Falling Oil Prices Not All Bad for Oil & Gas

March 3, 2015
End users, automation suppliers and engineering services firms look to contain project costs.
About the Author
Paul Studebaker is chief editor of Control. He earned a master's degree in metallurgical engineering and gathered 12 years experience in manufacturing before becoming an award-winning writer and editor for publications including Control and Plant Services.The price of a barrel of oil has fallen precipitously in recent weeks, significantly affecting expenditures on capital projects. But so far, the impact is not dire, and it may be short term. Meanwhile, engineering, procurement and construction (EPC) firms and automation suppliers can help their oil and gas clients continue to invest by helping them reduce costs and improve efficiency of capital projects.

The effect of falling oil prices was the common theme of the Chemical, Oil & Gas Forum, “Fueling the World: Meeting the global need for energy in a changing landscape,” today at ABB Automation & Power World in Houston.

“Oil prices have dropped 50% in the past six months, which has led to some slowdown on projects in oil and gas as well as other commodities like copper and iron,” said John Dempsey, senior vice president and project director, Energy & Chemicals, Fluor Enterprises. “Budgets have been cut 15-30%. Contractor backlogs have been high but will probably start to fall. How can we help reduce costs so projects can continue?”

"How can we help reduce costs so projects can continue?” Fluor's John Dempsey on his company's efforts to execute projects more efficiently in response to slumping energy prices.

Fluor spent 2014 looking at its organization on a global basis, with the aim of becoming more of a solutions provider rather than services provider. Its innovation and improvement program is taking good ideas from its 40,000 employees, running them past more than 70 senior “Fellows,” and turning them into higher efficiencies, at times with help from Center for Applied Innovation, a cooperation between Fluor and the University of South Carolina.

Fluor is using “third generation” modularization that now brings 85% of electrical and 95% of instrumentation, along with piping, wiring and testing, to completion in module yards instead of in the field. Some 90% of field hours have been moved to the module yard, with the objective of making the equipment “plug and play” on the site. This results in quick project turnaround and schedule certainty.

An Analyst’s View

Looking at the automation industry as a whole, low oil prices have had some impact on automation, reducing revenue growth in distributed control system sales from about 5% to about 4% in 2014, and are expected to reduce it 1.5% to about 2% in 2015, according to Larry O’Brien, vice president, ARC Advisory Group.

But, “We believe oil prices will start coming back up early in 2016,” O’Brien said. Meanwhile, many industries are benefiting from low oil prices, including automotive, power, chemicals and refining.

Upstream still has many opportunities to improve operations with automation and supply chain integration. “Upstream is where money is being spent to drive out cost, increase integration and drive out customization” through modularization, pre-packaged and skid-mounted systems, O’Brien said. It’s also moving from a transactional approach to real-time pricing of energy and products, and, “There’s more thinking about real-time, closed-loop control of upstream operations,” as well as removing people from remote and hazardous locations in the field.

Automation Can Help

Successful, capital-efficient IC&E (instrumentation, controls and electrical) execution is always important, but in difficult times, it gets extra attention. “The price of oil has dropped, and we need ways to be more capital-efficient,” said Sandy Vasser, I&E manager, ExxonMobil. “We’re always seeking ways to do this, but now we get a lot more support. We need to make changes in a big way, so there’s no doubt about their impact.”

The IC&E disciplines traditionally can’t complete their work until the I/O and electrical requirements have been set by the process and electrical engineers. This tends to result in highly customized and complex solutions involving many suppliers, and with late arrival of engineering data. “There’s a repetitive cycle of design, extensive hardware changes, and many changes made in the field where the cost is the highest,” Vasser said. “IC&E is always on the critical path, execution is uncertain and costs grow.”

Instead, Vasser advocates the use of “Smart I/O: universal I/O that doesn’t care what we’re connecting to it,” he said. This can eliminate marshalling cabinets (150 in a typical project). Then use fiberoptic to eliminate home-run cable. Standardize the cabinets so all are the same, not custom, and make them “smart junction boxes with universal I/O in them,” he said. “The I/O count determines the number of junction boxes, and you go ahead and put them in the field.”

Vasser calls the next evolution DICED, in which the control system will automatically discover, interrogate, configure, enable and document instruments when hooked to an I/O module, effectively eliminating manual commissioning and many other tasks. “You’ll be able to press a button and have as-built drawings.”

A similar approach can be used on the electrical side, instead of the traditional electrical control and monitoring system (ECMS). “It used to make sense for reasons like speed of response, but today, the DCS can handle it,” Vasser said.

In general, “It’s no longer acceptable to solve a problem by adding equipment. Instead, we can eliminate it,” Vasser added. “Drive improvements and change to remove IC&E engineering from the critical path—across the company and as soon as possible.”

Should We Be Up at Night?

For every Automation & Power event, ABB surveys company executives to see how they prioritize their major concerns. “This time, when we asked them how things were going, every one of them gave us a version of, ‘Busier than ever, we had a great 2014. But we need to do 10% more in 2015, and with no more resources,’” reported Rick Dolezal, vice president, Lifecycle Services, ABB.

The year’s top seven priorities, in order, are cost pressures, aging infrastructure, productivity, aging workforce, operational excellence (delivery), unplanned downtime and safety. Items that have fallen in priority include business survival, environmental impact, and energy efficiency. Concerns that have risen include safety, aging workforce, aging infrastructure, and cyber security.

“Companies have been increasingly concerned about cyber security over the past several years,” Dolezal said. “Now we’re seeing them start to spend money on it.”