High oil prices lead to complacency, while lower prices drive efficiency

By Paul Studebaker

Some see it as a high-risk gamble that paid off as a matter of pure luck, others as a measured and calculated plan carried out by cool heads in the heat of battle. Either way, Alexander Rossi’s win at this year’s Indianapolis 500 came by using less fuel.

While frontrunners Tony Kanaan, Josef Newgarden and Carlos Munoz were forced to pull into the pits to get gas, Rossi had just enough left to cross the finish line and become the first rookie to win the famed open-wheel race since Helio Castroneves in 2001.

His victory was not an accident. Rossi started the race 11th in the 33-car field, and at one point recorded the fastest lap of the race at 225.288 mph. He also stayed near the front until he could exploit the fuel-mileage battle.

But then Rossi stretched his final tank of gas 90 miles to cycle into the lead as others had to duck into the pits. His car was sputtering on the final lap as his manager, Andretti Autosport team co-owner Bryan Herta, screamed in his headphones to conserve fuel, but the fuel-flush former frontrunners couldn’t catch up in time.

Herta gambled with Rossi’s fuel economy, but he had his bases covered with faster teammate Carlos Munoz, who had to stop for gas but came in second, giving the team a 1-2 finish.

The process automation industry also seems fast and powerful when the energy market is flush and growing, but as Schneider Electric’s Chris Lyden pointed out at the company’s recent Connect 2016 user conference, high oil prices can lead to complacency. Lower oil prices reduce margins and drive efficiency.

Anyone waiting for oil prices to rise to justify projects may be waiting a long time.

Falling oil prices have been the trend for the past year. “Life at $40/bbl looks a lot different than at $115,” Lyden says. “We’ve needed to reduce project costs by 30-50%. You can’t just chase low-cost engineering around the world; you have to get the man-hours out. And when oil prices go up, we can’t raise our prices. So we have to stay good to get projects justifiable at the new level.”

To streamline projects, Schneider Electric and other automation suppliers have increased flexibility to get automation off the critical path. “We’ve done a lot of work on tools, our process and technology.” Lyden adds. One example is the company’s FLEX system for flexible execution, a mix of technologies to minimize risk in project time to first production and overall cost while optimizing project execution and quality.

Schneider Electric has customers at every level to support and incentivize innovation. At the system level, ExxonMobil is driving an initiative to open, simplify and automate the engineering, configuration and commissioning of its systems.

“We subscribe to that concept and support it,” says Gary Freburger, president, process automation, Schneider Electric. “It’s a once-in-a-career opportunity, over the next three to five years, to participate in making multi-generational changes that we all will live with for a long time.”

As I write, forest fires in Canada have pinched shale oil operations, reserves have been tapped down, economies are perking up, and the Middle East is looking like it’s backing off production. So oil prices are inching up past $50/bbl.

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But anyone waiting for oil prices to rise to justify projects and pay for improvements may be waiting a long time. Meanwhile, their competitors are having fun leveraging automation suppliers’ hungry attitude and rapid technology advances, embracing the continuing information revolution represented by the Industrial Internet of Things (IIoT), and then making their plants run better—more efficiently—than they ever did before.

As Freburger told his audience, “We are so lucky to be part of this business at this time, to be able to change the next two generations of how this business works.”