April

Book Summary and Commentary: The Price of Oil

Oil is a commodity and its price varies with market forces as do all other commodities. But oil is different in that the value of oil produced is an order of magnitude greater than any other commodity. And the price swings are more dramatic than for any other commodity. In their book, Roberto Aguilera and Marian Radetzki address the price drivers that create this dynamic situation.

Underperforming Gas Scrubbers: How To Fix Them and How To Avoid Them

A case study illustrates how an inadequate sizing methodology hinders gas scrubber performance. The causes of excessive carry-over that contaminated downstream equipment are identified and a potential solution is presented for revamping the vessel. The benefits of using a more consistent design methodology are highlighted with the final equipment configuration, the estimated carry-over, and flow distribution through the vessel based on computational fluid dynamics.

Mature Oilfield Facilities Enhancement: Use of Two-Screw Multiphase Pumps To Stimulate Increased Well Production

In maturing oil wells, oil production is often restricted as reservoir pressure depletes and well back pressure from surface facilities remains the same or increases. Two case studies highlight the application of two-screw multiphase pump systems in the Caspian Sea and onshore Mexico to mechanically lower well back pressure, resulting in increases in oil production and extension of well life.

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This column is a book review and commentary on The Price of Oil by Roberto Aguilera and Marian Radetzki. I highly recommend this book and the article they authored, “Climate Policy With Low Oil Prices,” in the February issue of JPT.

Aguilera and Radetzki predict a dramatic increase in shale oil and other tight oil production from about 40 million BOPD today to as much as 40 million in 2035. This incredible increase would set the market price in 2035 at the shale oil price, which they predict will then be between USD 40/bbl and USD 60/bbl.

The Reason for the Boom

Oil is a commodity and its price varies with market forces as do all other commodities. But oil is different in that the value of oil produced is an order of magnitude greater than any other commodity (4.8% of the global gross domestic product [GDP] in 2013). And the price swings are more dramatic than for any other commodity.

In their book, Aguilera and Radetzki address the price drivers that create this dynamic situation.
Because oil is difficult to replace in the short or medium term, the major demand sources are not much affected by price swings; hence a small shortage of oil can result in a large price increase. But over time, the world has been weaning itself from oil as shown by the rate of oil consumption as a function of GDP:
• In 1973, we consumed 1,185 bbl of oil per USD million of global GDP.
• In 2013, we consumed only 560 bbl of oil per USD million of global GDP.

Several possible sources of the volatility of oil are investigated by Aguilera and Radetzki. They conclude that the recent high prices were caused by supply limitations, which were caused largely by the ineffectiveness of state-owned oil companies. Whereas private oil companies are in business to produce oil and make a profit, state-owned oil companies are often forced to pursue more complex and diverse goals. These goals include social responsibility items such as employment, skill creation, foreign exchange generation, infrastructure development projects, etc. The top managers are often political appointees with little or no oil industry experience. And governments often overtax the companies, leaving inadequate funding to increase or even maintain production rates.

The North Sea has long been spoken of as an area that presents a huge opportunity for companies to become involved in decommissioning; however, in reality this has not yet happened. Decommissioning has moved extraordinarily slowly with very few removals being ordered by platform operators. Nevertheless, times are changing.

The oil price collapse will be the decisive change that forces operators to consider revising their standard operating model. Although less affected by the fluctuations in oil prices than fields that are at the presanctioning stage, it is the long-term nature of the current crash that will force operators to consider decommissioning work. Many of the platforms in the North Sea are late in life, operating long past their initial design expectations due to costly life-extension work. As a result, high oil prices are required just to break even, which was not an issue under the stable high oil price that existed from 2010 to mid-2014; but it has become a growing problem with the oil price in the low USD 30s/bbl (at the beginning of February).

No long-term oil price prediction is forecasting a quick return, and the oil price is still expected to be below USD 100/bbl in 2020. When field operators take into consideration the age of many North Sea assets, it becomes clear that it does not make financial sense to keep running them. Therefore, Douglas-Westwood (DW) expects a spate of abandonments by the end of the decade, with decommissioning concept selection starting at this time as well.

Much of the infrastructure in the North Sea is aged with some having been in place since the 1960s, meaning that maintenance costs are high and these tend to rise year-on-year. This will be of major concern for operators who have seen their budgets slashed repeatedly over the past 18 months, resulting in a tightening of their available operating expenditures.

The process is far from a new one, but in recent years it has become a favorite. Independent Project Analysis (IPA) estimated that, in 2014, 57% of oil and gas projects with budgets of more than USD 15 million used a modular approach on some scope (Marton and Schroth 2015). However, it is not a perfect strategy, and before they fully embrace the modular oil field, companies must weigh its advantages and disadvantages. Is a modular approach really an improvement over a non modular approach? What are the effects on a project’s schedule and budget?

This feature examines the pluses and minuses of modularization, along with a look at how some companies are incorporating a modular approach into new technologies and facility designs.

“Certain parts of the oil field are primed for modularization—emission control systems, for example, are now mandated by law—but it may prove challenging to implement these changes industrywide,” he said.

To handle these issues, Halker said operators are changing their approach when necessary, taking advantage of modular opportunities in facility designs, equipment purchases, and construction plans. For example, an operator may base a facility design on the size of vessels available in local fabrication yards.

Walker said that a lack of industry standards for facilities design has slowed progress toward the full adoption of a modular approach for projects.

Traditionally, the main drivers for sizing gas scrubbers in the oil and gas industry have been performance requirements, process conditions, and project specifications. Unfortunately, too often space limitation, deadlines, and budgetary constraints seem to take priority over the sizing task, leaving the fundamentals of phase separation as just an afterthought in the design process. It is frequently overlooked that optimizing cost, delivery times, and weight is not the same as improving scrubber performance.

As a consultant who has reviewed hundreds of projects, I see many of the same issues repeating themselves. Many of the projects that I review exceed USD 1 billion, which are often referred to as megaprojects. Fig. 1 shows the failure rate for these large projects.

Although there are lots of reasons why projects fail to meet their business objectives, they can be lumped into five major categories as follows:
1. Project objectives are not documented and owned by the project team.
2. There is a lack of planning and the project is not fully defined.
3. The management governance is poor.
4. The project team is not adequately staffed or integrated.
5. The project schedule is unrealistic.

A relatively simple technique, project framing, helps to align management and all stakeholders early in the project life cycle, typically during the front-end loading (FEL) stage 1. A typical example of a project frame is shown in Fig. 3. During a facilitated session, stakeholders can determine what is included in the frame and the project scope, as well as what is out of the frame and not in scope. More problematic are the items on the frame for which there is no alignment among the stakeholders regarding inclusion or exclusion. It is better to work on these issues in FEL 1 than address them in FEL 3 when changes are very disruptive.

Optimizing Surface Facilities
Optimizing production starts with looking critically at both downhole strategies and surface facilities. Altering downhole strategies (artificial lift pumps, gas lift, chemical treatments, etc.) has often proven effective; however, increasingly challenging wells can preclude such interventions. Difficult well geometries, depths, pressure variations, gas volumes, fluid compositions, or flow profiles are examples of such challenges.

Influence is an important part of engineering. It is not enough to develop a brilliant design; you have to convince someone to build it.

There is a great deal written about influence. Robert Cialdini’s Influence: Science and Practice is a classic. Jay Heinrichs’ Thank You for Arguing is one of my all-time favorite books; it summarizes the Greek art of rhetoric. Nancy Duarte’s Resonate: Present Visual Stories That Transform Audiences is a brilliant book about designing PowerPoint presentations that move people. John Maxwell, one of the authors of Becoming a Person of Influence, has built a company on the ideas of servant leadership and influence.

The collapse of oil prices has sent a shudder through the industry over the future of high-capital, major projects. However, red flags over capital expenditures (capex) had already been waving, and companies began attacking the problem several years ago.

At a strategic dialogue on technology, major projects, and raising capital efficiency at IHS CERAWeek in Houston on 23 February, panelists discussed the numerous steps their companies are taking to achieve large-scale permanent, in addition to cyclical, capex reductions on major projects.

As a business consultant, IHS is examining the role that technology can play in reducing capex and gave several examples of how companies are doing so.
• Selecting alternative project concepts, such as subsea instead of surface (offshore) development.
• Understaffing, in which facilities are designed to be staffed by as little as 25% of a comparable conventional facility’s workforce, or in some cases to be unstaffed.
• Adopting modular design and construction or adding small mobile process units to handle project expansions.
The examples are among a number of successful cost-reduction strategies implemented within industry “pockets of excellence,” Jacobs said, “but by no means are these standard practice. The challenge that the industry faces is how do you get to widespread adoption of some of these?”

With the continual development of new technologies aimed at making exploration and production more efficient, oil and gas projects have become troves of data.

For facilities engineers, design and construction teams, operators, and production managers, the data are essential in creating a digital ecosystem that can help them build more reliable platforms and facilities in the future. Information management is a significant challenge, but it provides an opportunity for improved project performance, an expert said.

In a webinar hosted by the SPE Gulf Coast Section Projects, Facilities, and Construction Study Group, Jim Crompton discussed the ways in which effective use of data may improve the efficiency and reliability of facility management. Compton is the managing director at Reflections Data Consulting and a former senior adviser for upstream information technology at Chevron.

One of the key objectives operators face in managing facilities is the delivery of capital projects at a faster speed with an improved quality of production and lower construction costs. In addition, they must deal with a greater demand for improved sustainability and risk management under increasing regulatory pressure. But the increasing complexity of facilities design, poor asset information management, and the prohibitive costs of systems integration make these objectives difficult to achieve.

With the oil and gas industry still in the midst of a financial downturn, companies are looking for efficiencies to exploit in their operations. As the cost to source, transport, store, treat, and dispose of water remains relatively high, water management programs will become a greater priority in the coming year, an expert said.

At a presentation hosted by the SPE Gulf Coast Section Water and Waste Management Study Group, Laura Capper discussed the low-cost developments in water management that the industry should notice in the upcoming year. Capper is the president of CAP Resources, a Houston-based oil and gas consultancy.

“If I was an operator, I’d say it’s more important to really manage my water management costs because it’s a bigger part of the overall cost basis compared to a year ago or a year-and-a-half ago. If you’re a service provider, you can argue that this is your time to really keep your eye on the ball because this is such a significant part of your development costs,” Capper said.

BP promoted Lamar McKay to deputy group chief executive and Bernard Looney to chief executive. McKay’s responsibilities will include strategy and long-term planning, safety and operational risk management, technology, and corporate governance.

He had previously served as the company’s upstream chief executive since 2013 and has been on its executive team since 2008, a year before his appointment as chairman and president of BP America. McKay started his career in 1980 with Amoco and held a range of technical and leadership positions before joining BP. Looney has been chief operating officer (COO) of production in the upstream segment since 2013. He joined BP in 1991 as a drilling engineer, holding positions in the UK North Sea, Vietnam, and the US Gulf of Mexico before moving to executive roles within the company.

Ahmed Aboulfotouh was named general manager of AlMansoori Production Services at AlMansoori Specialized Engineering.

He has more than 29 years’ experience in the oil and gas industry, serving in senior management roles at multinational organizations based in Egypt, Pakistan, Libya, and the United Arab Emirates. Before joining AlMansoori, he worked at Weatherford as a regional manager for testing and production services in the Middle East and North Africa. He holds a degree in mechanical engineering from Alexandria University.

Samir Brikho stepped down from his position as chief executive officer (CEO) at Amec Foster Wheeler.

Brikho had been Amec’s CEO since 2006, overseeing the company’s USD 3 billion acquisition of Foster Wheeler in 2014. Prior to joining Amec, he served as chief executive at ABB Lummus Global, head of the power systems division at the ABB Group, and was a member of the Swiss group executive committee at ABB. He holds an MS in thermal technology from the Royal Institute of Technology in Stockholm.

OPITO appointed Graham Gall as managing director.

Gall was previously managing director at Falck Safety Services. He has 25 years of experience in the energy industry and in aviation, holding a number of international leadership positions, including a stint as standards and approvals director for OPITO’s business in the UK North Sea.

Seamless High-Pressure Pumps

Winner Engineering’s Hydra-Cell D10 Series seamless pumps (Fig. 1) operate at discharge pressures up to 1,500 psi. Used for a wide range of processing applications, the pumps have a flow capacity of 4¼ gal/min with a motor speed of 790 rev/min when performing at the maximum pressure rating. The pumps’ seamless design and spring-loaded, horizontal, disk check valves allow them to handle viscous fluids and abrasive particulates up to 500 microns in size.

For more information, visit www.wannereng.com.

Gas Chromatograph and Mass Spectrometer

Shimadzu’s single quadrupole GCMS-QP2020 gas chromatograph and mass spectrometer (Fig. 2) uses patented Advanced Scanning Speed Protocol technology, allowing scans of samples at high speeds without sensitivity loss or spectral distortion. The quadrupole mass filter is able to obtain accurate mass assignments and is equipped with a pre filter to reduce the influence of contamination on the main filter. It has a high-sensitivity ion source and ion optics to enhance ionization and transport efficiency, and its ecology mode reduces the costs associated with power and carrier gas consumption.

For more information, visit www.ssi.shimadzu.com.

Pneumatic Pipe Cutter

The Model 5 8002 7000 pipe cutter from CS Unitec (Fig. 3) cuts and bevels pipes of diameters ranging from 12 in. to 63 in. and wall thicknesses ranging from 0.25 in to 2 in. It is a two-speed pneumatic machine that operates at 1,800 rev/min for cutting and 350 rev/min for low-speed/high-torque beveling. The machine cuts ductile iron, nonferrous metal, polyvinyl chloride, plastic, and cement pipes. It bevels 40°, 60°, and 90° angles with optional blades for on-site weld preparation. The machine operates on an air volume of 77 ft3/min at 90 psi air pressure. It is ATEX-certified under Class II 2 GcT6 and can be used in industrial zones where flammable gas, vapor, mist, and dust may be present and where surface temperatures do not exceed 185°F.

For more information, visit www.csunitec.com.

Subsea HP/HT Connector

AMETEK’s Elite Series Wet-Mate high-pressure/high-temperature connector is designed to operate in subsea oil and gas environments. The connector (Fig. 4) is 15.8 mm in diameter and has been functionally tested to 1,034 bar and temperatures as high as 150°C. It features a patented design in which concentric contacts are individually sealed within pressure-balanced, oil-filled plug and receptacle connector housings. That configuration protects both the plug and socket contacts from the external seawater environment and ensures repeated subsea mating capability at extreme pressures and temperatures.

For more information, visit www.ametek.com.

I hope you will find this paper of interest, but most of all, I hope that this section encourages you to submit a paper for peer review. OGF

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