to budge from their opinions. By being vulnerable and opening up to real and honest dialogue, we as an industry can make the transition from defensive posturing to a more collaborative, cooperative future.

About the author:
Evalyn M. Shea is president and founder of Shea Writing and Training Solutions, Inc., a technical writing and training company providing services to the oil and gas industry since 1997.

By U.S. Congressman Steve Pearce, New Mexico

Two decades ago, the Mexican spotted owl was listed under the Endangered Species Act.  New Mexicans weren’t told then what that would mean, only that the listing was necessary to save the species.  The details would be sorted out later.  The Fish and Wildlife Service claimed logging was the problem, and implemented a series of restrictions on logging.  Twenty years later, more than 100 timber mills have closed their doors.  A once-thriving industry vanished—and the jobs with it.

Earlier this year, Fish and Wildlife reevaluated their decision.  They casually mentioned that logging wasn’t the problem after all.  In fact, they said we need to bring logging back, because forests have grown so overcrowded that the owl is now at risk because of fires!  Our state lost hundreds of good paying, middle-class jobs, all because of one reckless decision.

In 2010, it was the same story all over again.  Fish and Wildlife spent a year and a half pushing to list the dunes sagebrush lizard as an endangered species.  But this time, the people of New Mexico spoke up.  We remembered the jobs we’d already lost, and we couldn’t afford to lose more.  So we questioned their science, we held them accountable.  And we were proven right.

Six months ago, the Department of the Interior ruled that “landmark” voluntary conservation efforts by landowners protect the lizard better than the Endangered Species Act.  These homegrown agreements were praised as “a great example” for other conservation efforts.  Top officials at both the Department of the Interior and Fish and Wildlife proclaimed what New Mexicans have known all along: sound solutions that engage local voices can protect both the species and our jobs, without the need for a listing.

It was a great victory for conservation and for New Mexico’s economy: our farming, ranching, and energy production continue today, while lizard populations remain safe.  For a moment, Washington seemed to have learned from past mistakes.  It seemed to understand that listening and bringing everyone to the table works much better than heavy-handed regulations driven by politics and special interests.

But late last year, while everyone’s attention was elsewhere, Fish and Wildlife quietly announced plans to list another species, the lesser prairie chicken, under the Endangered Species Act.  Shockingly, the chicken is already protected—under the exact same types of agreements that protect the lizard!

Either the Administration has forgotten its promises to New Mexicans, or it’s more interested in power and politics than the solutions it praised only months ago.

Power and politics often trump common sense and problem-solving in Washington.  Fish and Wildlife faces constant legal pressure from powerful, well-funded interest groups, like the Center for Biological Diversity and WildEarth Guardians, which have made careers out of suing the government and living on your tax dollars. These groups openly sue for the listings of thousands of species at a time—not to protect the species, but because the Endangered Species Act is a good way to make money and keep a stranglehold on an agency that’s supposed to be accountable to you.

The push to list the lesser prairie chicken comes straight from a lawsuit filed by the Center for Biological Diversity.  It was chosen not because of science, but to attack our energy production, farming, and ranching here in southern New Mexico.

New Mexicans are honest, hardworking people.  If you tell us we can save our jobs and businesses by investing our own time, money, and efforts to protect a species, we’ll do it!  And we have done it, very successfully, for years. We’ve done it so well that top officials at federal agencies have praised our achievements.  We’ve held up our end of the bargain.  But now, Washington is going back on its word.

The Endangered Species Act is one of the most heavy-handed, unbending laws we have.  As we’ve already seen, it gives bureaucrats the power to destroy entire economies with hardly a second thought.  And these bureaucrats have already proven that they can make decades-long, job-killing mistakes—mistakes that cost the middle class dearly.  In fact, Dan Ashe, Director of the U.S. Fish and Wildlife Service, told me in a closed door meeting that his agency is not required to take into account the impact that a listing has on your job.

This is unacceptable.

New Mexico already has one of the weakest economies in the nation.  In the last three years, every single state has gained more jobs than we have.  This is no time to be playing games with our already fragile economy.  Our jobs, our livelihoods, our communities, and our culture are endangered.

Enough is enough.  Tell Washington to stop playing political games with our jobs.  Tell Washington to stand by its promises, and drop its plans to list the lesser prairie chicken.

By Hank Glansbeek, Resource and E&A Manager-Subsea, Expro

Subsea safety systems are critical in delivering safe, compliant, and efficient operations in all subsea applications. Today’s subsea operations require superior functionality, performance, and reliability because companies are exploring in increasingly deep water, and must be able to handle higher pressures and temperatures. With this in mind, certain subsea tools have been developed using an integrated design and qualification process, which ensures that equipment meets the highest performance criteria.

A subsea safety system’s main objective is to be able to allow hydrocarbons to flow in a safe manner. This enables the oil companies to obtain valuable information for field development and complete or intervene in wells prior to production. In emergency situations, a subsea safety system needs to quickly and safely stop the flow of hydrocarbons and disconnect at the seabed, allowing the rig to move to a safe location.

While the reward can be extraordinary, increased drilling activity in deeper waters can be challenging because of increased safety requirements. Recent offshore incidents, in the Gulf of Mexico and Brazil, spotlighted the need for more stringent offshore safety requirements.

Organizations such as the American Petroleum Institute (API) and the International Organization of Standardization (ISO) are establishing standards for the design and qualification of subsea safety products, providing third-party credibility.

Although there is not a “one-size-fits-all” industry standard, individual companies set their own requirements and decide what standards safety systems must comply with. Going through ISO or API provides credibility and shows clients that subsea safety equipment is qualified and meets high standards.

Variation of standards and challenges are the result of well conditions and areas of deployment.   Rigs in the Gulf of Mexico must deal with hurricanes, which can shut down operations and cause operators to move the rig off location. Volatile weather in the North Sea makes drilling and completion operations particularly hazardous as result of movements of the rig.

Every project’s needs are different. Operators are not only looking for systems that respond quickly and safely to emergency situations, but also require equipment that offers commercial benefits that result in rig time savings or improved production. Smaller service companies tend to have more room for flexibility, providing operators with the advantage of custom tailoring the tools based on their own needs.

With the continuous development of downhole completions and subsea infrastructure to accommodate deepwater production, developing a range of subsea safety tools for well operations is important to cater to the evolving market needs.  These tools provide well control functions and disconnect capabilities during well installation, workover, intervention and well test operations. The landing string assembly is a critical component in the protection and safety of personnel, the well and the rig, and provides the capability for safe, low-cost well re-entry for future well intervention and workover.

Subsea safety companies place great emphasis on safety performance. The companies want to deliver high standards in the industry and are looking for ways to develop tools that can continuously improve the safety of the operations and enhance the commercial viability of subsea developments.

Hank Glansbeek is the resource and E&A manager-subsea for Expro. He holds a BSC degree in mining and petroleum engineering from Delft University of Technology. Glansbeek has worked with Expro since 1993 in the UK, Gulf of Mexico, and Brazil. He has held several senior operational and technical roles within Expro, and has significant subsea experience. For more information on Expro, visit www.exprogroup.com. Contact the author at hank.glansbeek@exprogroup.com.

By Bret Montaruli, Vice President - Offshore Technology, ABS

Dynamic positioning (DP) capability is considered almost standard equipment for deepwater drilling newbuilds. And it is no longer unusual to see offshore support vessels and shuttle tankers outfitted with DP systems. Nearly 80% of the newly built floating mobile offshore drilling units in the market today have DP systems, and the industry has come to rely on this capability.

While the fundamentals of DP systems have remained the same since the technology was introduced, today’s systems are much more advanced than those deployed several years ago. They have expanded and become more flexible, featuring improved station keeping, robust redundancy design concepts, and rapid automatic blackout recovery. In addition to their enhanced capabilities, the new systems are more reliable, which translates into safer operations.

That reliability is critical to drilling contractors, fleet owners, and operating companies. Failed DP systems can not only compromise operations, but they can lead to pollution events or spills, and they can endanger offshore personnel.

In frontier areas where drilling is reaching greater depths and operations are becoming more complex, station keeping becomes even more critical. Operating conditions are changing. The front line of exploration and production operations is constantly moving as new technical capabilities allow activity to take place in previously inaccessible areas. And the criticality of systems like DP is growing in importance.

Industry needs are changing, and it is important that the rules and guides provided by classification societies reflect those needs. If they are to be applicable, relevant, and helpful in assisting the industry in its quest to improve operational safety, rules and guides have to be built on experience and a willingness to work to find answers to challenging questions together. Putting the best minds together leads to better solutions. With industry guidance and input, classification societies can move more swiftly to develop the guidance needed to safely operate in new and challenging areas.

As E&P activity continues to move into frontiers, class needs to move in lock step. Because today’s frontiers will be tomorrow’s front-line operations, safe operation in those areas has to be nonnegotiable.

By Michael Olszewski, Executive Vice President, Maine Pointe LLC

Maine Pointe LLC, an operations management and implementation firm, has identified seven mega-issues that are expected to impose significant change for the industry going forward.

The issues are:

•    Remaining operationally effective while maintaining margins within an environment of fluctuating crude prices;

•    Leveraging sales and operations planning as an effective tool in strategic crude supply and refined product forecasting;

•    Reinventing a more integrated strategic supply chain that can dramatically enhance cost savings (such as in the extraction of previously economically stranded and remote oil reserves) in the supply base – and reduce risk;

•    Responding to new levels of public scrutiny and regulatory compliance in the post-BP-Deepwater Horizon environment;

•    Paying greater attention to HSE issues within broader operations concerns that are premised upon sustainability;

•    Responding to a rapidly retiring sales force along with developing and retaining a more technologically skilled labor force – including training a new generation of energy industry employees in operational and financial efficiencies; and

•    Capitalizing on the new interdependencies between senior management information, operational effectiveness, and decision-making (including situations where post-enterprise resource planning has produced “big data” filtering challenges that require better data integration in operational decisions and processes) and the understanding of their impact on profitability.

A Pivotal Time

This is a pivotal time for the oil and gas industry globally, especially in North America. New crude E&P growth in very remote areas as well as unique crude movement are combining with logistics issues and refining margin challenges to force new supply chain solutions that can better control costs across an increasingly unconventional oil and gas value chain.

Supply Chain Challenges

Are supply chain challenges related to the recent volatility, or are they inherent in the industry?

Supply chain issues are genetically embedded in the companies themselves. Through both up and down economies, the supply chain has not been viewed as a capability that has warranted significant investment. Part of that view comes from the industry’s engineering mindset. If you’re looking at a new production site, there are tremendous amounts of engineering, specifications, and design work required for a startup. Oil and gas companies are 100% sophisticated about all of those issues. However, executing on other types of strategic procurement tasks – buying the right materials; strategic sourcing of capital requirements; and the support and maintenance, repair, and operations materials needed for a production operation – is something oil and gas companies haven’t focused on.

A similar argument can be made for logistics: Oil and gas companies have never considered themselves to be in the business of logistics, which has typically been an afterthought for them in good and bad economies.

What is new – and it’s tied to the economy going up and down – is the concept that the higher the price of oil, the more competitive alternative sources of energy become. Logistics planning can impact cost of production in a way that is very hard to replicate in any other part of the business. It’s difficult to take those kinds of costs out of the production operation itself or the engineering piece. Of course, economic factors will always drive prices up and down, but this type of planning can really impact the cost of putting together and executing a large project.

How Globalization Will Influence The Industry

The industry has always been influenced by global forces such as geopolitical pressures in the Middle East. Best-in-class supply chain performance will need to anticipate and react effectively to changes on the global landscape. It’s no secret that a lot of the oil production work, products, and projects are tied very closely to some very volatile areas. It’s the nature of the industry. What supply chain management companies offer their clients facing pressures from geopolitical insecurity is the knowledge, contacts, and skills to adapt – sometimes by a shift in regional presence.

Michael Olszewski is executive vice president of Maine Pointe LLC and has more than 25 years of leadership experience, spanning business and operational strategy, performance and process improvement, and complex technology solutions.

By Barbara Saunders

It’s often said that nothing is new under the sun, and that both is and isn’t the case for the seemingly ironic “romance” between solar energy, and oil and natural gas operations.

Back in the 1970s, Exxon formed a subsidiary called Solar Power Corp., which pioneered the first known large-scale industrial use of photovoltaic (PV), or solar cell, batteries to power emergency and after-dark, lower-watt, passageway lighting on offshore oil and natural gas rigs and platforms.  PV technology caught on fast in offshore projects, because the heavy, toxic batteries in formerly used were extremely expensive to purchase and service.

In a 2009 Pacific Standard article, John Perlin noted, “Reliability, paramount for safety equipment, made biweekly servicing and frequent replacement of non-rechargeable batteries a necessity. Moving them on and off the platforms was a chore. The batteries were heavy and highly toxic. All the boat trips and helicopter rides out to the platforms to tend the batteries, to bring out and install new ones, and to take old ones back to shore made for a very steep bill, not to mention the high cost of the batteries themselves.”

If a sun-charged battery went bad, a replacement cost $160, versus $2,100 for a non-rechargeable battery, Perlin said. Moreover, the entire photovoltaic-powered system could be transported by a small standby skiff, while moving a non-rechargeable battery by a crane boat cost a walloping $3,500 per day.

“With such advantages, the oil and gas industry rapidly took to photovoltaics as the replacement,” Perlin noted.

Onshore, the sun is now brightening EOR operations the world over, with Chevron and Petroleum Development Oman (PDO) leading the way in large-scale technology demos, while Berry Petroleum is already up and running with commercial, solar-powered EOR in Kern County, Calif.

Solar-powered EOR operations are a particular boon in more remote parts of the world, where there’s little or no nearby pipeline access to natural gas, or really anywhere that gas is needed critically for other applications, such as primary electric power generation.

Solar-powered equipment is part of the global market for EOR technologies, which was already $4.7 billion in 2009, according to a BCC Research report. This market is expected to reach $16.3 billion in 2014.

Underscoring how intensely the solar-powered EOR market is heating up, Glass Point Solar, a major technology developer for EOR applications, closed a round of funding totaling $26 million through Royal Dutch Shell, RockPort Capital, Nth Power, and Chrysalix Energy Venture Capital in December 2012. The project will reduce the amount of natural gas burned for thermal EOR, releasing gas for higher value applications, including power generation, desalination, industrial development, and export.

Last year’s other sunny rays in the EOR market included the Chevron Technology Ventures launch of a 29-MW, solar-powered EOR demo using BrightSource technology. An astounding array of 7,644 mirrors focus the sun’s energy onto a solar boiler to generate steam, which is next injected into Chevron’s oil reservoirs to near Coalinga, Calif. The project is the largest of its kind in the world and will supplement the gas-fired steam generators to help determine the commercial viability of using heat from the sun instead of natural gas to generate steam.

Another “hot” project last year was the first commercial solar-powered EOR project at Berry Petroleum’s 21Z lease in Kern County. Built in less than six weeks last year by Glass Point Solar, the system spans 198. 3 sq m (7,000 sq ft) of land in the century-old oilfield and uses the sun’s radiant heat to produce approximately 1 million Btus per hour of solar heat. An enclosed trough preheats water to 88°C (190°F), which is used as feedwater for Berry’s gas-fired steam generators.

By Daniel Shepard, Ansell Protective Products Inc.

When faced with immediate danger – a flame or a projectile – your first instinct is to raise your hands to shield your face. In the high-risk, upstream oil and gas environment, workers’ reactions are similar. Yet, gloves used in the industry have not provided workers with both the protection and flame resistance needed to ensure safety.

While flame resistance standards exist for all other types of protective clothing used by upstream workers, there are currently no standards for gloves. A recent survey by Geostrategy Partners revealed that industry thought leaders have not given proper attention to fire safety protocols because flash fire occurrences on oil rigs are relatively low.  But according to the Occupational Safety & Health Administration (OSHA) [1],  flash fires and explosions were one of the primary causes of fatal and nonfatal injuries in the industry.

In general, standards in hand protection and changes in the use of personal protective equipment (PPE) in the upstream industry have been driven by corporate policies, not by government regulations. A general mandate from OSHA translated to mandatory adoption of flame-resistant clothing (FRC) by much of the industry.

Though risk managers recognize that flash fires are rare, the use of FRC greatly improves the chance of a worker surviving and regaining quality of life if an incident occurs. While the sophistication of hand-protection solutions has improved greatly, flame-resistant hand protection remains a final standard not yet adopted through the industry.

Dot-cotton gloves have been ubiquitous for every task in the upstream environment, but are unsafe in an environment where wrist, finger and hand injuries account for 18% of reported injuries [2], the largest percentage for any particular body part. Looking to minimize such incidences, the upstream oil and gas industry — led by multinational oil and gas companies, drilling contractors and oilfield service companies – became decidedly more proactive about hand safety.

From this attention, we have seen the primacy of the high-visibility impact protection glove as well as job-specific gloves, particularly gloves that are more robust and provide enhanced protection and dexterity in environments replete with oil-based muds, synthetic-based muds, and hydraulic fluids.

Protecting workers from flash fires is sometimes perceived as expensive and cumbersome to the daily routine of the employee; however, the use of FRC can significantly reduce the extent and severity of burn injuries.

As the industry continues to optimize safe work environments, manufacturers of PPE must create innovative solutions that complement the policies being implemented. In the absence of flame-resistance standards for hand protection solutions, Ansell has adapted the National Fire Protection Association’s (NFPA) 2112 Flame Resistant Work Wear Standards to glove designs for upstream oil and gas to create gloves that provide the same level of protection as other FRC, while maintaining comfort and durability.

Although this is a great step towards improving fire safety standards, there are still several other challenges to address. Manufacturers must continue to collaborate with industry leaders, supporting worker safety even in the absence of government regulation.  Until a standard is mandated, the industry must partner with PPE manufacturers to drive adoption of a safer work environment.

Daniel Shepard is associate director, Global Business Development at Ansell Protective Products Inc., which provides superior health and safety protection solutions that enhance human well being.

[1] Oil and Gas Industry Fatal and Nonfatal Occupational Injuries, Bureau of Labor Statistics, United States Department of Labor, April 2010. http://www.bls.gov/iif/oshwc/osh/os/osar0013.htm
[2] Upstream Oil & Gas Industry Statistical Overview (2006-10), WorkSafeBC BIA Data Mart, July 2010.