Production

When it comes to jobs lost and gained during the ongoing “great” recession, at least some sectors of the oil and gas industry are doing pretty well when it comes to labor employed, comparatively speaking. According to a Bureau of Labor Statistics survey, details of which were recently published in The New York Times, no other sector of the economy grew more from December 2007 through June 2009 than “oil and gas extraction.”

Believe it or not, according to the numbers the sector grew 8.6% during that time period.
Home health care services also grew 8.6%. In fact, seven of the 14 sectors that exhibited growth were health-care related. All the others, excepting the one area of oil and gas, were either education- or government-related.

Of the 28 surveyed sectors that shrank, motor vehicles and parts shrank a whopping 35%; construction fell 17%; all manufacturing 14%; and (gulp) publishing industries, except Internet, 10.7%.

Job recovery as the recession abates is projected to be spotty. So if you have a job, and especially if you have a job in the oil and gas industries, credit yourself with foresight in regard to your profession or trade. Either that, or admit that sometimes it’s better to be lucky than good.

For many years, the received wisdom amongst those making use of computers in harsh environments has been that it’s cheaper to buy a commercial PC or laptop and take the risk of failure rather than buy a more expensive one that has been ruggedized. After all, the commercial platform can be so easily replaced.

A recent whitepaper from VDC Research questions this bromide.

First off, amongst professionals a whole slew of user-segment categories has arisen, to include the following: field-based harsh; in vehicle; field-based moderate; road warrior; and campus.
The high failure rate associated with many mobile computing deployments suggests to VDC that there are a large number of users equipped with inappropriate solutions. And it maintains that the result is higher ownership costs.

Not many people bother to do a total cost of ownership (TCO) examination of their mobile computing costs. Even then, the research group maintains that there tends to be too much reliance on hard, or deployment, costs and not enough focus on soft, or operational, costs. In fact, hard costs are said to account for only 18% of the deployment’s TCO over a five-year period. Annual device failures for non-rugged hardware can exceed 30%. Each percentage point of failure results in an increase of almost 5% in mobile computing indirect or soft costs.

According to VDC end-user research, the leading causes of field device failure are dropping the device and water liquid exposure, two relatively common experiences. Furthermore, failure rates of non-rugged mobile computers in many of the previously described user environments exceeded 20%. Very seldom are these units repaired. They are most often replaced.

Not often thought of is that these replacements often result in mixed deployments of software and hardware. You know how and why the IT department hates that. Full price often has to be paid. And in today’s world no one wants to be without their PC laptop for even a day.

Although times are tough, VDC maintains that investment in ruggedized devices is a better deal than is commonly supposed.

The U.S.’s most prestigious national newspapers in the last week have published a number of interesting stories that highlight new wrinkles in global energy markets. 

Further contributions to the continuing gas glut

The Wall Street Journal on Friday, June 26, had an interesting piece on Exxon Mobil’s scheduled start up of three LNG projects in Qatar. The three could produce more than three billion cubic feet a day of natural gas, which could end up here in the U.S. Of course with low demand and seemingly excess capacity already here, one could ask, why bother? But as the story explains, the Qatar gas is very inexpensive to produce, and competing markets also are already oversupplied.

Alternative energy to power refinery

The Journal also took note of the fact that Valero Energy Corp., “which can process more crude than any other U.S. refiner, recently installed 33 windmills to supply a refinery [in Sunray, Texas] with green electricity to produce gasoline and diesel. The $115 million wind farm, which will be ready to operate at full capacity in August, “will pay for itself in about 10 years at current electricity prices” company officials say.

Turbulence in carbon capture efforts

The New York Times on Friday, June 26 said that “two of the nations, biggest coal-burning utilities have said they are withdrawing from a $2.4 billion project to demonstrate carbon capture and storage, and would instead “pursue their own work in the field.” The announcement by the utilities, Southern Company and American Electric Power, is seen as a blow to the multinational consortium called the FutureGen Alliance.

Identifying uses for carbon dioxide

On Monday, June 29 the Times had a story on a pending announcement from Dow Chemical and Algenol Biofuels that they will build a demonstration plant that would use algae to turn carbon dioxide into ethanol as a vehicle fuel or an ingredient in plastics. The story goes on to say, “Because algae does not require any farmland or much space, many energy companies are trying to use it to make commercial quantities of hydrocarbons for fuel and chemicals. But harvesting the hydrocarbons has proved difficult so far.”  

What the earth giveth…

Finally, on Wednesday, June 24 The New York Times ran an in-depth piece on efforts to tap into geothermal energy as an alternative energy source. To capture geothermal energy from hot bedrock, it must be broken up to extract the heat, and it turns out that can create a danger of earthquakes. As companies begin to drill deeper, fears of more sizeable earthquakes being unleashed are being voiced.

Just as experts have concluded that advances in well stimulation technology applied to horizontal gas wells have expanded available natural gas reserves, questions are being raised about water pollution related to its use and Congress is considering tighter regulation of some growing practices.

Yet a report issued this month by the Colorado School of Mines’ Potential Gas Committee maintains that the safe and responsible use of hydraulic fracturing has helped expand U.S. natural gas reserves by 58 percent in just four years.

“We’ve always known that America’s shale regions held enormous energy potential, but without proper tools in place, it wasn’t clear whether we could ever convert that potential into real-world production,” said Lee Fuller, policy director for Energy In Depth, a new American oil and natural gas industry coalition.

As is well known, hydraulic fracturing is used to stimulate flow from new and existing oil and gas wells. By creating or even restoring millimeter-thick fissures, the surface area of a formation exposed to the bore hole increases and the fracture provides a conductive path that connects the reservoir to the well. These new paths increase the rate that fluids can be produced from the reservoir formations, in some cases by many hundreds of percent.

Further, the rapid shift in natural gas development to shale gas formations, says the Potential Gas Committee, means that roughly 90 percent of new wells require some form of fracture stimulation to assist their production.

The committee believes the US is sitting atop natural gas reserves of about 2,074 trillion cubic feet according to the committee, or “nearly 100 years worth of production.” This number includes the proven reserves compiled by the Energy Department of 237 trillion cubic feet, as well as the sum of the nation’s probable, possible, and speculative reserves.

The committee goes on to further state that legislation aimed at “destroying the current state-federal partnership in regulating hydraulic fracturing was introduced in both the Senate and House last week.”
Recent studies on the legislation, known collectively as Project BRIEF, predict the consequences of its enactment could force closure of more than half of America’s oil wells and a third of its gas wells, slashing domestic oil production by 183,000 b/d and natural gas by 245 billion cubic feet per year. 

According to a recent article in the New York Times, natural gas currently accounts of about a quarter of the nation’s total energy use, and 22 percent of electrical production. While gas generates less carbon dioxide than oil or coal, it still accounted for about 20 percent of domestic energy-related emissions in 2006.

The Energy Department estimates that demand for natural gas will rise by 13 percent by 2030. In the power sector, utilities have been switching to natural gas from coal, said the Times article, “but further increases in the use of gas will most likely depend on whether Congress puts a price on carbon dioxide emissions, as it is considering,” which would favor cleaner fuels like gas.

Use of portable devices for data collection and monitoring in upstream oil and gas is growing. To date, however, its use is mainly restricted to technical applications.

Michael Saucier, founder and CEO of Transpara, believes much greater use can be made of portable devices for complex decision support, assuming the decision makers can access the right data from wherever they are. Transpara’s Visual KPI software is already being used by companies in the process manufacturing and utilities industries.

“In upstream oil and gas you have distributed assets in remote locations, and the goal is to manage those assets to run optimally. If you’re able to drill down to the relevant data from a phone, then a manager can contribute, solve the problem, from wherever he is,” says Saucier. “You’ve minimized the time it takes to solve the problem, and the expert didn’t have to disrupt what he was doing. But you’ve got to put the data in front of him.”

Saucier says the utility industry is way ahead in this regard. One company has deployed Visual KPI to 900 workers showing business critical business information, and they did it in one day. “To present complex data on mobile devices, the power of visualization needs to be harnessed. By putting an on-board operational data base in front of users, the data is repurposed and new uses are found without new master data. They can do more than email with their phone.”

Saucier maintains that the strength of the solution comes especially from the ease of implementation. “There’s the commissioning and getting it to work, and then there’s the ongoing work to identify further data sources. The first collection of data takes 90 minutes. This is not a platform for writing code. Out of the box it does very valuable things. You connect to the data sources and get one expert what they need. That means the time to value is known.”

From Transpara’s point of view, what’s important is to solve the problem of the marginal cost of curiosity and build a system that allows you to discover questions and answers. “We’ve leaned out the business intelligence process using Excel to design new scorecards that allow users to answer different questions over time. The subject matter expert can then fend for himself, and never stop discovering questions they need answered.”

The resulting data is often expressed as key performance indicators (KPIs). Growing use of KPIs, said Saucier, represents a fundamental shift. “People are more accepting of managing to metrics and that you should measure anything you want to improve. By knowing how you and others are being measured you work better as a team. Measurement is changing from a weapon used by management to something that allows a team to work more effectively.”

In the world of product design and manufacture, the 3D product image created by computer-aided design (CAD) systems has come to act as an intuitive interface and gateway to all kinds of information sought by designers, engineers, and journeymen of diverse types.

In much the same way, in upstream and midstream oil and gas, another kind of spatial representation, a map generated using a geographic information system (GIS), is increasingly seen as the widest-serving interface and information gateway for all things wells and pipelines.

Besides establishing exactly where something is, as difficult as that may be in itself, GIS can  prove instrumental in meeting regulatory requirements, allowing cross-functional integrated collaboration, and establishing a single source of truth.

Speaking at the recently held GeoGathering 2009, Michael Harris, engineering manager in the midstream division of Anadarko Petroleum Corp., said, “How do we access the data stuck in our pipelines? What we need is complete, online, easily retrievable information about our horizontal infrastructure that includes a visual interface and that takes an integrated, holistic approach to the data lifecycle.”

According to Steve Cooper, chief communications officer with the Professional Petroleum Data Management (PPDM) association, to date about 4.5 million oil and gas wells have been drilled worldwide; about 3.5 million of those are in the US.

Cooper says the power of GIS to enhance data presentation, visualization, and analysis has taken it from being a niche tool to become a ubiquitous technology and the basis for a wide range of decision making. “Visualization allows you to intuitively assimilate information in a way not possible when working with spreadsheets. Animation makes visualizations interactive,” he said.

The role of GIS technology, according to Cooper, includes the following:
• Inventory – to answer questions such as what do I have, where, who owns it, who can use, and what is its history?
• Integration – of information related to production, cost, and revenues per well, reservoir, and field, accessed by means of a map. Data types include financial, operational, technical, and various types of unstructured data that may be indexed and located using search technology.
• Quality – while poor quality data can lead to bad decisions, the establishment of business rules as to what information is brought into the holistic mapping system can help establish what data to trust.
• Workflow – can provide the focal point for initiation of processes and decision tracking.
• Interoperability – with the need to be able to run analytical applications against current data, a map-based interface is ideal for selecting data and can act as a kind of information portal.

Mark Shetzer, GIS manager, Petroleum Field Services, and Glen Vlass, president, CartoPac Field Solutions, presented a case study on how field data collection and GIS are being used to help operators meet new regulations for well permitting from the Colorado Oil and Gas Conservation Commission (COGCC) that include filing detailed information on geographic details to a 400 ft radius from the proposed well, and for water bodies a 1,000 ft radius from the proposed well. 

While anxieties were widespread that the new regulations would prove extremely burdensome, Shetzer and Vlass maintained that use of field data collection and GIS were being used to automate the permitting process for some operators to the point where no measureable increase in how long it took to execute the process was noticed.

One problem facing pipeline companies is that they may not have a good handle on information about acquired assets. Required information can include access rules, leasing, population, structures, performance, and financial data.

According to Anadarko’s Harris, using a model-based approach that includes use of PODS, CartoPac field solutions, and solutions from New Century Software, his company has gone a long way toward having the data collection processes; viewing and access tools; integration and work flows; and map-based interfaces needed to have one definitive source for pipeline data.

The GeoGathering event’s keynote speaker, Dewitt Burdeaux, a pipeline safety specialist with the US Department of Transportation’s Pipeline and Hazardous Materials Administration (PHMSA) summed up the situation when he said, “There is no requirement that companies use geographic information systems, but how can you do business without them?

The opportunity to cover — to constantly learn more, to write about, to participate in — the oil and gas industry is for this editor the culmination of near 30 years employment spent concerned with the constant interplay between technology innovation and production processes, i.e., how work gets done today in the industrial landscape of modernity.

The word “culmination” fits because of the preeminence, depth, and breadth of the energy industry. Leaving aside food, clothing, and shelter, it’s the largest and most important industry in the world, and of course none of those basic necessities can be supplied without energy, the commodity of all commodities.

Naturally following from this centrality is the fact that the oil and gas industry is at the heart of some of the most important issues of our time. You don’t have to look only to the convoluted politics of the Middle East to prove it. Russia’s energy policy and its foreign policy are nearly synonymous, for example. And the guarantee of freedom inherent in the US system of dispersed power centers comes at a high cost when the world’s leading economic power must compete with the unity of purpose demonstrated by sovereign wealth funds and national oil companies. 

It’s not just that wars are fought and people die because of the thirst for oil. Even when these dangers remain remote, the political economy of oil and gas can change the course of lives. For example, if not for the rise in unemployment following the first oil price shock of the 1970s this editor might never have enlisted in the military and had the opportunity to spend three years stationed in West Berlin, behind a wall that no longer exists.

Finally, the industry’s breadth is seen in the range of disciplines at the command of its skills-driven workforce — from geology to petrophysics to petroleum engineering, and increasingly supported by automation and information technology. The chancellor of the University of Houston, speaking to the impending inauguration of its bachelors program in petroleum engineering, noted that the school was responding to the needs of the industry by including the study of business intelligence and master data management in its planned curriculum.

It is also the case that engineers in oil and gas seem more acutely aware of how the world of finance impacts their work and decision making than is the case in other industries. The risk involved in drilling oil wells is qualitatively different than that particular to, say, deciding to build the IPod.

Yet though the upstream oil and gas project remains to a unique degree an art dependent on the intuitive insights of highly skilled and experienced individuals it does share commonalities with other production industries.

Anyone walking into an engineering department for the first time in the 1980s would have found manufacturers were just beginning to incorporate programmable logic controllers (PLCs) into industrial equipment design. Since that time, the PLC’s cousin, the remote terminal unit (RTU) has become the base device for oil field automation.

Supervisory control and data acquisition (SCADA) as an aggregation point for data collection and dissemination is another class of solution that is found cross-industry with, however, important differences in how the market has evolved. SCADA in manufacturing and process production industries is today dominated by the major automation vendors to a degree not seen in the upstream space, where global dispersion and service needs have allowed niche players to survive.

Given this emergent computer and telecommunications technology base, and also, for example, trends toward downhole sensing and production models to merge into a single system, upstream is beginning to share these other industries’ preoccupation with defined workflows and real-time decision making.

And of course industries as diverse as manufacturing, process production, and downstream, midstream, and upstream oil and gas share the basic mechanical and electrical engineering processes of the bills of material, cross-section and plan view, wiring diagram, and the rest of it. In common is the real passion that can be engendered for working with steel and heavy equipment. Most basic of all is the shared project of bringing men and material together to accomplish some purpose, and the satisfaction of being part of a common endeavor that at the end of the day contributes to the common good, securing our employment and that of our fellows, as well as the prosperity of our families.

Two recent announcements impacting construction of long-planned natural gas pipelines mark potentially important chess moves in the “great game” of energy geopolitics. Most significant is the prospect that Iraq could become a significant gas supplier to European markets. 

First, in mid-May, Russia’s natural gas monopoly Gazprom and Italy’s ENI agreed to double the capacity of the planned South Stream pipeline. Almost simultaneously, the rival Nabucco project made strides toward securing enough natural gas supplies to finally become a viable project.

Nabucco, a project to bring Central Asian and Middle Eastern gas to Europe, has been on the drawing board for seven years. In this latest development, Austria’s OMV and Hungary’s MOL each acquired 10 percent stakes in Pearl Petroleum from United Arab Emirates-based Crescent Petroleum and Dana Gas.

Pearl Petroleum, in turn, already is investing $8 billion in two Iraqi natural gas fields located in that country’s Kurdish region that could by 2014 produce more than three billion cubic feet of gas. Pearl intends to extract gas from Khor Mor and Chemchmal, two giant fields in Kurdish Iraq, and pipe it across the Turkish border. From there, the gas would be carried by Nabucco, currently planned for completion by 2015. It has been reported that Nabucco will need about half of this capacity to operate.

Heretofore, the higher price Russia was willing to pay for gas from Kazakhstan and Azerbaijan blocked attempts by Nabucco’s European Union (EU) backers to secure supply. Turkmenistan, on the other hand, turned to China as its customer.

A study released in early May, “Russia and the Caspian States in the Global Energy Balance,” from the James A. Baker III Institute for Public Policy, Rice University, notes that while Russia holds the largest natural gas reserves in the world it is constrained by its dependence on the European market as its primary customer, limiting its “energy geopolitical reach.”

According to the Institute study, the importance of energy to Russia’s international policy cannot be overstated, with “energy relations supplanting communist ideology and the Warsaw Pact as a primary path to a revitalized global role.” In response to Russia’s heavy handed approach, as seen in its feud with Ukraine and war with Georgia, the EU is trying to diversify supply both through alternative pipeline supplies and ship-borne LNG imports, even as “natural gas increases in importance as a primary energy source.”  
Given the current alignment of players, with Iran, holder of the second-highest gas reserve amounts constrained by international sanctions associated with its nuclear policy, the Baker Institute analysis “reveals that the pace of Iraqi natural gas export capability is the single largest factor affecting Russia’s ability to maintain its dominant position in the European market.” 

The high prices Russia was willing to pay to lock in long-term gas supplies — as its own reserves decline and to block Nabucco’s access to Central Asian supply — has heightened pressure on its energy sector amidst falling prices, a 40% drop in exports, and the international credit crisis.

In its latest move, Gazprom signed the agreement with ENI to boost South Stream’s capacity from 31 bcm to 63 bcm, in a ceremony witnessed by Prime Minister Vladimir Putin of Russia and Italian Prime Minister Silvio Berlusconi. That same day, Gazprom and national gas companies from Bulgaria, Serbia, and Greece signed deals to create joint ventures in those companies to perform feasibility studies and construction for South Stream.

The pipeline, which is slated to cost 8.6 billion euros ($11.6 billion) will cross the Black Sea to Bulgaria and potentially have two legs going through Serbia, Hungary, Greece — and likely Slovenia — and ending in Austria and Italy. It also is currently slated for completion in 2015.

A spate of recent news concerning Brazil’s Petrobras, which is looking to continue development of its prodigious oil and gas reserves despite headwinds caused by the global financial crisis, culminated in a just-announced agreement for China Development Bank to extend the company a $10-billion bilateral loan.
At the same time, China Petroleum & Chemical Corp. (Sinopec) will benefit from an agreement for guaranteed supplies of crude oil.

News reports have picked up on the quote, which appeared in the Wall Street Journal on May 18, as follows: “The US has a problem,” said Sergio Gabrielli, chief executive of Petrobras, “there isn’t someone in the US government that we can sit down with and have the kinds of discussions we’re having with the Chinese.”

China has recently offered loans to oil-producing countries that include Russia, Venezuela, and Kazakhstan. The $10-billion loan to Brazil will help finance development of the Tupi field, said to be the largest crude oil discovery in the Americas in more than 30 years. Oil buried in the Santos and Campos basins will be difficult to access, but Petrobras says it is cost effective to do so, even at today’s depressed petroleum prices.

Earlier this month, Petrobras, which is state-controlled but trades on the New York Stock Exchange, announced initial production from the field. In addition, Brazil is looking to invest in ship yards, offshore platforms, and other infrastructure. The country is said to be poised to invest more than $174 billion in the energy producing sector.

Although the loan agreement is not directly tied to the agreement on oil deliveries, Beijing-based Sinopec will get 150,000 barrels a day of oil this year from Petrobras, and 200,000 barrels a day between 2010 and 2019. Russia is slated to provide China with 300,000 barrels a day in return for its loan, and Venezuala will provide 200,000 barrels a day.

Petrobras is expected to reach a nationwide daily production of nearly 2.7 million barrels by 2013, and hopes to launch five new oil production and five new gas production systems in 2009.

Most of the world’s very largest oil and gas companies run either SAP or Oracle enterprise systems. In fact, most of the world’s very largest companies run either one or the other.

This year’s Sapphire, SAP’s annual user conference, being held May 11 to 14 in Orlando, Fla., wasn’t as jammed full of people or news as some previous years, but its themes reflected the current state of enterprise computing and the times we live in.  

Thus, what was presented at the global press conference was the idea of “clarity,” born of the comprehensive melding of business intelligence and the enterprise transactional system, primarily by means of the Google search metaphor, navigation, and visualization.

On a practical level, John Schwartz, an SAP executive board member, said the major concerns for the company’s customers today include: 1) cost of ownership, and the need to reduce costs; 2) the need to speed deployments, as many customers still have purchased software sitting unused on their shelves; and 3) the need to give users a more “consumer” like experience.

The company announced SAP BusinessObjects Explorer, which brings together search and navigation capabilities from the SAP BusinessObjects portfolio with SAP NetWeaver Business Warehouse Accelerator, which together will enable users to traverse mountains of business data “at the speed of thought” and give them a clear view across their organizations.

SAP maintains that research demonstrates too many business decisions are made based on gut feel. Using BusinessObjects Explorer will allows business users to gain insights based on “on-the-fly” questions, for a more immediate understanding of their business. Users enter key words into a search box, and based on the results are able to navigate the data and drill down into specific areas for further investigation. Visualization features will allow them to select and generate charts or reports that best represent the information.

As is increasingly common for a range of applications, in-memory processing capabilities have been engineered into SAP NetWeaver BW Accelerator to optimize its performance. The demonstration at the press conference entailed the search of 366 million records in one-third of a second.

Eventually these search and exploration capabilities will be applied to the entire enterprise system and not just the data warehouse. As always, when it comes to data warehousing and business intelligence, the rub comes with the need for master data management (MDM). If these vast amounts of data aren’t cleansed, the results can’t be trusted.

SAP executives said at the press conference that the plan going forward was to give more and more of these responsibilities to the domain experts that know the data best.

The strength of SAP, the company’s executives maintain, lies in the powerful combination of a full business intelligence platform, based on the Business Objects acquisition, and a transaction engine for all enterprise functions. This enables analytics capabilities at every point in the enterprise, combined with business process management, in either on-premise or on-demand modalities.