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Crescent’s maverick approach | Saudi Aramco’s talent pipeline

Many

happy

returns?

As it enters its sixth decade, can OPEC keep delivering big profits for its members?

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FROM THE EDITOR 9

50 not out It’s OPEC’s much-publicised golden anniversary this month, but could the oil organisation’s influence on oil output be diminishing along with reserves?

T

he grainy black and white images of a handful of oil officials meeting around a table back in 1960 gives little indication of OPEC’s impending impact on world supplies. Indeed, when five oil-producing nations banded together to form the oil organisation, sceptics questioned its validity, let alone whether or not it would still be in existence in five decades’ time. Th rough thick and thin – the most memorable incident being the oil crisis of 1973 – OPEC has been an ever-present fi xture in the oil industry. Although other parts of the world have made significant discoveries over the years, OPEC’s influence on global output cannot be dismissed; member countries, the majority situated in the MENA region, account for 40 percent of production and almost 80 percent of proven reserves. The Kingdom of Saudi Arabia alone boasts 25 percent of all proven reserves. These countries have built their entire economies on the black gold bonanza – some 90 percent of some member nations’ GDP is bankrolled by petrodollars. Diversification of their economies is a must because oil isn’t going to be around forever. Apart from Iraq’s vastly untapped land, new discoveries are few and far between and the debate over whether we have surpassed Peak Oil continues to rage. Oil was very much the fuel of the 20th century, but with gas being touted as the hydrocarbon of this century, our energy mix could look vastly different by 2030. Booming economies like the BRIC nations (Brazil, Russia, India and China) will put increasing pressure on supplies, leaving gas to pick up the shortfall left by oil if indeed reserves are diminished in the next couple of decades. Who’s to say OPEC will even be around in 50 years? That said, it seems

EDS NOTE P9.indd 9

unlikely that we will wean ourselves off oil any time in the foreseeable future, especially as countries like China increasingly swap pedal power for engine power. Industry insiders warn of energy consumption jumping by 50 percent in the next 25 years, heaping pressure on fossil fuels like oil. In this issue we hear how OPEC Secretary General Abdalla Salem El-Badri believes the MENA region will play a key role supplying the market as demand rises, but the challenges ahead are enormous. Indeed, the issue of energy is one of the biggest obstacles that we face in the years ahead. One thing is for sure though, OPEC will probably have an influence on it. Elsewhere in this issue we take a look at one of the biggest challenges currently facing the oil and gas industry – the HR crisis. As hoards of Baby Boomers reach retirement age, the industry is faced with an inevitable haemorrhage of talent, which, if left untreated, could bring the industry to its knees. Th is demographic time tomb threatens to stand in the way of the industry and its mission to fuel the world’s growing appetite for oil.

“We believe that the better the company does in recruiting and selecting talented employees, the greater the internal talent pool from which to choose future leaders” Huda Ghoson, Saudi Aramco (Page 46)

Julian Rogers Editor

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CONTENTS 11

46

34 Going for gold Fift y years ago this month, five oilproducing nations joined forces to create the Organization of the Petroleum Exporting Countries. OPEC Secretary General Abdalla Salem El-Badri tells Julian Rogers why the organization will play a crucial role in meeting future energy demand Rising star As the Middle East’s longest established privately owned upstream petroleum company, Crescent Petroleum is always on the lookout for new opportunities, according to Executive Director Badr Jafar

Career ladder For Huda Ghoson, General Manager of Training and Development at Saudi Aramco, the world’s largest oil and gas company offers so much more than just an attractive salary

82

Counting the cost As BP starts to evaluate the cause of its devastating oil spill in the Gulf of Mexico, Stacey Sheppard takes a look at the consequences that this crisis will have for the oil industry and what this could mean for the MENA region

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CONTENTS 13

EXECUTIVE INTERVIEW 41 Earl Mark Jumalon, First Crude Engineering Products Inc. 68 Michal Ruder, Geosoft Inc. 80 Kirill Molchanov, HMS Group 100 Ron Selva, PP SIMTECH Solutions 121 Stanley Deighton, Stork Asset Management 132 Ousama Kabbani, Abdulla Fouad

54 54 Bridging the gap As the oil and gas industry attempts to bridge the skills gap, O&G asks why the sector fi nds itself in such a position and what can be done to rectify the situation

ASK THE EXPERT 42 Alan Baird, Emerson Process Management

INDUSTRY INSIGHT 44 Samir Fayyad, AES Arabia 52 Andrew Imrie, Atlas Interactive

NEXT BIG THING 62 Joe Jacquot, Fugro-Jason

64 Opportunities for growth

TROUBLESHOOTER

Frank Crawford, Chief Geologist at Groundstar Resources, discusses the company’s strategy for doing business in the Middle East

70 Francois Coron, Geodis Wilson

74 Under pressure If Iraq is to have any chance of achieving its aggressive oil output targets, it must first overcome the many infrastructure, logistics and security challenges that stand in its way

88 Safety in numbers Hugh Williams explains how statistics can be used to help the industry improve its safety record

92 Sink or swim Phil Newsum outlines the need for commercial divers to follow strict health and safety guidelines

94 Surveying the sea Why offshore surveying is vital in a variety of situations from ensuring the best locations for oil rigs to navigating oil tankers through difficult terrains

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CONTENTS 15

97 Coatings for durability

112

Corrosion continues to be a major problem for the oil and gas industry. Shell’s Tom Bos looks at how evaluating coating durability by electrochemical methods can help

102 Asset preservation and pipeline integrity Chris Fowler of NACE International asks if enough is being done to preserve our assets and the integrity of our pipelines

104 Investing in IT IDC’s Rick Nicholson, Catherine Madden and Jill Feblowitz discuss how energy policy and regulation changes following the BP oil spill will affect IT investments by oil and gas companies

112 Pumped up Shell’s Malcolm Brinded looks at how natural gas is altering the MENA region’s energy landscape

119 Fine Times? What effect will the rise of refi ning in the Middle East have on the global refi ning industry?

122 The pariah energy state Joaquím Schmidt looks at the impact of new tough sanctions on Iran’s oil and gas industry

128 Running on empty? Robin Mills sets the record straight on world oil reserves

128

140 DETAILS

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136 Project round-up 138 Diary dates 140 City guide: Mumbai 142 Gadgets 143 Book reviews 144 Photo finish

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Next Generation Oil&Gas MENA Summit Find Out More 12-14 April 2011 Contact NG O&G The Jumeirah Meydan Hotel Dubai

+44 (0)29 2072 9300

The NG O&G Summit is a three-day critical information gathering of the most influential and important executives from the oil and gas industry. The NG O&G Summit is an opportunity to debate, benchmark and learn from other industry leaders.

A Controlled, Professional and Focused Environment

It is a C-level event reserved for 100 participants that includes expert workshops, facilitated roundtables, peer-to-peer A Proven Format networking, and coordinated technology This inspired and professional format meetings. has been used by over 100 executives as a rewarding platform for discussion and learning.

Next Generation Oil & Gas MENA GDS Publishing, Queen Square House 18-21 QueenSquare, Bristol, BS1 4NH Tel: +44 117 9214000 E-mail: info@gdsinternational.com Legal Information The advertising and articles appearing within this publication reflect the opinions and attitudes of their respective authors and not necessarily those of the publisher or editors. We are not to be held accountable for unsolicited manuscripts, transparencies or photographs. All material within this magazine is ©2010 GDS

Chairman/Publisher Spencer Green Worldwide Sales Director Oliver Smart Finance Director Jamie Cantillon Editor Julian Rogers Managing Editor Ben Thompson

“A great opportunity to meet a variety of executives from other MENA regions, good conversations and insights into what business issues are on peoples’ minds”

Associate Editor Stacey Sheppard Contributors Ian Clover, Lucy Douglas, Rebecca Goozee, Nicholas Pryke, Marie Shields, Huw Thomas Creative Director Andrew Hobson Design Directors Zöe Brazil, Sarah Wilmott Associate Design Directors Daniel Clayton, Élise Gilbert, Michael Hall, Crystal Mather, Cliff Newman, Catherine Wilson

Hans-Peter Buse Group IT Manager E&P, E.ON Ruhrgas

Online Director James West Online Editor Jana Grune Project Director Joe Large Sales Executives Ashley Palmer, Jess Taylor, Desmond Henry, Jack Richardson, Kieran Jones, Mike Thomas

Production Director Lauren Heal Production Coordinators Renata Okrajni, Aimee Whitehead VP North America Jason Green Operations Director Ben Kelly IT Director Karen Boparoy Marketing Director John Funnell

Subscription Enquiries: +44 117 9214000 www.ngoilgasmena.com General Enquiries: info@gdsinternational.com (Please put the magazine name in the subject line) Letters to the Editor: letters@gdspublishing.com GDS International GDS Publishing, Queen Square House 18-21 QueenSquare, Bristol, BS1 4NH Tel: +44 117 9214000 E-mail: info@gdsinternational.com

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18

UPFRONT

Bit by bit Oil drillers to the rescue in Chilean mine collapse

I

n what must seem like the longest month in Chilean history for the 33 miners trapped after a collapse blocked the exit of their mine in the remote Atacama desert, a second glimmer of hope appeared on the horizon last week – and for the families of the courageous miners anxiously camped top-side in makeshift camps, as well as the miners themselves, it couldn’t come soon enough. The fi nal of three plans, a colossal oil drilling machine, arrived on the back of 42 trucks which then travelled down the precarious roads of the San Jose gold and copper mine two at a time to compensate for the sheer magnitude of the rig, with the platform itself spanning the length and breadth of a football pitch. The challenge? To drill 620 metres through solid granite while managing the psychological effects on the miners of prolonged isolation deep underground. ‘No easy feat’ would certainly be classed as an understatement. ‘Plan A’, as it has been labelled, aims to first bore a 33-centimetre wide pilot hole that will then be doubled to 66 centimetres using a special drill bit, but to date the drill has only been able to tunnel 113 of the 620 metre trip. Rescue ‘Plan B’ made swift progress in its fi rst days with the

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“While the logistics of the rescue remain a top priority, so too does monitoring the psychological state of the confined miners – especially as they’ve just received news that it is unlikely that they’ll be above ground before at least November” T-130 excavation drill, but engineers downplayed chances of a quicker rescue than the two to three months authorities projected. Dubbed “the miracle” by the miner’s families, the T-130 is expected to continue to advance between one and three metres per hour, depending on the type of rock. The drill for ‘Plan C’ – now considered the most likely route to success – has been supplied by the state-run National Petroleos de Chile Company (ENAP). On-site experts claim that, had it been implemented from the start, it would certainly have been the fastest of the three options, “but seeing as that did not happen, we’re keeping to the timeframe of three to four months”. It is predicted that the mammoth drill will need to drill down just 597 metres, but

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UPFRONT 19

work won’t start for a further 10 days after the convoy of 42 trucks have deposited their loads. To ensure time remains of the essence, the country’s Navy has also been called upon to build a special metal capsule designed for the culmination of the rescue attempt. Currently being built at the Navy’s shipyard, the capsule will provide oxygen, communications, light, video linkup and a harness to secure the miners on their hour-long ascent up the rescue tunnel and towards fresh air and family. In the event of a failed rescue, the capsule has also been fitted with an escape hatch and safety device that the rider in question can use to lower himself back to the starting point should the capsule get stuck in transit. While the logistics of the rescue remain a top priority, so too does monitoring the psychological state of the confi ned miners – especially as they’ve just received news that it is unlikely that they’ll be above ground before at least November. Officials have been in communication with the miners through video link-ups sent down a borehole that has now, quite literally, become their lifeline. Food, drink, bedding and reading and writing materials, including miniature Bibles blessed by Pope Benedict XVI to aid them in prayer, have all been sent down to keep morale up in the underground refuge. The most recent delivery to the miners included 80 letters of support from family and friends, an audio-visual system linked up via fiber-optic cables to allow the miners to hold short video-conferences with those above ground, and a projector that showed the Chile versus Ukraine football match. And while the home-team lost to a last minute away goal, their spirits were lifted in hearing chants of “be brave, miners” echoing around the stadium. Michael Duncan, a doctor at the US space agency’s Houston Space Centre in Texas, has been on site to assess the condition of both the miners and their makeshift quarters, recommending that they “improve the lighting conditions so there is an ambiance of day and night,” but concluding that he was “very impressed with the quality of healthcare and the support being provided, to the miners and to the families”. He finished with a message of strength to the watching world, and indeed the families surrounding him: “Let me say, these miners have a tremendous will to survive.” And indeed they do. The miners were originally found when they sent a note up a borehole after 17 days underground – keeping themselves alive on a diet consisting of a spoonful of tinned tuna and half a glass of milk every 48 hours. The relentless work of medical crews nursed them back to health, feeding them rehydration packs until they were strong enough to eat the solid foods sent down. As for the next step of the operation, ENAP, the medical and mining crews, the Chilean Navy, the families nervously waiting at ‘Camp Hope’ – and of course the trapped miners themselves – will all need to pull together to ensure the oil drill is up and running as quickly and efficiently as possible. For the oil-based crew in charge of the drill itself, it’s time to return to their bread and butter and do what they do best: drill.

UPFRONT.indd 19

News in pictures

Russian Prime Minister Vladimir Putin opens a throttle during the opening ceremony for the Russian section of the Russia-China oil pipeline in the far eastern region of Amur on August 29, 2010.

Gunn Ovesen, CEO of Innovation Norway, and Carlos Tadeu de Costa Fraga, CEO of Petrobras in Brazil, sign a cooperation agreement in Oslo on August 27, 2010.

The damaged blow out preventer along with the Lower Marine Riser Package (LMRP) cap from the Deepwater Horizon oil rig that caused the massive oil spill is extracted and put aboard the vessel Q4000 on September 4, 2010 in the Gulf of Mexico.

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20

UPFRONT

INTERNATIONAL NEWS ➊

Offshore safety shoddy The offshore oil and gas industry has been warned to improve safety, after a year that saw a big rise in injuries to workers and other serious incidents. The Health and Safety Executive (HSE) report said there were 50 ‘major injuries’ in 2009/2010, up by 20 on the previous year. The report covers the 27,000 workers employed in the UK’s North Sea oil and gas industry. Steve Walker, head of the HSE’s offshore division, explained: “I am pleased to see no fatalities for a third consecutive year in the areas we regulate, but the fact that 17 workers tragically died in other offshore-related travel incidents in the year is a stark reminder that hazards are ever present offshore. Th is year’s overall health and safety picture is simply not good enough. The industry has shown it can do better and it must do in future.”

Contaminated water Government scientists have found that private water stalls in Wyoming are polluted with toxic chemicals used in the controversial gas drilling technique of hydraulic fracturing or fracking – and residents have been told not to drink from them. The fi ndings offer the latest evidence that the fast-spreading gas-extraction method could be endangering public health. The US Environmental Protection Agency (EPA) found methane from natural gas in seven of 19 wells that were tested in January of this year. Eleven had 2-butoexythanol phosphate, a common solvent in fracking fluids that experts say can cause kidney failure, toxicity to the spleen, liver cancer and fertility problems. They also found traces of benzene, a cancer-causer, and other chemicals that come from crude in 17 of the wells, with “high levels” detected in groundwater that is connected to the drinking water aquifer.

Greenland gas jackpot Cairn Energy has confi rmed that it has found gas off the western coast of Greenland. The Scottish oil and gas exploration company made the discovery in the Baffi n Bay Basin, 175km from the island of Disko. In the fi rst discovery of its kind in the Arctic region, Cairn also announced to the London Stock Exchange that the fi nd has increased the likelihood of unearthing oil as well. “Although we are at the very start of exploration in the basin, the discovery of gas in thin sands is indicative of an active hydrocarbon system,” the company said in a statement. “The well has not yet reached target depth.”

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1

2

3

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UPFRONT 21

4

Vice President John Dramani Mahama has given assurance that Ghana would not hesitate to support its neighbours with its resources anytime the need arises. “We are all neighbours and therefore need to be interdependent on each other and with the discovery of oil and gas in Ghana the government will support her neighbours as soon as she embarks on the drilling of those resources.” Mahama said this when a delegation from Benin called on him to present a request for supply of liquefied petroleum gas (LPG) from Ghana. He explained that although Ghana was having problems with LPG supply as a result of the conversion of many vehicles from petrol to gas and the increased domestic use of the commodity, the government would find a way of helping Benin until the situation stabilised.

7

Paying the bills The fallout from the Gulf of Mexico oil spill continues to be felt at BP, which yesterday announced plans to sell its chemicals businesses in Malaysia to state oil company Petronas. BP revealed in July that it would sell US$32 billion worth of assets from its worldwide portfolio of business to raise money to cover the costs of clean up, litigation and compensation from the spill. It has already sold assets in Egypt, the US, Canada and Columbia and is looking for buyers in Vietnam and Pakistan.

5

6

Good neighbours

Brazil given access to Africa Nigeria, Africa’s top oil producer, may grant Brazil access to its oil and gas industry in return for the South American country’s participation in two hydropower projects, the Nigerian Vice President said. Brazil has expressed interest in completing the development of the Zungeru hydropower plant and fi nancing the Mambilla hydropower project under a partnership that would allow the country to help develop Nigeria’s power industry, Namadi Sambo said in a statement on the presidency’s website. The cooperation is a “welcome idea” because Brazil has comparative advantage in hydroelectric power generation, renewable energy and deepwater exploration of crude, said the statement.

Increased supplies to Russia Russian gas giant Gazprom and Azerbaijan’s state oil and gas company will sign a deal to increase supplies of Azerbaijani gas to Russia in 2011-2012. Gazprom CEO Alexei Miller said in mid-June that the company is prepared to “buy as much gas as Azerbaijan is ready to deliver.” Deliveries of Azerbaijani gas began on January 1 after Azerbaijan’s GNKAR signed a contract with Russia’s Gazprom in October 2009 to deliver 500 million cubic metres of gas annually up to 2015, with the option of renewing the contract in the future. Later the companies agreed to double gas deliveries to Russia, bringing the total amount of gas delivery from Azerbaijan to one billion cubic metres. The companies will again double that amount to two million cubic metres in 2011.

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22

UPFRONT

To buy or rent? Phil Burns, Managing Director of Aggreko Middle East, explains why renting power equipment, as opposed to buying it, makes good business sense.

W

hen a company is considering whether to rent or purchase power equipment, the best choice depends on the circumstances of the business and the length of time the equipment will be used. If the power user does not use the equipment on a continual or regular basis and the power system’s purchase price is high then renting makes good business sense. Factors that make renting power attractive include improved cash flow and speed of supply. There are no down payments for a loan to purchase the equipment and power rental has guaranteed payments scheduled over the agreed term with options to extend the rental period if required. The rental option also includes all the operation, maintenance and servicing aspects that are involved when managing power equipment. Another benefit of renting power equipment is the flexibility it offers, allowing the customer the freedom to increase or decrease the amount of power generating capacity according to the need. Crucially, power rentals provide significant support towards getting projects completed on time and within budget. The services that a specialist power rental company like Aggreko offers are not just about power generation; they are more to do with energy solutions. From technical advice and design through to installation and commissioning, Aggreko provides customers with complete power generation and electrical engineering services. Th is includes fuel management services, electrical transformers and switchgear, as well as being able to supply automation and controls for a site’s own electrical distribution equipment. With many companies putting a greater emphasis on keeping capital available and with rental providing benefits such as flexibility and risk management, the option of renting as opposed to purchasing equipment is becoming more and more popular. For many oil and gas companies, ownership is simply not worth the hassle.

930,000 bpd The combined capacity of Kuwait’s three refineries

Top Ten The world’s 10 largest oilfield technology companies

1. Schlumberger Limited 2. Halliburton 3. Baker Hughes 4. Smith International 5. National Oilwell Varco 6. Weatherford international 7. GE Oil and Gas 8. FMC Technologies 9. Cameron International Corp 10. Dresser Inc

Source: kippreport.com

UPFRONT.indd 22

Source: ArabianOilandGas.com The list is based on the 2008 revenues

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UPFRONT 23

New gas plants

T

he Khafji oilfield will be the site of a new gas and natural gas liquids (NGL) collection and distribution facility if a joint venture between Saudi Arabia and Kuwait is to be successful. The oilfield, which has a capacity of 610,000 bpd, is situated in the Neutral Zone between the two countries. Engineering fi rms wishing to bid for the project, which has been estimated by the alKhafji Joint Operations Company (KJO) to cost somewhere in the region of US$50 million, have until September 27, 2010 to do so. KJO is split between Kuwait Gulf Oil Co (KGOC) and Aramco Gulf Operations, a subsidiary of state oil firm Saudi Aramco. Both Saudi Arabia and Kuwait produce gas as a by-product of oil production and the two OPEC members hope to be able to collect the gas that is being fl ared and distribute it. Gas shortages affect most Gulf countries, except maybe Qatar, which is the only country to have a surplus. The rest of the region would burn more if this was possible. Saudi Arabia and Kuwait have experienced supply problems due to their adherence to OPEC’s oil output curbs since 2008. In response to the gas shortages, Kuwait is having to import liquefied natural gas to meet demand and Saudi Arabia has turned its attention to gas exploration after the completion of its sizeable crude expansion programme last year.

Raising output

N

ext March has been announced by the Managing Director of Iran’s Offshore Oil Company (IOOC) as the deadline for Iran to raise its oil production at offshore fields by 20 percent. Mahmoud Zirakchian-zadeh told Mehr news agency of plans to raise production at the Salman oil field, which it shares with the United Arab Emirates, and the Foruzan oil field, which it shares with Saudi Arabia, by 10,000 bpd. Iran had already announced its recent achievement of increasing production of crude from its Hengam offshore oilfield to 10,000 bpd from its previous of rate of 4000 bpd. However, Iran’s quest for the much needed capital investments that would allow it to expand and modernise its energy sector is being severely hampered by the ongoing dispute with the West over Iran’s nuclear programme. The US and UN sanctions that have been imposed on Iran are deterring many international energy companies from investing. If Iran is unable to acquire the necessary US$25 billion a year of oil and gas industry investment, Oil Minister Massoud Mirkazemi stated in May that the possibility of Iran becoming an oil importer is not unlikely. Without the possibility to partner with Western fi rms Iran is increasingly looking to Asian fi rms for support, although they often tend to lack the necessary technology to implement oil and gas projects.

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24

UPFRONT

Tackling training Lee Russell, Engineering Director at JLP Engineering Solutions, outlines the importance of staff training and knowledge transfer.

J

A bigger slice

P

henomenal investments by the UAE, Saudi Arabia and other major Arab hydrocarbon producers into the petrochemical industry will allow them to control nearly a quarter of the world’s total petrochemical output, according to a recent official report. At the wrap-up of 2007, the Arab nations produced roughly 8.5 percent of the global petrochemical output – that level is projected to leap in the next two years as a result of colossal new projects being constructed in the region, mainly in Saudi Arabia, which could become the world’s top producer of such substances, said the report by the 10-nation Organisation of Arab Petroleum Exporting Countries (OAPEC). Based in Kuwait, OAPEC said in the report that most regional nations have embarked on mammoth petrochemical projects as part of economic diversification programmes, potentially pushing Western petrochemical producers to suspend planned expansions given the Arab region’s huge gas reserves. “As a result of this sharp increase in the region’s petrochemical output capacity,” said the report, “producers and investors in North America and West Europe are expected to face obstacles in their plans to expand their production capacity, prompting them to suspend expansion projects, leading to removal of bottlenecks.” “The petrochemical industry in the Arab region has been passing through an unprecedented boom reminiscent of the boom in the late 1970s,” the report continued. “Th is is due to several factors including the availability of massive gas resources, a large consuming market, a strategic location between eastern and western markets and the intensifying efforts undertaken by regional governments to develop non-oil industries and diversify their economies.”

UPFRONT.indd 24

LP, like every Angolan company, has to produce and comply with our Angolanisation Plan. We are an Angolan company, period. We are not a multinational company with a presence in Angola. If our Angolan operation fails then we fail. Th is is not something we pay lip service to. Th is is an extremely important part of our day-to-day business. We employ ex-patriot engineers from all countries but 90 percent of our staff are Angolan. Our Angolan engineers will not be on site without support from a more senior engineer but that is no different to anywhere else in the world. The senior guys are mentors to the junior guys. We have all spent many years offshore before we were even allowed to represent our company as the main engineer on site. JLP is currently sponsoring seven of our engineers, finance, legal people through University. They have their full salary, time off to study, course fees and text books paid for and then we also expect them to work. We provide flexible working hours for employees who are students to fit in with course work and obviously allow time off for exam taking. We also monitor the University performance of our sponsored students to ensure that our investment is solid. JLP is currently working with Angolan Universities and Colleges in order to ensure that we also get candidates who are educated to a BSc, HND, HNC type level. Not all of our technical staff are engineers with degrees. We have to fi nd the balance between degrees and technical qualifications. It is too easy to concentrate on having our people educated to degree level where in reality, our technical departments elsewhere in the world are a mixture of levels and Angola is no different. Our JLP engineers, both expatriate and Angolan, receive on-the-job training. In addition to this, formal training takes place in the UK for Line Of Site networks, South Africa for SeaTel stabilised VSAT antenna system training, and the USA or Brazil for Cisco training. Recently JLP provided intensive training in house for fibre termination, testing and commissioning where we brought the instructors in to Angola due to the amount of people we needed to train. JLP has a fi xed VSAT training facility in Luanda where our engineers can get hands on real life training. Th is compliments our Cisco lab to allow full endto-end system training.

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UPFRONT 25

Tanker troubles

T

anker rates in the Middle East look set to face an uncertain future in 2011 as concerns over the economic recovery, sluggish demand for crude oil and rising fleet supply threaten to affect earnings. Already the benchmark route from the Middle East Gulf to Japan has started to show a decrease in average earnings to around the operating cost level of US$10,000 a day as very large crude containers (VLCCs) return from floating storage due to the end of a trading play, which at one point saw over 100 million barrels stored at sea. Issues regarding the rise in tanker supply have been exacerbated by the arrival of new vessels that were ordered before the economic downturn took hold in 2008. Th is has led to a growing fleet, which must now compete for business. Tim Smith, Senior Analyst with consultants MSI told Reuters: “The supply side will only get worse – we expect 2011 to be the peak in VLCC deliveries with approximately 75 new ships hitting the water next year.” At the peak, over 40 VLCC were storing crude oil at sea as traders held out until a time when they could sell their oil at an inflated price. However, as the structure of the oil market has changed in recent weeks it has become less attractive to store oil at sea. Unless global oil demand and OPEC output rise and herald the return of floating storage, it is unlikely that the VLCC market will improve any time soon. Some of the biggest independent tank operators are already being forced to anchor some of their fleet. Traditionally, activity picks up in the fourth quarter as fuel demand increases with the colder weather conditions in the North Atlantic and Northern Hemisphere, but analysts are saying that any upswing will probably be disappointing compared to historical standards.

World natural gas reserves by country, January 1, 2010 Russia

1680.0

Iran

1045.7

Qatar Saudi Arabia

$35 billion

US

Kuwait is to invest US$35 billion on major oil projects as part of the government’s four-year development plan

899.3 263.0

USA

244.7

UAE

214.4

Nigeria

185.3

Vanezuela

176.0

Algeria

159.0

Trillion Cubic Feet

Source: ArabianOilandGas.com

Source: Oil & Gas Journal, Jan,1 2010

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UPFRONT

In my view Alexei Miller, Chairman of Gazprom, on the rise of shale gas and renewable energy and the consequences for natural gas.

T

he production of shale gas and, in general, of unconventional gas is not news for the gas industry. Production of gas from “tight reservoirs” has been going on for decades in large volumes, and it was only for the general public that this topic recently became an eye-opener. Increased attention to shale gas in recent years is due to the coincidence of three factors: fi rst, growth of shale’s share in the gas balance of the United States (due to the effect of accumulated investments in the sector and decrease of “conventional” production); second, commissioning of high yield facilities for the extraction and liquefaction of gas in the world, in accordance to earlier adopted plans; and third, simultaneous decline of the overall demand for gas because of the global fi nancial and economic crisis. Shale gas will play a very important and useful role of balancing gas markets at the regional level, but there are no reasons to crown and elevate it to the throne. Nevertheless, we are confident that in the long-term perspective gas demand in Europe will be on the rise, while its domestic production will follow a rapid downturn tendency. Independent think-tanks’ forecasts show that Europe will be forced to import gas to the amount of up to 415 bcm per year by 2020, which will go up to 500 bcm by 2030. Now, here is another popular thesis: “The future is for renewable energy”. Could be! At some point, renewable energy will become one of the crucial components in the overall energy structure. Maybe it is not bad that European authorities are ready to invest huge sums of money, at the expense of taxpayers, in the widespread use of renewable energy. However, we must not forget that natural gas has all the necessary qualities to play a pivotal role in the energy structure of the current century. Moreover, it is gas that will be at the forefront of the struggle to provide affordable, reliable and competitive energy for the world's growing population. The universality of gas power plants makes natural gas the best choice. If the previous century was named the century of oil, this century will see it replaced by gas.

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UPFRONT 27

In the balance

I

raq’s oil future has been brought into question recently as the US military ended combat missions in Iraq on 31 August, seven and a half years after the invasion. With numbers of military personnel present in Iraq cut to 50,000, some security firms and Iraqi officials have voiced concerns over whether Sunni Islamist insurgents and Shi’ite militia will now turn their attention to the companies who are working in Iraq to develop the country’s vast oil reserves. Oil companies have so far dismissed any security concerns, despite an attack on Chinese oil workers, which took place in mid-July. Three China Daqing Petroleum workers, who were working to develop Iraq’s biggest oilfield Rumaila, were injured when an explosive device tore through the back of the armoured SUV they were travelling in. However, security contractors were convinced that the likely target of the attack was the US military and not the oil workers. Fears were renewed, however, when a writer posted a statement on a radical Islamic website last month calling for attacks on oil pipelines across Iraq and citing oil as the main reason for the invasion of Iraq. In response to the possible attacks from al-Qaedalinked groups, the government has placed security forces and oil police on alert. "Of course there will be some attempts to target (oil fi rms), but the areas where they work have good protection from Iraqi forces,” Safa al-Sheikh, acting National Security Adviser told Reuters. “We don't have accurate intelligence showing an increase (in attacks), but one thing we know about terrorists is that they resort to all possible means and attack anybody they can.”

OPEC trims 2011 demand forecast

O

PEC, responsible for around 40 percent of global oil supplies, has trimmed the outlook demand for its members’ crude in 2011 as production from outside the group grows. In its monthly report it predicts that the world will require 28.8 million barrels of oil a day from its 12 members next year – 100,000 barrels a day less than in last month’s report. However, it left its forecast for global oil demand in 2011 unchanged at 86.56 million barrels a day.

OPEC upstream capacity in the medium term tb/d

Crude oil capacity

44,000

OPEC crude + other liquids

42,000

40,000

38,000

36,000

34,000

32,000

30,000 2006

2007

2008

2009

2010

2011

2012

2013

Source: OPEC World Oil Outlook 2009

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UPFRONT

The world’s 10 largest petrochemical companies

12.7 trillion

1. BASF (Germany)

The South Pars gas field in the Persian Gulf is estimated to contain some 12.7 trillion cubic metres of natural gas

2. Dow Chemical (USA) 3. ExxonMobil Chemical (USA) 4. LyondellBasell Industries (Netherlands) 5. INEOS (UK) 6. Saudi Basic Industries Corporation (Saudi Arabia) 7. Formosa Plastics Corporation (Taiwan) 8. Sumitomo Chemical (Japan) 9. DuPont (USA) 10. Chevron Phillips (USA)

Source: oilandglory.foreignpolicy.com

Regional investments

R Source: ArabianOilandGas.com The list is based on the 2008 revenues and excludes any companies owned outright by governments.

UPFRONT.indd 28

osneft, Russia’s largest oil producer, is embarking on its first regional project in the Middle East as it joins forces with UAE-based Crescent Petroleum to drill for gas. The pair came together in May of this year for a gas concession in the emirate of Sharjah. Igor Sechin, Russia’s Deputy Prime Minister and Chairman at Rosneft, recently said that Rosneft and Crescent aim to start production in 2013 at the field, which is estimated to contain 70 billion cubic metres of gas and 16 million tonnes of gas condensate. Rosneft holds a 49 percent stake in this project and will be investing US$630 million. Moscow has said that it is keen to further boost its presence in the region.

13/09/2010 13:11


UPFRONT 29

Big potential

I

srael’s offshore oil and gas fields could mean decades of self-sufficiency as Houston’s Noble Energy begins drilling a US$150 million well into Leviathan off the country’s north coast. Leviathan is estimated to contain 16 trillion cubic feet of easily recoverable gas, while its deeper reaches could hold up to 4.3 billion barrels of oil. If it pans out as expected then Leviathan would be a huge field for Israel, which hasn’t seen eye to eye with its oil-rich neighbours. According to the US Energy Information Administration, Israel imports roughly 98 percent of its 250,000 barrels per day of oil. While the Leviathan numbers are just guesses, Noble and its partners Delek Group, have a good track record in the area. Last year the pair drilled into the Tamar field and made the world’s biggest natural gas discovery of the year: 8.4 trillion cubic feet. Th is quintupled Israeli reserves, with Noble Chief Executive Charles Davidson, saying at the time: “The implication of this discovery to Israel and to Noble cannot be overstated.” However, like many oil and gas disputes, this gain won’t come easy – Lebanon has already claimed the fields are in its water and worse, Israeli politicians are talking about hiking the royalties and taxes on oil and gas extraction, currently 40 percent of revenues.

Oil upgrades

K

uwait will soon embark on a series of ambitious refi nery upgrades under an initiative known as the Clean Fuels Project at an estimated cost of US$35 billion. The investments, which form part of Kuwait’s fouryear development plan for the oil and gas industry, will boost the capacity of two of the three existing refi neries from 730,000 bpd to 800,000 bpd as well as enabling them to produce lighter fuel. The investment will also include the construction of a fourth refinery designed for highsulphur oil, although similar plans have failed in the past. Originally planned for construction at Al Zour, the fourth refinery project was cancelled when it was brought before the country’s parliament last March. According to Kuwaiti Oil Minister Sheikh Ahmed Abdullah Al Sabah, the fourth facility was to process 615,000 bpd of oil, but opposition from MPs means that the plans were unsuccessful. The oil and gas industry is under increasing pressure from oil importers who are opting for the more environmentally friendly low-sulphur oil. Currently none of Kuwait’s refi neries are able to produce this low-sulphur fuel, according to Khaled Mahdi, an assistant professor at Kuwait University’s department of chemical engineering.

Anything but dry

T

he 2009 to 2010 fiscal year has witnessed the highest-ever proven oil reserves for Egypt – 18.3 million barrels to be exact, according to the state’s official MENA agency. Despite increasing local consumption levels, crossing the 18 billion barrel mark is an impressive milestone after the nation’s reserves stood as low as 11.8 billion back in the 1999 to 2000 fiscal year, as reported by the Egyptian Petroleum Authority. The Minister of Petroleum for Egypt, Sameh Fahmi, stated off the back of the figures that proven reserves are expected to reach 20 billion barrels over the next two years. Indeed, foreign investment in the field of oil and gas exploration in Egypt reached US$16.3 billion last year, with Business Monitor International recently forecasting that Egypt will account for 10.34 percent of the Middle East and Africa’s regional power generation by 2014.

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30

UPFRONT

S

peaking to NG Oil & Gas, Ocean Therapy Solutions CEO John Houghtaling outlined the company’s involvement in the operations in the Gulf of Mexico and explained the need for equipment such as his to be on-hand, ready for immediate deployment should such disasters occur. However, when the need arose for his machines to be rolled out, the company wasn’t exactly prepared. “We had been running this factory with no customers, it was practically dormant. So we had to spin the factory back up. We had 10 machines that were already manufactured,” says Houghtaling explaining that those 10 were the large V-20 machines. “In addition to that, we have about 15 medium-size machines. The orders that we got from BP were for the huge ones, the V-20.” To fulfi ll the BP order, Ocean Therapy Solutions had to ramp up production at the factory to meet demand. By August 1, Houghtaling said the company was planning to have 32 V-20s up and running, after which point they hoped to be in a position where they were able to produce a minimum of 10 machines a week. Whilst Ocean Therapy Solutions may not have garnered much support for their equipment before the Gulf of Mexico oil spill, the reaction of the industry was indeed a lot more positive when the clean up operations began. Houghtaling explained that the company received a great deal of support. “We partnered with Edison Chouest, which is the largest offshore supply company in the Gulf of Mexico. Gary Chouest, the CEO, basically told us he was throwing the whole weight of his company behind our deployment.” As you would imagine, for the beleaguered oil giant any help that they were able to obtain with the clean up effort was bound to be greatly appreciated. And Houghtaling confi rms that the relationship between BP and Ocean Therapy was one of cooperation. He explains how he sat with Doug Suttles, the President of BP Operations in Alaska, and discussed the technology and Suttles was very eager to get the machinery operational as soon as possible. Following the order BP placed with Ocean Therapy, Houghtaling recounts how Kevin Costner outlined his vision saying that the idea was not that they come to the plate for PR. “Our vision was be a metaphorical fi re truck. And we have a fi re solution, in case there’s a problem,” said Houghtaling. “Really, the machines need to be in place on boats, and rigs, before there’s a spill, so that we can deploy. Had we had machines out there at the spill, we would be recapturing all the oil without any dispersant.” According to Houghtaling, Scuttles told him and Costner that he was in favour of such a programme saying: “We will support you. These machines need to be with the supply companies, who are supplying the rigs. And the largest supply company is Edison Chouest." Houghtaling confirmed that Gary Chouest was working on a plan that he would present to President Obama, which would see V-20s deployed with support vessels to all 33 deepwater rigs that are operating in the Gulf of Mexico. “I sat with Senator Mary Landrieu and Senator Buchanan,” said Houghtaling. “I also sat with Kevin, and with John McCain, who has spoken with the governor, and they are both in favour of the programme. In addition to doing what we can to work on the clean-up, we are very intent on being able to help as a preventative measure.”

UPFRONT.indd 30

RESC

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UPFRONT 31

UE REMEDY Ocean Therapy Solutions made headlines a while ago, when co-founder and Hollywood actor Kevin Costner held a press conference to bring attention to the ďŹ rm's siphoning machines, the largest of which can separate 200 gallons of oil from water per minute. After being tested by BP, the machines were sent out to the Gulf of Mexico to take part in the clean up efforts.

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32

UPFRONT

Cleaner fuels

P

lans to close the 400,000 bpd Yanbu refi nery in Saudi Arabia in February 2013 have recently been announced. The plant, which is jointly-owned by Saudi Aramco and Exxon Mobil, will be closed for a period of approximately four to five weeks in order to allow the oil giants the opportunity to bring a new clean fuel project online. The US$2.5 billion investment will help to reduce sulphur from diesel and gasoline, but will not change the capacity of the refi nery.

Company index Q3 2010 Companies in this issue are indexed to the ďŹ rst page of the article in which each is mentioned. Abdulla Fouad 132, 133 ADIPEC 57 ADNOC 50 AES Arabia 44, 45, IBC Aggreko 12, 22 Alphatec Engineering 17 Alstom 72 American Association of Petroleum Geologists 50 Arabsat 107 Association of Diving Contractors International 90 Atlas Interactive 52, 53 Baker Hughes 72 Booz & Company 119 Boyden 50 BP 72, 80 Cambridge Energy Research Associates 50 Carbovac 118 China National Petroleum Company 72 Cresent Petroleum 56 Cudd Energy 117 Dana Gas 56 Egyptian General Petroleum Corporation 119 Egyptian Refi ning Company 119 Emerson 10, 42, 43 ENOC 128 ExxonMobil 80 Felxitallic 99

UPFRONT.indd 32

First Crude IFC, 1, 41 Frictape Net 89 Frost & Sullivan 33 Fugro Jason 62, 63 GBI Research 119 Gazprom 122 Gazprom Neft 122 Geodis Wilson 70, 71 Geosoft Inc 4, 68, 69 Grace 8 Groundstar Resources 62 Halliburton 109, OBC Horizon 95 Hydro Mashservice 79,80 ICS 92 IDC 102 IHO 92 IMO 92 International Energy Agency 119 International Marine Contractors Association 86 INTERTANKO 92 IHS 72 Independent Petroleum Association of America 50 JLP 6, 24 KPMG 50 MOL 56 NACE 100

NIOC 122 NIORDC 122 Nukote Trading 96 OMV 56 OPEC 34, 119 Pajak Engineering 51 Petroleum Institute of Abu Dhabi 50 PP Simtech 100, 101 Proserv Offshore 91 Qatar Petroleum 112 Repsol 122 Rosneft 56 Royal Dutch Shell 80 SATCOM Technologies 111 Saudi Aramco 44, 80 Scintrex Ltd 127 Shell 95, 112, 122, 128 Sigma 14 Society of Petroleum Engineers 50 Stork Asset Management 121 Supernet 2 Technip SA 72 Total 122, 72 Total Abu Al Bukhoosh 50 Upper Quartile 72 World Energy Council 50

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COVER STORY

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HEADING 35

V GOING FOR

Fifty years ago this month in Baghdad, five oil-producing nations joined forces to create the Organization of the Petroleum Exporting Countries (OPEC) in order to stabilise prices and safeguard supplies. Secretary General Abdalla Salem El-Badri tells O&G’s Julian Rogers about OPEC’s crucial role in meeting future demand.

OPEC ED P34-39.indd 35

enezuelan diplomat, politician and lawyer Juan Pablo Perez Alfonso travelled by bicycle and read by candlelight to save energy. To an untrained eye, this frugal character would seem an unlikely protagonist behind the inception and creation of OPEC in 1960. After all, this was the man who said “oil will bring us ruin” and described the fossil fuel as the “devil’s excrement”. But form OPEC he did, mainly in reaction to the pricing and production policies of the major oil companies, along with a band of five founding nations – Iran, Iraq, Kuwait, Saudi Arabia and Venezuela – who accounted for two-thirds of global reserves at the time and supplied the market with 7.9 million barrels per day (bpd). Sceptics never envisaged OPEC lasting five years, let alone 50, but the organization has survived through testing times, including wars, extreme swings in oil prices and the emergence of a number of oil-producing rivals. Today, OPEC, based in Austria, consists of 12 member countries that produce 40 percent of the world’s oil output and house almost 80 percent of proven reserves – more than one trillion barrels. Output is currently 29 million bpd and production capacity reached 35 million bpd in 2009. The organization has certainly come a long way since Alfonso’s time. Coinciding with its 50th anniversary – or ‘golden year’ as OPEC is trumpeting the occasion – the organization has moved into new state-of-the-art headquarters in Vienna, which was where the 156th Meeting of the Conference between OPEC ministers was held in March. It is from OPEC’s new 9000-square metre base that Abdalla Salem El-Badri, the Secretary General since 2007 and very much the figurehead of the organization, tells O&G just how much OPEC has achieved since 1960. “Th is year, the Organization celebrates its 50th birthday. During the last 50 years, there have been inevitable ups and downs, but our continued commitment to market stability and the welfare of both member countries and the global community has been proved time and again,” says El-Badri. “We are now 12 strong – our five founder members of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela have been joined by Algeria, Angola, Ecuador, the SP Libyan AJ, Nigeria, Qatar and the United Arab Emirates. Today, the Organization is one of the most influential institutions of its type in the world. Our understanding of the oil market continues to grow and as a result the decisions we take as we strive for oil market stability are even more effective.” He adds: “With today’s global economic interdependence and increased environmental awareness, we are faced with a new set of challenges. But our 50th anniversary slogan is ‘Supporting Stability, Fuelling Prosperity’. Accordingly, in the years ahead, OPEC will continue to work hard for harmony and stability in the international oil market for the benefit of producers, consumers, inves-

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36

COVER STORY

OPEC’s movers and shakers 1

Iraq’s Minister of Oil, Hussain al-Shahristani

2

Minister of Petroleum for Angola, José Maria Botelho

3

Dr Shokri Ghanem, Chairman of National Oil Corporation and Head of Libya’s delegation

4

Ali al-Naimi, Saudi Ariabia’s Minister of Petroleum and Mineral Resources

5

Sheikh Ahmad Abdullah Al-Jabar Al-Ahmad Al-Sabah, Minister of Oil for Kuwait

6

OPEC Secretary General Abdalla Salem El-Badri

7

Germanico Pinto, OPEC President and Ecuador’s Energy and Mines Minister

8

Qatar Deputy Prime Minister and Minister of Energy, Abdullah bin Hamad Al Attiyah

2

“OPEC will continue to work hard for harmony and stability in the international oil market”

5

tors and the global economy at large – whatever the challenge, whatever the obstacle.” Since 1960, oil consumption has rocketed, being the primary fuel for vehicles the world over. And with rising wealth in the BRIC countries (Brazil, Russia, India and China) as well as the Middle East and Africa, car ownership is set to soar. In China alone, car ownership stands at 19 million (one in 70 of the population) but analysts predict this to balloon to 300 million (one in fi ve) by 2030. Despite efforts to reduce our reliance on black gold, the consensus of opinion is that oil demand is set to soar by 2030 – driven by factors such as economic growth, expanding populations and higher standards of living – and the MENA region will play a key role in securing crude supplies. “OPEC member countries and non-OPEC producers have more than enough oil reserves to meet demand for the foreseeable future,” he says. “However, just as consumers need a secure supply of oil, producers need to know that there is a demand for their product. For OPEC member countries to invest, they need to be sure that future projections of oil demand are realistic. We need consuming countries to be clear about their forecasts and about their energy-related policies, which often serve only

6

7 8

1

3 4

OPEC ED P34-39.indd 36

13/09/2010 11:54


COVER STORY 37

to add confusion to the energy outlook. Despite this, all member countries are investing heavily in new projects, as I have already explained. Combined OPEC Member Country spare capacity already stands at more than six million b/d and is expected to reach seven million b/d by 2014. We are serious about our quest for oil market stability,” says El-Badri. However, OPEC is uncertain about pressures on its member countries’ supplies, forecasting that as early as 2020, demand for OPEC crude could be as low as 29 million bpd or as high as 37 million bpd. In a speech that El-Badri gave at the 9th Arab Energy Conference in Doha, Qatar, in May of this year, he said that this translates into an uncertainty gap of over US$250 billion in upstream investments. “There is, therefore, the very real possibility of wasting fi nancial resources on unneeded capacity,” he noted. “These daunting uncertainties stem in part from consuming countries announcing policies that are geared towards reducing oil demand, subsidising alternatives and putting heavy tax burdens on the use of oil. Inconsistent, unrealistic and wishful-thinking policy announcements can only provide the wrong signals to markets and investors, creating a lack of certainty and predictability that undermines the ability of the oil industry to invest to meet future energy demand.”

Macroeconomic activity OPEC has witnessed the odd recession down the years but the downturn of the past few years has been described as the worst since the Great Depression. With staff layoff s, house repossessions, businesses suffering and consumers tightening their belts, oil consumption was bound to dip. Indeed, global demand fell in 2008 and 2009 – a cumulative drop of 1.9 million barrels. Th is was the fi rst time this had happened since 1981. It led to a significant rise in unused production capacity, which stood at six million bpd earlier this year. And with some Arab countries’ petrodollars accounting for 90 percent of GDP, the economic maelstrom was a hammer blow for export revenues. Although El-Badri says a viable petroleum industry provides important economic stimulus for the region, the downturn left a visible adverse impact. “OPEC member countries have been particularly hard hit by the global economic downturn. Many of our member countries had to delay some of their investment projects. They also saw a steep decline in their oil revenues and were forced to cut costs. As oil-exporting, developing countries, their economies do not have the same capacity to weather a storm as more diverse and emerging economies, such as China and India,” explains El-Badri. The low oil prices that accompanied the economic downturn had a profound effect on the region’s projects. “Due to falling oil prices as the global economic downturn took hold, OPEC member countries had no choice but to delay a number of their scheduled and planned investment projects. At one stage, around 35 projects out of a total of 150 projects had been delayed or stalled,” explains El-Badri.

OPEC ED P34-39.indd 37

As early as 2020, demand for OPEC crude could be as low as 29 million bpd or as high as 37 million bpd

OPEC’s mission In accordance with its Statute, the goal of the OPEC is to coordinate and unify the petroleum policies of its member countries and ensure the stabilisation of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.

However, by the fi rst quarter of this year, as more realistic oil prices were observed, these projects were resumed. El-Badri points out that this ‘stop-go’ situation was not exclusively experienced by OPEC alone – all oil producing countries and oil companies faced similar challenges. “The result has been staff cuts throughout the entire industry. We have also witnessed cutbacks in investment and budgetary plans. Th is is concerning, since the oil industry was already suffering from a lack of skilled personnel, which at the end of the day translates into supply cuts.” With the economy in the region being so reliant on oil, El-Badri highlights a need for all oil-producing nations to diversify their economies. “Hydrocarbons are fi nite resources. It is important for all countries to have diverse economies. Many of our member countries are already taking steps in this direction.” The attempts by many countries in the region to invest in tourism and create logistical port hubs serve as proof of this. El-Badri adds: “OPEC is also a fi rm believer in the need for diversity in the global energy mix. Indeed, many of our member countries are working hard to develop alternative sources of energy. But while alternative forms of energy will grow in importance, we must still recognise that they are starting from a very low base. It is widely accepted that fossil fuels will remain the main source of energy for the foreseeable future.” The crisis and the slow and fragile economic situation is evident in the modest increase in oil demand growth – around one million bpd for 2010 – but the downturn has underlined the need for oil producing states to diversify their economies. However, the risks remain high, especially with some OECD countries saddled with significant levels of debt, high unemployment, tightened credit markets and fragile fi nancial systems. The crisis highlights OPEC’s importance to the global oil industry, and the key role that the organization will play in the future. “OPEC will continue to pursue stability in the oil market – something that is critical to support

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COVER STORY 39

a sustained return to global economic growth. To do this, we will continue to monitor the markets closely and OPEC Member Country ministers will make informed decisions accordingly,” says El-Badri. Despite the oil industry facing a multitude of challenges and uncertainties, significant investments are underway in OPEC member countries. In 2009, around 30 projects came onstream, culminating in 1.5 million bpd of net crude and liquids capacity. In the next five years, the completion of another 140 projects is expected to add another 12 million bpd of gross crude and liquids capacity. El-Badri believes that current investments should be enough to satisfy demand for OPEC crude and provide a comfortable cushion of spare capacity – of more than seven million barrels a day by 2014. Downstream has seen OPEC countries plough some US$40 billion in order to expand refi ning capacity by more than two million bpd.

Volatile situation Apart from inflated costs and a lack of qualified personnel, El-Badri singles out extreme crude price volatility as one of the most urgent challenges facing the oil sector. In 2008 oil prices rocketed to US$147 a barrel and some analysts were forecasting it to top US$200. But as the global fi nancial crisis began to bite, crude plummeted to just US$35 a barrel within the space of six months. Th is rollercoaster ride in prices creates harmful uncertainties with regard to the long-term price of oil, with some questioning why speculators can have so much influence over how much we pay for this crucial commodity, especially

Flashback: Arab oil embargo

A

rab nations’ impact on crude oil prices came to the fore after Syria and Egypt attacked Israel (the 18-day Yom Kippur War) in 1973. The US and a host of other nations sided with Israel, so several Arab countries placed an embargo on them and cut production by five million barrels per day. The oil crisis of 1973, as it became known, led many people, especially the Americans, to reassess energy security and how reliant they were on Middle East oil supplies. Oil couldn’t just be thoughtlessly consumed, which was underlined by philosopher EF Schumacher when he said: “The party is over.” The embargo’s impact on crude prices was profound – they quadrupled from US$3 a barrel in 1973 to US$12 in 1974. It also led to gasoline rationing and queues of two to three hours at petrol stations. Odd-even rationing was rolled out, meaning drivers of vehicles with licence plates with an odd number as the last digit were permitted to refill their tanks on odd days of the month, and vice versa for motorists with even number digits. Consumption in the US, the world’s largest consumer of oil, dropped by 20 percent, while inflation jumped to 10 percent and interest rates hit the high teens. Daylight saving time was issued year round with the aim of conserving electrical use and speed limits on roads were also slashed in some countries. Those countries affected by the embargo refocused their efforts on the development of alternative energy resources and on reducing their reliance on fossil fuels. When the embargo ended in 1974, Arab nations began shipping oil again but at inflated prices. The long-term result of the crisis was a global recession and a change in attitude as people and governments realised just how much they relied upon oil.

at the pumps. A weak dollar and geopolitical factors came into the equation in 2008’s spike, but speculators were mainly to blame. OPEC has been warning for some time that wild price swings were detached from supply and demand fundamentals. However, there is now dialogue within the International Energy Forum (IEF) to mitigate volatility and proposals by the Commodities Futures Trading Commission (CTFC) in the US to limit excessive speculation in the futures and over-the-counter markets. “OPEC has time and again stressed that the extreme oil prices witnessed in 2008 were not due to oil market fundamentals. It is now widely accepted that oil was being used as an asset class and that speculation was driving the extreme volatility we saw. We are now seeing some moves to improve regulation in this respect,” explains El-Badri. “OPEC is currently engaged in a collaborative joint work programme with the International Energy Agency (IEA) and the International Energy Forum (IEF) to better understand exactly how the physical market for crude oil and the fi nancial markets interact, as well as the potential of improved regulation.” The oil price graph has remained fairly stable in the past 12 months, bobbing up and down between US$67 and US$82. El-Badri says that OPEC does not have a

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40

COVER STORY

OPEC share of world crude oil reserves 2009

Libya, S.P.A.J

Nigeria Qatar

Kuwait Iraq

Non-OPEC 272.9 bn barrels

20.41%

OPEC 1064 bn barrels

Saudi Arabia

Iran, I.R

79.6%

Ecuador Angola Algeria UAE Venezuela OPEC proven crude oil reserves, end 2009 (billion barrels)

Saudi Arabia Venezuela Iran, I.R

264.59 24.9% 211.17 19.8% 137.01 12.9%

Iraq Kuwait UAE

target price, but he believes that the current oil price of close to US$80 a barrel is an acceptable level for both producers and consumers. “These prices are not in any way hampering the global economic recovery, but they are enabling producers to push forward with their much-needed investment programmes,” he says. “Of course, there are huge uncertainties on the economic front and the outlook for oil demand remains unclear. At OPEC, we remain very cautious. Oil inventories remain extremely high and this could put downward pressure on oil prices. But as we have seen in recent years, other factors such as the fi nancial markets are now also driving oil prices.” He is also keen to emphasise that nobody wants to see a repeat of the spike and fall in prices of 2008 – neither producers nor consumers. With a fluctuating dollar impacting crude prices, there has long been talk of ditching the greenback for a basket of currencies. But El-Badri does not see this happening any time soon. “With regards to the dollar, it remains the currency with which oil is priced. I do not foresee any change in this respect. However, it is up to member countries to decide.” Given OPEC’s influence over oil output on the world market, it is little surprise that the organization has had its fair share of opponents down the years. OPEC, however, says it is there to intervene when threats to supplies could prevent oil from reaching the market. For instance, when

OPEC ED P34-39.indd 40

115.00 10.8% 101.50 9.5% 97.80 9.2%

Libya, S.P.A.J Nigeria Qatar

46.42 4.4% 37.20 3.5% 25.38 2.4%

Algeria Angola Ecuador

12.20 1.1% 9.50 0.9% 6.51 0.6%

“At OPEC, we remain very cautious. Oil inventories remain extremely high and this could put downward pressure on oil prices” capacity fell from Iraq and Kuwait in 1990 before the Gulf War, OPEC members ramped up production to make up the shortfall. Similarly between 2003 and 2006 after the US invasion of Iraq, OPEC responded to the disruptions in supply by producing another five million barrels a day. Keeping the market supplied today and into the future is about dialogue; genuine cooperation between energy producers and consumers is the key to ensuring a stable and predictable energy scene, and OPEC is at the forefront of ensuring that such dialogue takes place. Of course, one day OPEC’s significance will fade along with oil supplies as the world is forced to focus on alternatives. Question marks still hang over whether or not we have reached Peak Oil – even the experts don’t know definitively how much crude is still lying under the ground and beneath the sea beds. Gas is being touted as the hydrocarbon of the 21st century, while unconventional oil reserves and renewable energy will play a greater role in the energy mix. But for the foreseeable future at least, oil is king and humanity’s unquenchable thirst for it remains – meaning OPEC will continue to have a positive role to play going forward. „

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EXECUTIVE INTERVIEW 41

Subsea technology in the Philippines Earl Mark Jumalon, Area Manager for Asia Pacific and Middle East for First Crude Engineering Products Inc. provides an insight into new developments and gives a market outlook. of the 3D CAD soft ware systems such as Solid Works, Inventor and PDMS. By performing such verifications during the entire design process, our clients save cost and time and will have less changes and corrections during and after the fabrication period. FCEP Inc. is also an active partner during the different test stages. We supply mock up ROVs for system integration tests on subsea structures and modules including experienced ROV engineers to ensure safe and good operation of the various systems prior to subsea installation.

Earl Mark Jumalon, an Electrical Engineer by profession, is the Region Manager of First Crude Engineering Products, Inc. (FCEP). He has been working on subsea field developments, with a focus on field architecture, for the past few years. Currently, he is also taking an MBA at the Silliman University in the Philippines.

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As European and GoM markets are declining what is FCEP’s strategy? Earl Mark Jumalon. As the latest subsidiary to the First Crude network, First Crude Engineering Products Inc is based in the Philippines and will act as the Asia Pacific hub for our group. Our strategy is to grow with the market in Asia. Our goal is to provide subsea products and services on our established know-how, which the group has built up over the past 20 years in the North Sea. Due to the tragic accident in the Gulf of Mexico, the subsea market will slow down in that region and there will be more focus on developments in other regions, especially in Asia and the Middle East. What kind of products and technology will FCEP provide for its clients? EMJ. First Crude Engineering Products Inc. has a great variety of products and services. Our main service is subsea engineering, covering all aspects from conceptual field development, FEED studies, subsea refurbishment, subsea tool rental pool and of course, our latest development, the drill cutting treatment system. We are establishing a facility for testing and refurbishment just outside Dumaguete City where our offices are located. And we have mock up ROVs, subsea torque tools, cutting equipment and we will, in the near future, also be providing various running tools. We also perform design verifications on subsea designs using modern 3D tools to check access and feasibility of subsea structures, by using models of ROVs, running tools and subsea modules. We can perform these checks on most

You mentioned the drill cutting treatment system, can you tell us more about this technology? EMJ. For the past two to three years we have been looking into a better way to handle drill cuttings. For years it has been the industry standard to dispose of drill cuttings on the seabed, just next to the various drill centres. However, the high focus on environment and pollution control has restricted, and in some regions, banned this method. The current solution has been to separate the drill cuttings on the rig and then ship them to shore for further processing and storage, but that is a quite costly method. And we just move the problems onshore. Our method has been developed together with our Singapore-based partner Dowtec and is based on new technology where we clean the drill cuttings onboard the drilling unit. The end product is clean granules, which we can either re-inject into a separate re-injection well or use as building material for various subsea structures such as protection mattresses, protection covers, tie in ramps, pipe supports and even subsea insulation. It’s a win-win situation for both operators and the environment. What plans do you have for your business in the coming years and how will the Asia Pacific and Middle East regions fit into these plans? EMJ. As initially stated, we are focusing on expanding our facilities here in the central Visayas and we have introduced ourselves to the key operators within the Philippines oil and gas industry. But we are already expanding our activities to other places in Asia as we have contracts with Malaysian companies and we will shortly establish a JV in Brunei together with our business partner Dowtec in Singapore. And as a result of our participation at the last GDS summit in Doha, Qatar, we have already established good contacts with some of the larger operators in the Middle East region. „

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ASK THE EXPERT

Flexible solutions Alan Baird, from Emerson Process Management, explains how offshore operations can benefit from the latest Safety Instrumented Systems, which feature integrated systems and flexible modular distributed architectures.

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afety Instrumented Systems (SIS) perform a critical role in providing safer, more reliable process operations and are widely adopted by oil and gas companies both onshore and offshore. A SIS can be used for emergency shutdown applications to prevent hazardous situations from occurring, and can initiate the shutdown of a plant, unit, or piece of equipment should it be required. A SIS can also be used for fire and gas systems (FGS) to mitigate the effects of fires or chemical releases when they occur. Sensors are used to detect abnormal operating conditions and send a signal to a logic solver. The logic solver is configured to make decisions based on the inputs and then give an output that will bring the plant to a safe state, by closing a valve for instance. The latest safety instrumented systems help to reliably protect assets and improve plant performance. Bulky logic solvers and multiplexers are replaced by state-of-the-art logic solvers that support digital communications with smart instruments. Increased safety integrity is provided by continuously monitoring the ability of sensors, logic solvers, and final control elements to perform on demand, with faults diagnosed before they cause spurious trips. In other words, the system applies predictive intelligence to increase process availability and reduce lifecycle costs. Logic solvers that have integrated field instrument diagnostics can actively monitor safety loop performance. The IEC61511 standard insists upon physical separation and independence of control and safety functions to eliminate failures that might affect both layers of protection. An integrated SIS platform can meet this requirement whilst still answering end-users’ desire for an integrated configuration, maintenance, and operations environment for easy access to all safety-related information. Th is visibility into the process enables plant personnel to respond quickly and make informed decisions to avoid unplanned shutdowns. The latest process safety systems, such as Emerson Process Management’s DeltaV SIS, have modular architectures that move away from a centralised logic controller, to instead offer a flexible safety instrumented function (SIF) based approach. A SIF-based SIS architecture means that certain functions can be separated within the safety system. Each logic solver is a container for a small number of SIFs and there is no unplanned interaction between them. Th is approach isolates SIFs, eliminates single points of failure, and simplifies change management. It also allows incremental expansion and simplifies system maintenance by allowing units to be isolated.

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For offshore applications, there is commonly a very strong integration of the emergency shutdown (ESD) system and FGS. In most cases, a confi rmed FGS trip will automatically result in a trip of the ESD system to isolate the problem from potential sources. Many companies utilise an integrated approach and interface the FGS with the ESD system to initiate plant shutdown if hazardous events occur. Class Societies, such as Det Norske Veritas (DNV), recommend separate FGS and ESD systems to maintain independence between protection layers. Previously, where a single logic solver was applied it was not permitted to execute both an ESD and FGS system in the same logic controller. A modular SIF-based architecture enables both applications to be integrated into a single system due to the ability to isolate logic across completely separate logic solvers. A modular, distributed architecture enables the process safety system to be customised for each application as it is scalable in size and allows you to add memory and processing as I/O is added; ensuring adequate processing power is available. A distributed architecture using a highspeed SIL-rated communications network also provides flexibility in the field. Modular SIS logic solvers can be placed close to the process unit being protected; this then offers fewer opportunities for maintenance errors and limits the amount of wiring required. „

Alan Baird is PlantWeb Marketing Manager, Middle East & Africa at Emerson Process Management, responsible for promoting Emerson’s PlantWeb digital architecture and Smart Wireless technology.

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INDUSTRY INSIGHT

Waste water solutions When it comes to industrial wastewater, extraordinary problems need extraordinary solutions, explains Samir Fayyad.

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fter a major petrochemical company in Saudi Arabia completed its main product process design and development, they realised that a very important issue was left unattended, namely the plant’s difficult wastewater stream. The 9000 kg/hr waste was predominantly 4.5 percent sodium sulphate, along with other chemical COD/BOD such as (acetophenone, cumene, dimethylbenzyl alcohol, phenol, acetone, alpha methyl styrene, formaldehyde, formic acid, methanol, ketones, acetol, sodium acetate, and sodium formate) in various concentrations ranging from 30 to 5000 ppm. The wastewater presented a challenge to the client, as it was something more than expected. The discharge limits were specified as up to 2000 ppm of TDS and Suspended Solids, 150 ppm of phenol, and 800 ppm of TOC. The concentration levels indicated above rendered an initial proposal to use RO unviable since the high inlet COD, solvents, and organic chemicals would foul or damage the RO membranes. AES engineers started working on alternative treatment methods. A direct biological treatment for the incoming waste was not feasible due to the elevated feed salinity. Th is could hinder the biological growth of activated sludge and result in insufficient treatment. With this in mind and the exclusion of the RO technology, a valid option was thermal evaporation. A two-stage evaporation process was selected. The wastewater is initially introduced to a falling fi lm evaporator (FFE) followed by a vacuum cooling evaporative crystalliser (VCEC). A mechanical vapour recompression fan is used to pressurise the steam vapour, heating it up and forming more vapour. The slurry from the FFE with 20 percent dry solids content is fl ashed in the sealed VCEC crystalliser running under vacuum. The sudden change in pressure causes more water to evaporate from the slurry, raising the concentration and forming crystals of sodium sulphate salts. The vapour fl ashed in the VCEC is condensed and sent along with the FFE condensate to the biological treatment. A progressive cavity pump moves the slurry from the VCEC tank to a specially constructed pusher centrifuge to raise the solids content more than 90 percent, the crystals chutes down to a fluidised bed drier where it totally dries and then is pneumatically conveyed to powder storage silos to be stored waiting to be emptied into the next

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Samir Fayyad is a Vice President, Technical at AES Arabia, a water and wastewater treatment company in Riyadh, Saudi Arabia. An experienced professional with more than 15 years’ experience in designing projects and solving problems related to water treatment and reuse both in the private and oil and gas sectors. Clients served include Aramco, Sabic, PDO, JGC, SNC-Lavalin, Snamprogetti, PDO, QP, Total, and many others. For more information, please contact Asad Iqbal Khan, Manager, International Sales: +966 555 207569, asad_khan@ aesarabia.com

dry powder bulk transfer truck. The sodium sulphate crystals now have a commercial value and can be sold to other industries such as glass manufacturing. An ejector is connected to the FFE vents and creates a slight vacuum removing any escaping gases and noncondensables. The mixture is pumped to the biological treatment section preventing possible ambient air emissions from fugitive gases. The condensate collected from the evaporation steps is pumped through a plate and frame heat exchanger heating up the cooler incoming wastewater and is distributed to four long-retention biological reactor tanks. High concentration of activated sludge is maintained in the biological reactor tanks (around 12,000 ppm.) Th is high concentration, coupled with the long retention time, helps break down the refractory COD and reduce the toxicity through dilution with the bulk volume of water in the bioreactor tanks. Two subsequent membrane bioreactor tanks (MBR) are used to extract treated water from the biological system, which can either be re-used in the plant or disposed of safely. The plant has state-of-the-art design features and offers a cost-effective and reliable total solution to a stubborn wastewater problem while meeting environmental regulations and the clients set discharge criteria. „

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Committed to Quality

The Effort Meticulous & Persistent

The Reward Total Customer Satisfaction

COMPLETE WATER AND WASTE WATER SOLUTIONS OIL & GAS | POWER | INDUSTRIAL | MUNICIPAL

info@aesarabia.com www.aesarabia.com P.O. Box: 105689 Riyadh 11656 Saudi Arabia Tel: +966 1 4772398 Fax: +966 1 4785456

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Career ladder National oil company Saudi Aramco is the world’s largest oil and gas company, boasting about 58,000 employees. Huda Ghoson, General Manager of Training and Development, leads one of the Saudi Aramco organisations responsible for attracting, retaining and developing staff. For her, the company offers so much more than just an attractive salary. You first joined Saudi Aramco in 1981. Can you give us an insight into ment is an ongoing enterprise at Saudi Aramco that takes different forms how recruitment, training and career development has changed at and is practised on a daily basis at all levels of the organisation. The overall the company? programme is supported by ongoing mentoring, coaching and knowledge Huda Ghoson. Over the past 30 years, recruitment, training and detransfer processes, and strong commitment from the management team velopment have undergone major transformation in line with to monitor progress and assure the availability of skills at all times. the evolving business, economic and social climate. While we Today, our HR management and development processes are continued to maintain a long-term focus and clear vision more participative compared to approaches of the past. for our Human Resources strategy, the transformation of our approach was necessitated by the changing business We hear a lot about skills shortages in the O&G induspercent of environment, demographics and traits of the new gentry. Are there areas of Saudi Aramco lacking particular employees are eration of workers. For example, in the past, the focus of skills – geologists and scientists, for instance? Saudis attraction and retention was mainly on genHG. The industry has for the past few years erous pay and other tangible benefits. Today, experienced difficulty in fi nding and retaining employees do expect competitive pay, but it is skilled manpower. Th is is partly due to the pernot the only factor for accepting employment. manent loss of professionals during previous More so, they expect the company to provide downturns, the industry image and declining challenging work assignments, learning and university enrollment in key disciplines. Today, development opportunities, clearly mappedthe pool of specialists is shrinking, and the out career progression, and a voice in the average age of an employee in the oil and gas decision-making process. We are also more industry is close to 50. selective in our recruitment practices today, Saudi Aramco anticipated this shortage and apply rigorous assessment techniques to of skills a few years ago and is able to address assure the quality and skills of candidates and its staffi ng needs through implementation of a the long term return on our huge investment long-term strategy and investment in human in human resources. resources development. More than 80 percent As for training and development, in the of our recruitment needs come from our trainpast, programmes were designed to build teching programmes, which produce skilled and nical skills with limited focus on soft skills and professional workers (annually) with different leadership competencies. Employees had a limdisciplines based on business needs. ited role in their development and the decision making process. Today, young professionals are What are the success factors of attracting encouraged from day one to take ownership of and retaining young talent in Saudi Aramco? the process and to assume a driver’s seat in the HG. The success of our HR strategy is attribroadmap of their careers. The emphasis is that uted to three main factors. The fi rst factor is continuous development is their own responsibuilding on the solid reputation of the combility and that they need to take active roles to pany. In fact, this constitutes the cornerstone ensure that their learning objectives and career of the company’s attraction and retention and business goals are aligned. Self-developpolicies. Young talent is attracted and proud

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HR & TRAINING FOCUS

Huda Ghoson receiving an award from Saudi Aramco President and CEO Khalid A. Al-Falih

“Today, young professionals are encouraged from day one to take ownership of the process and to assume a driver’s seat in the roadmap of their careers” to join Saudi Aramco because of the company’s track record of successful performance, solid corporate values and governance, its prominent and influential position in the local and global economies, its strong social responsibility, fair and inclusive HR policies, a well-balanced approach to maximising return on investments, the wellbeing of its employees and the environment in which it operates. The second factor is our heavy investment in the training, development and management of our people, that is generously supported and clearly championed by the company and international partnerships. The third factor is the total reward package. Saudi Aramco’s total reward policies and programmes are designed to satisfy every stage of the employee’s personal and professional growth starting with competitive salaries, a comprehensive healthcare programme for the employee and his/her family, holidays and vacations, home loans, savings and pension plans, community services

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and safety and security. These policies assure the employee’s long term financial security, health and wellbeing and work-life balance so that they can focus on their work and achieve the highest levels of productivity. The oil and gas industry globally faces the dilemma of experienced and knowledgeable employees reaching retirement. Is this a problem for you and can you explain what is being done to transfer skills and experience to the next generation who will be tomorrow’s leaders? HG. We are addressing this issue through our long-term talent management strategy to build, develop and maintain a pipeline of skilled and prepared leaders from within the company. Saudi Aramco has a formal succession planning process that is applied consistently throughout the organisation. Th is process involves talent reviews and assessment of high potential, ongoing career and leadership development plans, including exclusive action learning opportunities targeting top performers with high potential. Moreover, we employ a variety of methods and assessments for identifying, evaluating and ranking candidates for leadership positions. Once these individuals have been identified, they must be placed into the company’s leadership pipeline and their progress and potential tracked on a regular basis. Succession planning is a process by which we identify and plan for the

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replacement of key leaders with ‘ready now’ successors when needed. In addition, we use multiple approaches to capture the experience and know-how of experienced staff that involves ongoing feedback from coaches, mentorship programmes, and formal knowledge transfer processes. These strategies are supported by a strong commitment from the management team to monitor progress and assure the availability of skills at all times. And fi nally, we believe that the better the company does in recruiting and selecting talented employees, the greater the internal talent pool from which to choose future leaders. Since its early days in the 1940s, the company has focused on developing Saudi nationals to safeguard against labour market fluctuations. Saudisation efforts picked up dramatically in the mid-seventies. We grew from fewer than 20,000 employees in 1955, to about 58,000 today. At present, 88 percent of our employees are Saudis. It is worth noting that our top management and operations personnel are all Saudis. Th is is a remarkable achievement that is only possible due to careful planning and commitment to a strategic goal. What is Saudi Aramco doing to encourage more young women into the industry? What was it that first attracted you to Saudi Aramco 30 years ago? HG. To encourage more young women into the industry, Saudi Aramco has demonstrated genuine and pragmatic efforts in leveling the playing field and providing equal opportunities for growth and advancement based on meritocracy and contribution. Also, the company ensures that policies and programmes are inclusive and conducive to an increasingly diverse workplace. In other words, our policies don’t only provide equal benefits and wages, but they also consider the family lifecycle and support the work-life balance; thus meeting the needs and expectations of all employees. Moreover, we realise that some of the technical and engineering disciplines required in the company are not available or delivered by the local education system for women. Therefore, to attract more women to the industry, the company provides training and scholarships to young women to pursue undergraduate and graduate degrees in technical areas related to our core business at top universities around the globe. As for my own experience, I believe I was attracted to Saudi Aramco by the learning and growth opportunities, diversity of the workforce, professional work environment, access to mentors and an open network of professional staff, and above all, corporate culture, values and work ethics. And how do you attract skilled O&G professionals from abroad? What benefits do you offer? HG. A total comprehensive and compelling employment value proposition (EVP) is the foundation of the talent attraction and retention strategy locally and globally. For expatriate oil and gas professionals, the focus would be on our technology-savvy work environment, challenging and rewarding projects and work assignments, competitive pay package, health care programmes, quality international standard education for their children, safety and security, lifestyle including travel and leisure, and familyfriendly policies and community programmes. The effectiveness of our EVP is evidenced by the low turnover rate among expatriates and their long service with the company. With energy demand forecast to soar in the next 20 years as emerging economies become more reliant on hydrocarbons, how is Saudi Aramco planning for the future to ensure the company has the talent to cope with rising demand? HG. Building organisational capabilities in Saudi Aramco to meet future energy demand starts with a structured and integrated process for talent

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management and development. The process consists of five fundamental phases, and begins with applying a sophisticated workforce planning model to forecast labour requirements for every business plan period and up to 30 years into the future, using hypothetical scenarios. The model identifies the required skills and recruitment targets. When the plans are approved, the second phase begins with staffi ng activities. Selection criteria are developed, monitored and applied consistently to assure quality candidates and their learning potential. Candidates go through psychometric and aptitude tests to fi lter the pool and select the top promising applicants. We also sponsor a large number of high school students and train them in our facilities for skilled jobs, or send them to local or international universities based on business needs. We currently have about 7000 students attending full-time academic/vocational training or university education. Once employees join us, an individual development plan is designed to build a solid start with strong foundations by going through an intensive, immersive and integrated learning experience – and this is the third phase. The goal is to substantially compress the cycle time for turning new recruits into contributing team members of the workforce. This is the most critical step in transforming our young recruits into competent professionals and effective leaders. The fourth phase is the performance management process whereby supervisors play a major role in driving, managing, monitoring and re-

Did you know? Founded in 1933, the national oil company (NOC) Saudi Aramco began life as a subsidiary of US oil company Chevron. Today, Saudi Aramco is responsible for 99 percent of the KSA’s oil assets – an estimated 260 billion barrels or a quarter of the world’s total conventional oil reserves. Saudi Aramco: a brief history

1933

Oil prospecting begins on Kingdom’s east coast

1938

The KSA’s first commercial oil field is discovered at Dhahran

1951

The world’s largest offshore oil field – Safaniya – is discovered

1973

The government acquires a 25 percent participation interest in Aramco

1980

Government participation interest increased to 100 percent

1988

Saudi Aramco is established

1998

The Shaybah oil field in the Rub al-Khali desert goes on stream

2008

Saudi Aramco celebrates its 75th anniversary

2009

Saudi Aramco reaches 12 million barrels per day in maximum sustainable oil production capacity

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HR & TRAINING FOCUS

warding the desired performance. The third and fourth phases are ongoing and mutually inclusive processes that don’t stop until the employee ends his/her service with the company. And fi nally, the fi ft h step is the succession planning process that is applied consistently throughout the company. Th is process involves talent reviews, assessment of high potential and knowledge transfer plans. Th is process is helping us address any retirement bulge and an ageing workforce by ensuring qualified employees are ready when they are needed. All five phases of the integrated talent management architecture are held together by competency models that provide consistent framework, language and a set of expectations. The last two years have seen oil prices hit $147 a barrel before plummeting to just $35 a barrel and then rising to today’s current levels. How do you deal with the impact this has on staff numbers and staff investment because projects could get shelved and the headcount reduced? HG. The industry has learned that the current skills shortage was caused by layoffs during previous downturns. So it does not make business sense to let our critical staff go, especially after investing in their training and development, when we know that an upturn in the business cycle could be just around the corner. As mentioned earlier, maintaining long-term strategic focus and policies that do not fluctuate with the global economy has helped us build solid organisational capabilities, and assured the readiness of our

“We believe that the better the company does in recruiting and selecting talented employees, the greater the internal talent pool from which to choose future leaders” workforce and availability of skills when they are most needed – during bad times as well as good times. Our strategies are effective because they run consistently, regardless of the ebb and flow of the business cycle. Talent management in Saudi Aramco is considered a strategic imperative and business necessity that requires a clear vision and focus. It has always been at the top of our priorities despite economic conditions, and is placed at the pinnacle of our business goals along with maximising profitability and sustaining reliability of supply. What gives you the most pleasure from your job? HG. I get most pleasure when I feel I’m adding value to the organisation and helping people tackle challenges and achieve excellent results. My contentment comes from serving and guiding my team and organisation and facilitating the needed resources to accomplish personal and business goals. My mission is to lead, guide and serve. And that’s what makes my job most exciting, challenging and gratifying. „ Huda Ghoson says talent management is a clear vision and focus

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INDUSTRY INSIGHT

Solutions for compliance and competency The Middle East faces many challenges in the development and competence of its oil and gas workforce. Andrew Imrie explains how Atlas Interactive is helping industry meet these challenges head on in the areas of HSE compliance and technical competence.

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ationalisation, a rising number of major oil and gas projects, and the drive towards meeting compliance and competency standards, has prompted an unprecedented demand for effective and innovative solutions to address the transfer of knowledge to the whole workforce. In a region of this size however, where skill sets vary and projects are often large-scale, delivering a one-size fits all solution isn’t an easy task. Taking advantage of international best practices is vital. As a key component of its solutions, Atlas Interactive has developed e-learning courses for the global oil and gas industry in areas such as safe systems of work, HSE and operations and maintenance disciplines. The UK industry last year adopted minimum industry safety training (MIST) standards to ensure that all experienced offshore workers are assessed in a predefi ned range of mandatory safety topics. Atlas Interactive applied its FAST TRACK adaptive learning technology to develop a unique solution in order to assess and train in excess of 40,000 offshore workers across nine HSE areas. Th is dynamic solution offers ‘anytime, anywhere’ individually targeted e-learning with the added benefit of saving employers from the logistical and fi nancial burden of assessing and training large groups of employees. The learning model uses a diagnostic pre-assessment function to gauge each learner’s existing knowledge and tailor a course to address any gaps. Summative questions are aligned to the learning outcomes, enabling the FAST TRACK engine to rebuild the course each time the learner reaches the end of the remaining modules. By utilising a process that reduces the course size based on the incorrect responses, the pass mark can be set at 100 percent. The concept of a common set of minimum industry safety training standards for both on and offshore workers is gaining momentum in the Middle East and the tried and tested North Sea solution adapted so it can be applied to international, multi-ethnic workforces. The use of language options, graphics and pictorial imagery to overcome limitations in reading ability and computer literacy opens up the tool to workers of all abilities, while colour-coded hand-held devices for course navigation and assessment removes the need for the traditional keyboard and mouse. Th roughout the Middle East, Atlas has also been engaged in developing safety, office and company inductions – in a range of DVD and 3D animation formats – for use as

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Andrew Imrie is Senior Vice President, Sales & Marketing, for Atlas Interactive. Having spent the last 14 years in the oil and gas industry, he previously held senior commercial roles with companies including General Electric, National Oilwell Varco and Amec Oil & Gas.

e-learning courses or stand-alone presentations. Available in anytime, anywhere multi-lingual options, they negate logistical issues such as the need for instructors or translators to deliver the courses, saving companies both time and money. Numerous competence mapping exercises have been conducted to assist companies in identifying training requirements against job competencies. These exercises enable companies to explore the most effective and efficient means of delivering, assessing and underpinning knowledge requirements to help develop the competence of their workforce. An integrated approach to developing competency will bring the biggest benefits to any energy sector and Atlas has worked with the industry to develop UNIFY, a comprehensive learning management system designed to streamline learning and competency, with comprehensive tools to manage e-learning and abide by mandatory training compliance, appraisal and competence management from one integrated system. With tools like these in place, knowledge transfer doesn’t have to be the challenge it once was. „ For more information visit: www.atlasinteractive.com

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HUMAN RESOURCES

As the oil and gas industry prepares itself for the inevitable haemorrhage of talent that will take place as the baby boomer generation prepares for retirement, O&G asks why the industry is suffering such a severe skills shortage and what can be done to stem the ow.

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emand for energy continues to rise across the globe, with estimates from the World Energy Council predicting that energy consumption is likely to double by 2050, particularly as developing nations such as India and China gradually overtake that of the industrialised world. It would be easy to assume that for those working in the oil and gas industry, the future is full of promise and security, especially as the industry marches gallantly into new and unexplored territories in the Middle East. But whilst this notion is not completely misguided, those on the inside are well aware that the outlook is not as bright as it would appear at fi rst glance. In fact, lurking just over the hill is a big black cloud that has

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been ominously waiting for some time now threatening to rain on the oil and gas industry’s parade. The storm that has been brewing now for some decades threatens to immerse the industry in the biggest HR crisis that it has known to date. It all started back in the early 70s. Before this time the oil industry had enjoyed a prolonged period of ascent due to soaring demand, low costs and minimal competitive pressures. However, the energy crisis of 1973-74 saw the start of a boom and bust cycle in the energy market, which brought with it a period of market volatility, that disrupted hundreds of exploration projects. Similar cycles of boom and bust occurred in the late 1970s and in 1982, which resulted in huge declines in staff numbers, availability of training programmes and prospects for career development. According to estimates, over a million jobs have been lost from the oil industry alone since 1982. When times were good the industry thrived but as boom turned to bust market forces were behind the decision to bleed the HR pipeline of all those employees not considered critical to the operational efficiency of the industry. Choosing this short-term efficiency over long-term investments in human capital has left the industry with a lasting and damaging legacy that even today it is still struggling to overcome. The severe job losses rocked the industry and destroyed the reputation it had built up as place for people to carve a stable, secure and long-lasting career. Th is previously steadfast industry has now lost the trust that is necessary to inspire new generations of workers to commit to a career in oil and gas. And this is how the industry lost its next generation of talent.

Demographic time bomb The industry is therefore sitting on a demographic time bomb. Unable to attract the much needed younger talent that will need to take on the stewardship of the industry, the sector now suffers from chronic personnel shortages and the desperate lack of experienced employees has now reached crisis point. According to a report issued by the Society of Petroleum Engineers in 2007, more than one-third of the technical workforce is now over the age of 50. Furthermore, the American Association of Petroleum Geologists reports a 70 percent decline in enrolment in programmes related to geosciences since the 1980s. Th is shortfall in skilled workers clearly features at the very top of the list of preoccupations for the oil and gas industry. In 2009, KPMG conducted a survey of director level executives across some of the world’s leading national oil producers, who together control 72 percent of the world’s oil reserves. The resulting report entitled Key Issues for Rising National Oil Companies stated that 100 percent of the companies surveyed indicated that a lack of skilled personnel was the biggest threat to their businesses going forward. Dr Michael M. Mohadi is Professor, Provost and Interim President at the Petroleum Institute of Abu Dhabi. He believes that this crisis is something we cannot afford

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to ignore. “The shortage of skilled engineers and geologists in the MENA region is a reality. Moreover, the problem may not be just limited to the MENA region and may be true in many parts of the world,” he says. “A survey by the Society of Petroleum Engineers in 2007 indicated some 10 percent of the technical workforce was above age 65, thus that by itself should be a clear indication that we have at least a 10 percent shortage in this area. Within the Abu Dhabi National Oil Company (ADNOC) group of companies in Abu Dhabi the need for skilled high quality engineers is stronger than ever, in order to realise the rapid growth of ADNOC and the energy industry in Abu Dhabi.”

The big crew change The big crew change has been looming over us for years now and was in fact fi rst predicted as early as 1998. But only now – as the cohorts of babyboomers prepare for retirement and organisations instinctively look to their own human capital pipeline for management succession – is it apparent just how badly the oil industry has failed in its mission to create the next generation of young engineers. Back in 2007, the Independent Petroleum Association of America estimated that 40 percent of the industry’s skilled professionals will reach retirement age by 2010 and Cambridge Energy Research Associates (CERA) estimates that 50 percent of engineers will be retired by 2015. According to Sultan Al-Hajji, Deputy General Manager of oil and gas company Total Abu Al Bukhoosh, the oil and gas sector will lose 40 percent of its skilled engineers in the next five years because workers are leaving faster than they are coming in. Once these workers retire, taking their experience, skills and knowledge with them, who will be left to mentor and train the younger members of the workforce left behind? The industry will be running on empty. With so many projects due to come online across the world in the coming years, this HR crisis could not have come at a worse time and such a skills shortage will only serve to hinder these projects through increasing delays. Obviously, with fewer skilled people to work on these projects, the time it takes to see them through to completion will inevitably increase pushing the cost to the industry ever higher. Whilst there has been very little research done into the fi nancial impact of this workforce shortage, a report was produced by Boyden, a global executive search fi rm, in conjunction with the C.T. Bauer College of Business’ Applied Strategic Program and the Global Energy Management Institute at the University of Houston. The report, entitled The Workforce Crisis in the Upstream Oil and Gas Sector, states that the talent shortage costs the industry US$5.2 billion annually. Th ree billion of this was lost profits resulting from lack of experienced personnel and US$2.2 billion was attributed to direct employee costs. Furthermore, the Boyden report states that annual loss to shareholders was determined to have been up to US$45.8 billion in market value – a figure that does not in-

Over 1 million jobs have been lost from the oil industry since 1982

40% of the industry’s skilled professionals will reach retirement age in 2010

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HUMAN RESOURCES

“As oil demand and consumption continue to rise and companies seek out increasingly complex reserves, the demand for technical expertise will only increase”

clude losses due to strategic opportunity cost. Clearly such losses are unacceptable for the industry and swift action must be taken to remedy the situation and close the skills gap as soon as possible.

Attractive proposition Reversing the brain drain However, to properly resolve this issue the industry will need years. There really is no quick fi x. Certainly, in the short term, the industry will be looking to bridge the skills gap by seeking out expatriates that can be transferred from geographies of excess supply to areas of greatest demand such as the Middle East. Mohadi believes that there are strategies that could be employed in order to entice increasing numbers of skilled expat workers to the Middle East and especially to the NOCs. “We need to create a better working and living environment for them and for their families, better professional development for the employees, and competitive fi nancial packages, taking into account the pool from which the employees are attracted and offering incentives accordingly to attract the best possible talent,” he says. But even this will prove troublesome as vast numbers of expatriates also reach retirement age, further limiting the size of the talent pool. However, what we are seeing now is individuals who accepted early retirement in their early fi ft ies being re-recruited into the energy industry. Many companies view this as the only viable way to fi ll the technical worker shortfall in the short term and are offering lucrative incentives to lure former employees back into the workforce either on a contract or full time basis. Whilst this will help to plug the gap for now, nothing can be done to prevent the influx of inexperienced new workers. The challenge will undoubtedly be to train them to full competence quickly without the luxury of mentoring and on-the-job training. And this is no quick undertaking. In the Boyden report, CERA’s Senior Director of Cost and Technology says: “Any young graduate requires years before he or she can be put in a decision-making role. We

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HR Crisis.indd 56

did a survey that suggests it takes eight years before young engineers have picked up enough skills and experience to do project design.”

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But before these graduates can be trained up, the industry must first work out how to attract them in the first place. In September 2008, Fortune magazine featured an article entitled There’s gold in an oil degree, which reported that back in the 70s there were 40 US colleges and universities offering degrees in petroleum engineering compared to just 20 today. The article also points out that 1500 undergraduate degrees were awarded in the subject in 1984, yet today this figure has fallen to less than 800. Bridging the knowledge gap certainly is possible, but only if the energy industry can successfully rebuild that trust that it once benefited from. With starting salaries for graduates with bachelor’s degrees in petroleum engineering ranging from US$80,000 to US$105,000 plus a guaranteed bonus of US$20,000 to US$30,000, according to Lloyd Heinze, Chairman of the Texas Tech University petroleum engineering department, at least the fi nancial incentives for pursuing a career in the industry are already in place. But there are other things that can be done to tempt the younger generation, according to Mohadi. “To correct the situation, a close collaboration is needed among academia, industry and government. We need to enhance the education system right from the elementary level and promote more science and engineeringoriented subjects and persuade students to think about careers in these fields,” he explains. “The industry also needs to invest in the young generation and do all it can to transfer knowledge from the experienced to the younger professional; accelerate preparedness of the fresh graduates into the work force through special on-boarding courses, and offering tailored specialty training sessions; and broaden the talent pool to recruitment from international candidates as necessary to address the short-, mid- and long-range needs of the industry.” Mohadi goes on to cite the efforts that are already taking place in Abu Dhabi. “We need to begin early enough, at elementary level, to promote science and engineering to the students. Th is is why, for example, ADNOC has established its own KG to high school educational entities. ADNOC has also established the Petroleum Institute, which today has close to 1100 students studying engineer majors, both at undergraduate and graduate levels. Some of the graduates of our affi liate high school, Glenelg School of Abu Dhabi, enter the Petroleum Institute, subject to meeting the institute’s high standards of admission.” As oil demand and consumption continue to rise and companies seek out increasingly complex reserves, the demand for technical expertise will only increase. Efforts to close the skills gap need to be increased and improved. There undoubtedly remain many challenges ahead for the oil industry, but the only choice it has is to overcome those obstacles. The consequences of losing another generation of workers do not bear thinking about. „

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DMG AD.indd 1

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EXPLORATION

“We believe there is considerable benefit in gaining a firstmover advantage by early entry into new provinces and as a private company we are able to move quickly and decisively�

G Rising star

STAR

Crescent petrol.indd 58

10/09/2010 15:40


EXPLORATION 59

Sharjah-headquartered Crescent Petroleum is the Middle East’s longest established privately-owned upstream petroleum company with 40 years’ experience in this competitive marketplace. Its Executive Director, the affable and precocious businessman Badr Jafar, is always on the look out for new opportunities, as O&G discovers.

C

rescent Petroleum may have been around since the early 1970s but for Badr Jafar, the 31-year-old entrepreneur and Executive Director of Crescent Petroleum, the company is “proud to be a pioneer” in the oil and gas sphere. Indeed, Crescent Petroleum, based in the UAE emirate of Sharjah, is what you could consider a bit of a maverick or risk-taker, venturing into new or difficult territories like Iraq and Yemen to steal a march on rival exploration companies. Th is buccaneer approach has

Crescent petrol.indd 59

paid dividends for the oil company. “We believe there is considerable benefit in gaining a fi rst-mover advantage by early entry into new provinces and as a private company we are able to move quickly and decisively,” Jafar reveals with his trademark calm and controlled demeanour. “Th is dynamism also attracts strong talent to our company, helping us keep our leading position.” The company is also the primary shareholder in Dana Gas – the Middle East’s fi rst and largest regional private sector natural gas company that launched in 2005. Dana Gas, whose initial IPO received applications for US$78 billion from over 100 nationalities all in the space of 10 days, is run by his father, Hamid Jafar. He also founded Crescent Petroleum in the early 1970s and by organic growth, as well as acquiring stakes and establishing subsidiaries, the company has grown into the largest privately held upstream oil company in the Gulf. Jafar Jnr, who principally oversees business development and deal structuring at the petroleum company, is the CEO of Crescent Investments, a multibillion-dirham portfolio with interests in everything from logistics to medical facilities and real estate. He is also Chairman of Gas Cities LLC, a joint venture founded in 2007 between Crescent Petroleum and Dana Gas, as well as being the Chairman of Pearl Petroleum – a partnership between Crescent Petro-

40-45 billion Estimated recoverable reserves in Kurdistan

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EXPLORATION

leum, Dana Gas, Austria’s OMV and MOL of Hungary. But more about that later. Crescent Petroleum recently hit the headlines aft er signing a groundbreaking Strategic Cooperation Agreement with Russia’s premier oil company, Rosneft , which has the largest proven reserves in the world at 22 billion barrels. Th is is the state-owned giant’s fi rst foray into the Middle East and cements a new era in co-operation between Russia and the UAE. Russia and the Middle East are the world’s two largest oil producing regions – both hold over 60 percent of worldwide reserves and account for 45 percent of production, says Jafar. “Rosneft’s experience and scale, pooled with Crescent’s own over 40 years of operating experience and business know-how in the region, provide great scope for developing future joint projects under our Strategic Cooperation Agreement. A union of Russia’s largest oil producer with the Middle East’s longest-established and leading independent indigenous company makes perfect sense.” Jafar believes Rosneft’s scale and experience will prove invaluable. “The company is also one of the world’s leading developers of onshore oil and gas projects with a proven track record in delivering complex, big, projects such as the Vankor onshore oil field in Russia.” Crescent Petroleum signed a farm-out agreement with Rosneft for the 1243-square kilometre Sharjah onshore concession – Rosneft receiving 49 percent and Crescent Petroleum holding the remaining 51 percent. Russia’s Deputy Prime Minister Igor Sechin recently told reporters that Rosneft was set to plough US$630 million into the gas concession and that production was scheduled for 2013. The field is thought to contain 70 billion cubic metres of gas and 16 million metric tonnes of gas condensate. An initial investment of US$60 million was put towards the drilling of two wells to depths of 14,800 feet. The strong relationship between the UAE and Russia was key in bringing both sides together on this agreement, says Jafar. “Crescent pioneered the development of gas in the MENA region, implementing the fi rst two crossborder gas pipeline projects in the early 1980s, as the right response to the region’s energy and environmental challenges. The Sharjah Onshore project will cement our working relationship with Rosneft , and our joint working teams have already demonstrated the very similar cultures in both companies. Th is in-turn will lead to a number of other projects that we can pursue together in the region, in both oil and gas. We believe that Rosneft saw in Crescent a company receptive to the creation of a genuine reciprocal and balanced partnership to promote both parties interests.”

Fresh opportunities Jafar says Roneft offers many complementary strengths to his oil company and says partnerships like this make strategic sense. “We at Crescent believe that partnerships are the best way that oil and gas companies are going to meet the petroleum challenges that are ahead of us, and to develop the necessary resources that will

Crescent petrol.indd 60

be needed to satisfy the gap between global supplies and demand, which is increasing today at approximately five million barrels per day, annually.” Jafar Snr, Crescent Petroleum’s Chairman of the Board of Directors, recently jetted to Moscow to meet with Russian Prime Minister Vladimir Putin and opportunities in the Middle East were very much on the menu, including Iraq, according to sources. Crescent Petroleum has been operating in Iraq since the 1980s, dealing directly with Saddam Hussein’s government and the Ministry of Oil. However, international sanctions on Iraq scuppered any chance of the company making real inroads into the country. Nevertheless, the fall of Saddam has opened up the country to IOCs looking to tap the country’s vast reserves. But whilst Big Oil has been negotiating with the Iraqi government over access to giant fields, the semi-autonomous region of Kurdistan in the north of the country

US$630 million Rosneft’s investment in the onshore gas concession with Crescent Petroleum

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EXPLORATION 61

“The Middle East needs to work harder at developing its considerable gas potential, both upstream and downstream”

Crescent petrol.indd 61

wasted little time in welcoming exploration companies with open arms. Crescent Petroleum, along with its affi liate Dana Gas, have significant projects in the region – investing in excess of US$800 million. Th is includes the development of a Kurdistan Gas City to satisfy the power generation needs in the north. Th is means the development of two major gas fields and 180 kilometres of pipelines to carry the gas to the power plants in Erbil and Sulymaniya as well as the construction of infrastructure and housing. The Gas Cities projects planned across the Middle East, including Kurdistan, Egypt and Yemen, are a 50/50 joint venture between Crescent Petroleum and Dana Gas to maximise locally produced gas as well as creating jobs and foreign investment. Oil and gas combined, Jafar says Iraq is a “hugely prospective” region. “Its geological potential is almost without parallel and at the same time it is geographically ideally positioned to take advantage of Western and Eastern energy markets.” Indeed, Europe is a key. He adds: “By being involved in a major gas production to provide much needed power and industrialisation project in Iraq, with the potential for exports, including to Europe, in the future, we are positioning ourselves at the centre of this growing sector. Furthermore, Iraqi Kurdistan is a hugely prospective region with an estimated potential recoverable resource of 40-45 billion barrels and so may offer many follow-on opportunities for us.” After the US-led invasion and Kurdistan opening up to foreign investment, the Iraqi authorities brandished the contracts between the Kurdistan Regional Government (KRG) as illegal because no hydrocarbon law had been ratified. In fact, the protracted wrangling over this key piece of legislation continues to this day. Jafar, though, is confident of his company’s legal status there. “We are 100 percent convinced of the legal, moral and technical correctness of our investments in the Kurdistan region today.” He adds: “Crescent’s long presence in Iraq has taught us patience and we are hopeful that the current debate over Iraq’s hydrocarbon laws will be resolved positively to the benefit of all of Iraq’s people.” Last year, Crescent Petroleum and Dana Gas established a consortium with Austria’s OMV and Hungary’s OMV to aim to pump enough gas from Kurdistan to initiate the Nabucco pipeline, which will transport gas to Europe via Turkey. Again, partnerships are a key framework to new markets and projects. “Our Pearl Petroleum project in Iraqi Kurdistan was taken to the next level by us bringing in OMV and MOL, two companies integrally involved in the Nabucco gas pipeline, which the Pearl project may now be set to supply.” With Crescent Petroleum and Rosneft striking up a partnership through the Strategic Cooperation Agreement, Jafar told the media that both companies have their eye on opportunities in Southern Iraq. However, he is now reticent to release precise details. “There are a number of highly interesting and prospective areas within the MENA region that are currently being studied by our joint Steering Committee,” he explains diplomatically. “Iraq is obvi-

ously a major area of interest to the petroleum sector, and Crescent has long held a presence in the country…” But despite the company’s interests overseas, it has never taken its eye off the ball in the Middle East and North Africa – the world’s premier region for black gold. Gas too is increasingly important. Jafar, who has a Masters degree in engineering as well as a business degree, has strong opinions on the Middle East needing to fulfi l its gas potential. After all, the region holds 40 percent of global reserves yet only accounts for 12 percent of production. For Jafar, the need for gas to be recognised as the fuel of choice in power generation and beyond is critical. “The Middle East needs to work harder at developing its considerable gas potential, both upstream and downstream,” he reveals. “By ‘gasifying’ our economies we will increase our economic competitiveness and at the same time free up more oil for export.” For example, Crescent Petroleum’s Pearl Petroleum project is already saving the Iraqi Kurdistan region US$100 million a month in diesel fuel costs. “Th is is before one considers the economic benefits of greater industrialisation.” Calls for a liberalised market will be more conducive to encouraging the significant investment that will be needed to develop more natural gas. “Price controls in combination with power subsidies leads to uncontrollable demand and gas shortages, low investment in gas projects, and massive drains on government budgets that should be used for social projects.”

Consequences With Jafar having outspoken opinions on all aspects the oil and gas industry, its is pertinent to gauge his views on the impact the BP oil spill in the Gulf of Mexico will have on offshore drilling in the future. The Middle East itself recently suffered an oil spill off the coast of Egypt in the Red Sea, which just highlights how risky and prone to accidents the business of offshore drilling really is. Jafar’s company is heavily focused on onshore activities and he foresees the offshore incidents as putting extra onus on onshore efforts. “We believe that a world of seven billion people will need every drop of the new oil produced both onshore and off shore, but we feel that onshore developers, such as ourselves, will become more important as offshore developments become more difficult and expensive to deliver.” While Jafar believes deepwater drilling will come under more intense scrutiny, he argues onshore could be forced to pick up the slack if offshore productions dips. “If you look back at the last 40 years, onshore oil production has been essentially flat at around 50 million barrels per day. All the growth in global consumption has been met by offshore oil production. Therefore if offshore production growth is curtailed the challenge becomes to ensure that onshore production makes up for the gap.” Of course, the Middle East will continue to be the predominant contributor to that onshore production. “The Gulf’s role as the world’s major source of onshore oil production is consequently set to grow and the challenge for companies such as ourselves is to position ourselves to deliver on that challenge.” „

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NEXT BIG THING

Desktop data Seismic derived rock properties are frequently under-used by oil and gas asset teams because the tools to properly interpret them and incorporate the results into the standard workflow have been seen and sold as “specialist tools”. Joe Jacquot discusses how, with the advent of Microsoft Windows-based technology from Fugro-Jason, asset teams can now fully realise the value of their seismic data.

T

o get the most out of a field, reservoir engineers rely on 3D models that identify the reservoir location and the properties of the rocks within. The Achilles heel of these models has been their almost total reliance on well-based data. While providing great insight into the zones encountered by the wells, the models can only extrapolate that insight into zones away from wells. For some time now, high quality, laterally extensive elastic rock property models and reservoir properties derived from them have been available through seismic inversion. These models, however, have largely remained unavailable to, or under-used by, asset team geoscientists, remaining instead within specialist teams. Often they are only used for enhancing seismic interpretation. Perhaps the greatest factor limiting utilisation of the rock property data within the asset team has been the lack of soft ware tools on the geoscientist’s typical desktop platform – the Windows PC. That limitation has now been removed and what was once only for the specialist is now available to every geoscientist with the release of JasonSTS soft ware for asset teams. Designed specifically for Windows, the tools properly handle the data types involved, enabling interpretation to be done in a more meaningful way, and allowing easy incorporation of results into the geologic model. Rock property cubes are the output of a process that essentially conditions and integrates the seismic and well data. For this process to be robust, a single consistent wavelet should be present in the seismic data. The estimation process ties the seismic data to well log data, determines the waveforms present in the data, accounts for lateral and vertical variability, and helps to determine if corrective measures are necessary. Once the seismic is corrected, rock property cubes have to be accurately generated and made available for analysis in conjunction with the geologic model. With these new tools, the geoscientist is able to tie new wells to the seismic data in these models with great accuracy and apply 3D body checking to the (multiple) property models to identify specific elastically derived reservoir lithologies. Crossplots and histograms reveal the lithotypes and their separation in elastic property space. Bayesian Inference can be employed to determine the probability for each lithotype from the multiple property volumes. The results can either be visualised as individual lithotype probabilities, allowing for an assessment of risk,

Fugro Jason.indd 62

or a most-likely lithotype cube generated by sampling individual probability cubes. Bodies and properties can then be exported directly to a geological model, ensuring that all properties are correctly transformed into the appropriate geological zone. Th is results in a more accurate and realistic geological model, incorporating spatially extensive properties and/or bodies from seismic data and not relying purely on interpolation of well-measured properties. Productive reservoir components can be mapped along with a net pay map for the main pay intervals. Tracks can be created to predict drilling results from pseudo wells. Body checking relies on deterministic rock property relationships and is much faster than traditional line and trace picking. Armed with the new geological model, production engineers can craft a plan to extract the hydrocarbons most efficiently. Reservoir engineers can better assess the risks and potential for the field. Decisions such as how many wells to drill and where are backed by a more quantitative analysis of the field. It is now easier than ever before to incorporate rock property cubes into geologic models by performing the entire analysis on Windows-based desktops and laptops. The combined model provides new quantitative insight that can significantly improve reservoir development. Rock properties on the geoscientist’s desktop – the next big thing. „

Joe Jacquot is Strategic Marketing Manager with Fugro-Jason, a leading provider of seismic inversion and reservoir characterisation products and services. He joined the company in 2005 as Marketing Manager in Houston and has 32 years’ experience in the exploration, production, seismic and reservoir characterisation sectors of the industry with a number of oil companies, including Schlumberger and Fugro.

10/09/2010 15:43


Fugro jason AD.indd 1

07/09/2010 08:57


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EXPLORATION

Frank Crawford, Chief Geologist at Groundstar Resources, discusses the company’s strategy for doing business in the Middle East and the challenges it faces, and gives an insight into the changing landscape of geology. Groundstar Resources has operations in Upper Egypt, the Gulf of Suez and Kurdistan in Iraq. How important are these assets to your overall strategy in the Middle East? Frank Crawford. Groundstar’s operations are in Upper Egypt along the Nile Corridor in a concession called West Kom Ombo. Its area is 31,283 square kilometres. making it the largest onshore exploration block in Egypt. The West Kom Ombo block adjoins the Centurion Energy-DanaGas Kom Ombo block on the west. Those companies are successfully developing the Al Baraka Field where oil is trapped in faulted Cretaceous Abu Ballas and Six Hills sandstones along an Upper JurassicLower Cretaceous rift basin trend. Deeper and more productive reservoirs are being encountered as more wells are drilled there, including a sandstone unit capable of flowing in excess of 1200 bpd on artificial lift . Groundstar believes that exploration drilling will move in the direc-

tion of its block and has technical support for a rift basin there where it has seismically mapped several prospects and leads. Successful drilling in this once overlooked area of Upper Egypt would establish Groundstar with production and a position as a proven explorer capable of bringing concepts to concrete results. Drilling is anticipated to begin in the fourth quarter of 2010. Groundstar and its partner, Aegean Energy, will be drilling several wells to establish the stratigraphic and structural framework and are hoping that positive results will be obtained from this effort. Achieving success in Egypt may lead the company to consider other drilling opportunities in that country and other parts of North Africa where its staff have considerable expertise, most notably in Libya. Our effort in Kurdistan is very important to our goals for the Middle East. In 2007, Groundstar, Vast Exploration

OPPORTUNITIES FOR GROWTH

GROUND STAR ED P64-67.indd 64

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EXPLORATION 65

and Niko Resources negotiated a Production Sharing Contract (PSC) with the Kurdistan Regional Government for the promising Qara Dagh Block near Sulamaniya. Th is part of Kurdistan contains prolific oil fields in the fold belt to the west of the Zagros Mountains. Kurdarmir #1, drilled by Western Zagros, to the west of Qara Dagh and Miran West, drilled by Heritage Oil to the northeast, have discovered oil in both Lower Tertiary sandstones and Cretaceous carbonates. Currently the Qara Dagh #1 well is being drilled. Success in this well would encourage Groundstar to pursue other opportunities in the Middle East, including outside of Iraq. Our company has evaluated several opportunities in Syria and will remain open to others following the completion of Qara Dagh #1. How much potential do you see in the percentage of your block in Kurdistan? FC. Groundstar Resources considers the Qara Dagh block as a high impact project for our company. The structure is a large surface anticline similar to the one on which Heritage drilled its Miran West #1 well in 2009. Four or more distinct oil bearing reservoir sequences are found in fields in this region creating the conditions for giant-super giant

fields as attested by the super giant Kirkuk Oil Field about 50 km to the NNW of the Niko-Vast-Groundstar Qara Dagh block. Miran West #1 intersected 1100 metres of oil shows in three main reservoir sequences in Cretaceous carbonates. Subsequent testing and formation evaluation indicated a flow potential of 8000 to 10,000 bopd and ooip (original oil in place) of about 3.4 b bbl for the structure. Miran West #2 is presently being drilled and has encountered oil shows over 1800 metres in the Cretaceous carbonates and is continuing down to 4000+ metres to the Jurassic-Triassic formations (2009 Annual Report on Heritage Oil website) where additional hydrocarbon bearing reservoir sequences may be found. Qara Dagh #1 is currently at a drilling depth of about 1600 metres and is intended to be drilled to a total depth of about 4000 metres. Multiple stacked oil bearing sequences similar to wells in the surrounding blocks are the drilling objectives in this well. The potential upside of the oil resources that could be encountered in the Qara Dagh structure enhance Groundstar’s small (six percent) percentage of the total project. Six percent of a little is very little; but six percent of a lot is a lot of oil. Since fields in this region can easily contain a billion barrels of recoverable oil, the potential reserves for the company from a major discovery at Qara Dagh can easily been seen. Since our company is debt free, any profit oil from the production would be income, thus enhancing value to the shareholders. What are the main challenges you face from a geology and drilling point of view in the Middle East? FC. First of all Groundstar is only involved in onshore exploration projects. So, we will consider the two questions; geology and drilling challenges, from this perspective.

“Successful drilling in this once overlooked area of Upper Egypt would establish Groundstar with production and a position as a proven explorer capable of bringing concepts to concrete results” Drilling in Upper Egypt necessitates access into a desert area a significant distance from infrastructure. The size of the WKO block presents a formidable challenge from an exploration and access perspective. Roads will need to be built and the wells, initially at least, designed with a minimum of subsurface information. We will be learning as we drill and, no doubt, will encounter challenges along the way. Flexibility and the ability to adjust to new challenges will be needed, especially at the outset. Kurdistan presents major geological and drilling challenges of a different kind. The surface geology of the Qara Dagh block was carefully analysed from Landsat imagery.

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EXPLORATION

more regionally extensive reservoir horizons and their seals can be encountered in the same well. Hole conditions sometimes make progress slow, as in the case of Qara Dagh, but the potential rewards of the favourable geology far outweigh the minor delays encountered.

Frank Crawford

“Email and the internet have impacted our profession in ways we could not have imagined 25 years ago. Now we can research any subject in a timely manner and find many of our answers in the cyber world” Wells and fields in the surrounding region of Kurdistan were input into the subsurface model constructed from seismic lines. From this data, the prognosis for the drilling objectives and their depths was derived. Even though drilling has been done in Kurdistan for many, years the subsurface stratigraphy still presents challenges and surprises. Western Zagros encountered serious borehole problems caused by overpressure in their Kurdamir #1 well resulting in significant time and cost overruns. Although Qara Dagh is outside the Zagros Mountains it is still a remote mountainous terrain. The limbs of the surface anticline are comprised of steep cliffs bordered by talus slopes, which those conducting the seismic programme had to traverse. The rig had to be brought along an access road into the core of the anticline and to a pad constructed on one of the talus slopes. The drilling pad required the removal of about 400,000 m3 of rock to level the talus slope and build the cement pad where the rig is now drilling. Fortunately for the explorationist, this part of the Kurdistan region is a prolific oil province where four or

GROUND STAR ED P64-67.indd 66

How has the business of geology changed since you first started out in the oil and gas industry? What have been the key developments or milestones? FC. Probably, the greatest change in geology since my early days is the transformation concerning data; how we store, manage and use it in integrated platforms in the computer world. We have a new world here, one in which we can create maps, cross sections, well logs and nearly every kind of data into almost any kind of presentation. Drawing a map by hand might take a day or even longer, now we can produce the same result in minutes or in some cases even seconds. And things keep advancing so that interactive workstations with voice commands are now in some of the larger companies. My early background was in stratigraphy and sedimentation. That field has changed from the 1960s and 70s with the advent of sequence stratigraphy and seismic stratigraphy in the late 1970s, 80s and 90s, and the identification of depositional systems based upon water level fluctuations related to plate tectonics, and even local tectonics and climate variations as in the case of lacustrine basins. There is so much change in these fields that it would take a library to contain them. So, there is a huge inventory of knowledge in the field of petroleum geology. Another ‘new’ development that came along with the computer age is the interactive team approach to interpretation. Now, more than ever before, geologists, geophysicists, petrophysicists, engineers, etc. can sit down at the same work station and discuss their work with one another and bring more than one mind to bear on any problem, question or decision. This helps immeasurably in decision making and reaching the right decision at the right time. Email and the internet have also impacted our profession in ways we could not have imagined 25 years ago. Now we can research any subject in a timely manner and fi nd many of our answers in the cyber world. We can access journals and published materials with comparative ease, when in the past it would have taken a trip to the library to do this work. Furthermore, we can email almost any kind of graphic or written information to anyone anywhere in the world. Th ings that would have in the past been almost impossible to send to fellow colleagues can now be done at the touch of the fi nger. Yesterday afternoon I sent two scanned, older publications (12 megabytes of information) to a structural geologist in Columbia who is working with my company on a key project. He responded almost immediately. Video conferencing and conference calls on the phone are now commonplace with participants interacting from several locations, including different continents, simultaneously. Technical people can discuss their separate interpretations on each other’s computers through

13/09/2010 10:53


EXPLORATION 67

web cams and microphones over the internet. Th is is truly an amazing development in such a short time. What trends and developments do you foresee in seismic modelling in the future? FC. Seismic modelling is, to a great degree, subjective but things are changing. In the ‘old days’ interpreters looked at the seismic data and came up with their own individual interpretation. Those involved in this kind of work would say give the same data to five different interpreters and you will get five different interpretations. Today, soft ware and programmes help keep these things more in line. Not that we don’t want individual interpretations and good exploration concepts. We do. But, if there is less radical variation between interpretations, exploration risk can be considered lessened as well. At the end of the day, have we reduced the risk to an acceptable level? Some companies will acquire expensive 3D seismic surveys for exploration to lessen the risk recognising that ‘if you have a better certainty of what you have’ you will be more likely to drill a successful fi rst or second well. With more accurate 2D and 3D structure modelling we can create more accurate two-way time structure maps, better time versus depth conversion, accurate depth structure modelling and more precise horizon and fault defi nition. Advances in velocity modelling lead to high defi nition 2D and 3D displays with much improved stacking and migration velocities for modelling in the 3D dimension. Attribute extraction from such 3D data allows us to do inversion and AVO (amplitude velocity off set) analysis to obtain properties such as porosity, density, fluid content and reflection coefficient to permit 3D petrophysical modelling of the reservoir to integrate with well logs. Thus seismic and geology are ‘coming together’ more and more as this method improves. High defi nition 3D methods using discontinuity calculations allow us to identify and analyse fractures in the third dimension to permit far better exploitation of hydrocarbons in fractured reservoirs that formerly were very difficult to predict. The end result of different interpreters looking at the same data in 2010 will be the same basic trend or overall structural configuration, albeit with smaller differences than before. By inputting seismic attributes into the equation we can sometimes determine if there are hydrocarbons in the rocks thus improving the risk profi le. In this way, we can be more confident in what we are looking at and for. The variations in the interpretations are lessening as seismic processing advances and we extract more information out of the data. This progress is very helpful to less experienced professionals and new graduates as they enter the industry. It gives them a path to follow. Such advances, however, don’t replace the need for interpreters; it just makes their job easier. There will always be a need for interpreters to ‘make sense’ of what the data is showing them. An in depth knowledge of geophysics and geology (G&G) will always be indispensable in getting the most from seismic modelling.

GROUND STAR ED P64-67.indd 67

As a conclusion, I can foresee seismic modelling will become a big part of G&G in the future with better software and better understanding of how to use the tools to help us to explore and exploit our valuable reserves. What’s the focus for Groundstar Resources in the future – will you be looking to expand operations in the Middle East or will other parts of the world be your priority? FC. We are constantly on the look out for high impact international exploration opportunities for growth, especially in the Middle East. Groundstar Resources has already demonstrated its ability to acquire oil and gas exploration blocks in remote regions and obtained reputable partners to carry the projects to the drilling stages. We have done this in each of our three exploration projects and feel that we can do it again in other parts of the world. We cannot say just where that is at this time. It takes time to operate in the international arena. Making a junior company into a profitable oil and gas producer is not easily done. It takes risk and hard work to earn the rewards. Groundstar has been working steadily toward this objective for over five years already and now sees our three projects in the drilling or planned soon-to-come drilling phases. We started up in November 2004 and now in the third quarter of 2010 we can say we are near to achieving our objective. Groundstar’s focus in the future will be determined by the results of our drilling in Kurdistan, Egypt and Guyana. Kurdistan will have the greatest impact because of the shear size of the objective. Discoveries will translate to progress for Groundstar and, in this industry, successful rewards for the company shareholders and its employees. We will see what happens after that. „

31,283m2 At 31,283m2, West Kom Ombo is the largest onshore exploration block in Egypt

13/09/2010 10:53


EXECUTIVE INTERVIEW

68

When seismic isn’t enough Dr. Michal Ellen Ruder, explains the benefits and disadvantages of seismic and gravity methods and in what ways they compliment one another.

After graduating from Pennsylvania State University with a PhD in geophysics, Dr. Michal Ruder’s work experience has spanned government, academic, and industrial research and exploration laboratories. From NASA to Exxon and now the President and Chief Geophysicist at Wintermoon Geotechnologies Inc., Ruder remains focused on integrated analysis of geophysical and GIS data for exploration purposes.

Under what conditions will gravity methods outdo seismic? Why? Michal Ellen Ruder. Seismic data quality is not uniform in all geologic settings. Due to their elastic properties, some rock lithologies do not readily transmit acoustic energy. As a result, seismic signal can be greatly attenuated, providing little or no seismic imaging below these acousticallychallenging horizons. If there is a significant lateral density variation below the problematic acoustic horizon, gravity can provide unique information about these rocks. Gravity is not negatively impacted by rock elastic properties. Another common imaging problem for seismic data is a near-vertical fault or interface (like a salt or shale diaper). Seismic signal is typically scattered by these interfaces. In contrast, both gravity and magnetics have their best imaging at vertical interfaces across which lateral density or magnetic susceptibility contrasts exist. In what situations are gravity methods absolutely indispensable if you want results? MER. Gravity methods are vital for providing an independent corroboration of total volume and shape of salt when investigating sub-salt hydrocarbon potential. Seismic data quality can be significantly improved when we use gravity modelling results to improve and refi ne our seismic velocity model of the base of salt. This result is fed back into the seismic pre-stack depth migration processing to provide an improved seismic image of the sub-salt horizons’ geometries. Ultimately, this leads to more successful prospecting. We are presently using this approach in salt-prone basins offshore West Africa, South America, North America, and northern Europe. Can you describe some cases where seismic and gravity methods complement one another? MER. Gravity is correctly characterised as a ‘low-resolution’ geophysical exploration tool. Without constraining information, a gravity model can be modified in an infinite number of ways in order to match the observed gravity signal. Seismic, well log, and other geologic data provide critical constraining information for gravity models, limiting the degrees of freedom of our modifications and enabling us to produce a meaningful, constrained earth model that is consistent with both gravity and seismic datasets. What techniques have you personally developed or enhanced? MER. At Wintermoon Geotechnologies, we use a multifaceted approach to interpretation. We work hard to identify and separate ‘regional’ and ‘residual’ signals

Geosoft.indd 68

within the observed gravity and magnetic datasets using our state-of-the-art Fourier-based 2D fi ltering routines. We have pioneered the construction of complex, geologically constrained 2D and 3D forward and inverse models. We construct models that incorporate geometries and physical properties derived from all available geologic and geophysical data, and we then invert the observed gravity and magnetic data to gain further insight into the geologic question at hand. Our 3D forward and inverse modelling approach has been successfully used in prospect evaluation projects in the Gulf of Mexico, offshore Brazil and offshore West Africa.

“Modern grav/mag surveys can now provide a set of observations that is more directly associated with hydrocarbon play character” Gravity/magnetic methods used to be used mainly to tell an explorer where to best place seismic. Nowadays you’re advocating its use as complementary and integrative to seismic as well. What has caused the shift? MER. Grav/mag data quality has improved significantly since the 1980s. Not only can we acquire data more quickly now, but also our data resolution is much better and we can now resolve more subtle (lower amplitude and shorter spatial wavelength or high frequency) perturbations in both the gravity and the crustal magnetic fields. Th is improved resolution now allows us to imagine very small-scale and shallow lateral variations in density and magnetic susceptibility. These are often associated with the hydrocarbon play itself. Modern grav/mag surveys can now provide a set of observations that is more directly associated with hydrocarbon play character, in addition to the ‘traditional’ regional information for which we have long used potential field data. What has been the hottest development in the past two years with respect to using grav/mag in oil and gas exploration? MER. We have two areas in which recent significant advances have been made. These include: in acquisition, airborne gravity gradiometry, which provides a rapidly acquired, high-resolution image of local gravity anomalies; and in soft ware development, improved 3D inversion algorithms for sophisticated gravity and magnetic earth models. „ Listen to Dr. Ruder’s full-length presentation, ‘When Seismic Isn’t Enough’ by visiting: www.geosoft.com/ruder

10/09/2010 15:44


Geosoft AD.indd 1

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TROUBLESHOOTER

Regulatory requirements Geodis Wilson’s Director, Francois Coron, explains the best form of attack to meet customer deadlines when dealing with the complexities of regulation in the Middle East.

“Handling equipment, parts and essential components for the extraction and transport of hazardous substances involves stringent safety and regulatory controls, by which we must all abide. But these regulations are in danger of delaying my urgent consignments. How do you resolve these conflicts?” From Fadil Al-Sayegh, Dubai Francois Coron says: The trend in the Middle East region is towards more restrictive regulations on the movement of hazardous materials as pressure to minimise risk to the environment grows. Within the oil and gas sector, such commodities are often in transit and we must increasingly take into account these environmental considerations. Respecting these circumstances, the best way to ensure on-time deliveries is by carrying out the expediting work directly with the customer’s suppliers at point of origin. Having a global presence, with regional expertise available at origin points around the world, is an advantage in guaranteeing the accuracy of all-important detailed information pertaining to shipments. In the handling of Dangerous Goods (DG) and HAZMAT cargo, this information flow is an integral part of the supply chain. And clearly abiding by all the requirements for importing of such materials into the various countries in our regions is a priority. These regulations can vary widely depending on the state’s jurisdiction and the customer must be fully aware of the detail to be provided on paperwork submitted well in advance of the cargo’s arrival. Storage regulations, particularly in Saudi Arabia, Qatar and the UAE, are being tightened for perfectly good safety reasons. In Jebel Ali, for instance, there is a designated HAZMAT zone. Planning ahead of time is essential as often securing fi re department and other authorities’ permission to utilise individual facilities can be a protracted business. Ironically, in the most restrictive countries, the major part of documentation has to be accomplished at destination

GEODIS WILSON ED P70.indd 70

Francois Coron is Geodis Wilson’s Director of Industrial Projects, Middle-East & India. With a degree in Transit and Management from Le Havre University, Coron has a career stretching over 15 years with Panalpina before joining GW. He is an oil and gas specialist, having held logistics management positions in Dubai, Qatar and West Africa.

and therefore can’t be ‘prearranged’. These arrangements can include such essential approvals as importer licences, provision of proper warehousing with the necessary safety certification to store the product, health quality & safety approved plans and material safety data sheets. There are other factors making it crucial to have a direct and continuous information flow from origin to destination. Not least the flagging of any delays or holdups, which necessitate an alternative solution in order to maintain delivery deadlines. The client needs to be given plenty of notice and be provided with clear alternatives to minimise the impact of any delay. An example of such a smooth transit was recently presented by a last minute request from a large local oil and gas company to transport a boiler weighing some 114 tonnes, delayed in production, from Porto Marghera in Italy to Mesaieed in Qatar. Crucially, good relations with the relevant shipping lines enabled, at a suitable cost, an effective transit to be effected within the customer’s new deadline of 28 days. With local staff on standby for the vessel’s arrival, the consignment was customs-cleared immediately and delivered well within the deadline. Clients’ demands can on occasion be in confl ict with the pace of local regulatory approval. Detailed knowledge and a clear explanation of documentary requirements, where necessary completed before shipping from origin, go a long way in avoiding such confl ict. However, if problems do arise at destination, well-qualified people need to be on hand to solve them; it’s our job to minimise confl ict. „

13/09/2010 10:52


Geodiswilson AD.indd 1

07/09/2010 08:57


BAKER HUGHES AD DPS_English.indd 1

08/09/2010 11:48


Technology and Expertise to Create More Value from Your Reservoir Every day, in Russia and around the world, Baker Hughes experts evaluate your needs, engineer systems to match each application, and deliver advanced technologies that improve your operating efficiency and create more value for your organization. Our reservoir consulting services help you understand how to exploit the economic potential of your assets. Our drilling, evaluation, completion and production technologies consistently achieve superior results that lower costs, reduce risk, improve productivity and increase ultimate recovery. Let us help you unlock the full value of your assets. From the reservoir to the refinery we create value with reliable, practical, high-performance solutions and technologies that lower costs and reduce risk. For more information, contact your Baker Hughes representative or visit us at www.bakerhughes.com

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08/09/2010 11:48


74

SPECIAL REPORT

UNDER PRESSURE Iraq.indd 74

If Iraq is to have any chance of achieving its aggressive ambition to increase its oil output ďŹ vefold within the next decade, it must ďŹ rst overcome the many infrastructure, logistics and security challenges that stand in its way.

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SPECIAL REPORT 75

N

early four decades after the nationalisation of Iraq’s oil industry, international oil companies (IOCs) have fi nally been granted access to develop Iraq’s dream oil fields on an unprecedented scale. As Iraq struggles to get back on its feet after years of confl ict and UN sanctions following Saddam Hussein’s invasion of Kuwait in 1990, Big Oil has been eager to get back into the country and capitalise on Iraq’s plentiful reserves. With proven oil reserves totalling 115 billion barrels and proven gas reserves of 112 trillion cubic feet, Iraq is up there alongside the major producing nations of Saudi Arabia and Russia when it comes to hydrocarbon resources. However, unlike its main rivals, Iraq’s turbulent history means that the country is severely lacking in money and technical resources to further develop its fields and increase output. Furthermore, for the companies already operating in Iraq or hoping to enter the country in the future, one of the most pressing concerns is the severe shortage of skilled and experienced oil personnel and project managers capable of leading the planned expansion. Gavin Jones is a founding partner at Upper Quartile, a business specialising in post confl ict economic reconstruction, and he believes that the skills shortage is currently being largely ignored and that opportunities need to be made available to Iraqis in order to get them involved in the industry. “There needs to be some form of skills development put in place, probably with Basra University or certainly one of the state-owned universities, and that should include things like English language training and technical skills,” says Jones. “But the university hasn’t really been engaged and there are no training schools. It’s quite clear that you’re going to need a large amount of people who can work drilling rigs in the very short-term, and nobody has got that sorted out. Th is frustrating lack of local engagement needs to be unpicked quickly,” he urges.

Unproven resources Th is is even more of a concern if the predictions regarding Iraq’s unproven resources are to be believed. The country is in fact relatively under-explored and the last time that it estimated its reserves was several decades ago, back before the days of seismic 3D surveying and other technologies that are available to us today. There is a very strong chance that if Iraq were to be surveyed today, we would see a marked increase in its reserves, particularly when carefully applying today’s modern technologies to improve recovery efficiency and explore undeveloped fields. While estimates vary, it is conceivable that Iraq could be in possession of anywhere between 45 and 215 billion barrels of unproven oil resources and between 275 and 300 trillion cubic feet of probable gas reserves. In order to benefit in the short term from its extensive oilfield rehabilitation plans, Iraq had little

Iraq.indd 75

option but to open the country up to foreign investment and enlist the help of IOCs, which can provide the necessary expertise, technology and training that Iraq’s oil sector so desperately needs. Last year therefore represented a landmark event for Western oil majors as Iraq offered up 16 oil fields containing reserves that have been estimated at nearly 85 billion barrels. The auctions took place in two rounds – the fi rst in June 2009 and the second in December 2009 – with six fields being offered in round one and 10 in round two. With the auction of Iraq’s supergiant Rumaila field won by a BP-led partnership with the China National Petroleum Company (CNPC) in round one, two other deals negotiated over the following months and a further seven deals closed in round two, Iraq has a commitment from the IOCs to add new production capacity totalling approximately nine million barrels per day. In a recent IHS CERA report entitled Field of dreams: The great Iraq oil rush –its potential, challenges and limits, author Bhushan Bahree wrote: “The relative success of the second auction of oil fields in December emboldened Hussain al-Shahristani, the Iraqi oil minister, to assert that the Technical Service Contracts agreed so far (as a result of both bidding rounds last year) would help raise Iraq’s oil output capacity to some 12 mbd within six or seven years.” Th is statement by al-Shahristani is bold indeed and would represent a significant increase over the 2.4 mbd that Iraq produced in 2009. It also far exceeds the 2018 target production figure of six million barrels per day that the Republic of Iraq National Investment Commission cites on its website. The figures have indeed caused some controversy, with experts unable to agree on whether either of these targets achievable. According to the liquids output capacity outlook for Iraq, which is produced by IHS CERA, it is more likely that output will be somewhere closer to 4.3 mbd by 2015 and 6.5 mbd by 2020. IHS CERA also predicts that investment needs will be in excess of US$50 billion to reach the 2020 capacity level. Th is estimate includes critical investment needed to refurbish and expand Iraq’s oil export capacity but excludes domestic infrastructure renewal and expansion.

Unparalleled achievement Whether the target is achievable or not, one thing is for sure; if Iraq were to increase its output on a scale anywhere near the upper echelons of these estimates, this would be an unparalleled achievement. “Such a massive capacity increase in so short a time would be unprecedented,” says Bahree. “The most rapid build up in recent decades has been in Russia, where output rose by about 3.7 mbd over 10 years to 2008. A Saudi programme in the past decade to rapidly increase capacity by some two mbd took about five years to complete.” With no other country having been able to expand its oil industry by so much in such a short period of time, Bahree says that if successfully implemented in

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SPECIAL REPORT

full, the three agreements from the fi rst auction alone – Rumaila, West Qurna 1 and Zubair – would catapult Iraq into the fi rst rank of world oil producers in the latter half of the next decade, adding new capacity of 4.8 mbd. “The second round, if fully implemented, would add another 4.7 mbd– for a total increase of 9.5mbd – propelling Iraq into the company of super producers Saudi Arabia and Russia, with respective capacities of 12.5 mbd and about 10 mbd,” says Bahree. However, whilst this all sounds very promising for the future of Iraq, most experts are convinced that these ambitious plans are a little out of reach given the multi-

Iraq’s productive capacity outlook 9 8

tude of obstacles that the country must fi rst overcome. For Jones is it quite evident that this was never going to be easy. “What you’ve got in Iraq is basically 30 years worth of sanctions followed by six years worth of war. And in any environment like that it’s going to be diffi cult, especially when you’ve got a huge array of very big, very sophisticated, very slick international companies piling over the parapet, trying to work with a government that has been isolated for 30 years.” Th is is one of the fi rst challenges that Jones believes will need to be overcome. “There needs to be a significant amount of work in getting the Ministry of Oil up to a level where it can more effectively engage with the international oil companies. Some significant levels of support need to be given to the Ministry of Oil to build its capacity to manage what are in effect the world’s third largest reserves. Having a building where the lift s do not work and senior staff are reached on a Yahoo email address is not in Iraq’s or the IOC’s best interests,” he explains.

7

Battling bureaucracy

6 Million barrels per day

5 4 3 2 1 0 2000

2005

2010

2015

2020

2025

2030

Source: IHS CERA

Field

Plateau production

Net addition

(million barrels per day)

(million barrels per day)

Fee per barrel

Rumaila

BP, CNC

2.850

1.850

$2.00

West Qurna 1

ExxonMobil, Shell

2.325

2.045

£1.90

Zubair

Eni, Oxy, Kogas

1.125

0.900

$2.00

Majnoun

Shell, PETRONAS

1.800

1.750

$1.39

Halfaya

CNPC, PETRONAS, Total

0.535

0.500

$1.40

Qayara

Sonangol

0.120

0.120

$5.00

West Qurna 2

LUKOIL, Statoil

1.800

1.800

£1.15

Badra

Gazprom, TPAO, Kogas, PETRONAS

0.170

0.170

$5.50

Gharaf

PETRONAS, Japex

0.230

0.230

$1.49

Najma

Sonangol

0.110

0.110

$6.00

TOTAL

Iraq.indd 76

Winner

11.065

9.475

The capability of the Ministry of Oil is not the only challenge that IOCs are having to navigate. Many are yet to establish local offices due to the sheer complexity of dealing with the Ministries of Trade and Interior and all the bureaucracy that comes with doing business in Iraq. One persistent complaint has been the difficulty of obtaining the necessary visas to get executives into the country, a problem that if not resolved will only become more acute when development really takes off and hundreds of foreign workers are required to enter the country. The visa issue has been somewhat tackled with the co-operation of the Ministry of Interior, which agreed to issue visas for those foreign employees working on contracts to develop the oil fields directly at the Iraqi airports. However, there is a long queue of other challenges waiting in line to be solved before operations can continue smoothly and uninhibited. After decades of war and sanctions, Iraq is lacking in practically everything. Much of the infrastructure has been destroyed or is in a state of disrepair and even basic services like electricity and water are disrupted and inadequate. The country is also in desperate need of having its roads, bridges and railways rebuilt. Without decent transportation infrastructure, foreign investors will struggle to conduct their business at optimum levels. However, as far as IOCs are concerned, most of Iraq’s oil exports come from the fields around Basra in the south and here the transport network is not too bad, according to Jones. “In the south, in Basra, there is actually quite a broad network of transport infrastructure, both for the sea and the road. A lot of it hasn’t really been repaired, but most of it works reasonably well. So for transporting in and around the place you can move around reasonably well,” he explains. “The logistics though, getting stuff in and out, is an absolute disaster. And again, you’ve got to go back to the issue of sanctions. For 30 years they haven’t needed any-

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SPECIAL REPORT 77

Hussain al-Shahristani

thing, and suddenly there are drilling rigs being brought in and containers of this and that and people flying in. So the logistics are a big problem,” says Jones explaining that while most people knew that oil was going to be the main driver of the economic recovery in Iraq, very few of the aid organisations that were there during the war spent any time sorting out the logistics and infrastructure that would be needed to rebuild the economy. “Now we are paying the price,” he says.

Ports under pressure The ports in particular have begun to buckle under the demand of the arriving oil majors, their service companies and the vast amounts of equipment they are bringing with them. Umm Qasr, the country’s main port near the oil hub of Basra, handles 80 percent of Iraq’s imports, but it is suffering from years of neglect and underinvestment and is therefore ill-equipped to deal with the demand that the oil majors are placing on it. “Now what they’re talking about is having astonishing amounts of equipment piling in there,” says Jones. “The cranes aren’t big enough, the gate out of the port isn’t big enough to take the volume of lorries, there’s no-

Iraq.indd 77

“According to Hussain alShahristani, Technical Service Contracts agreed so far would help raise Iraq’s oil output capacity to some 12 mbd within six or seven years”

where to leave the stuff when you get it outside of the port, the free zone on the other side has been talked about for years, but there’s just no infrastructure.” Captain Fadhil Abd Ali, Assistant Director General of Iraq’s state ports operator, told Reuters: “At the present time, the port can handle the commercial trade, but for the needs of the oil companies we will need more dock space.” In addition to this, many shippers complain of exorbitant port fees, up to eight times that in others ports around the world. In an attempt to rectify the debilitating situation with Iraq’s main port, the authorities are pursuing a number of rehabilitation projects designed to modernise and upgrade the country’s port facilities, including plans for a new US$6 billion port at Fao, the southernmost tip of Iraq. The main road that links Umm Qasr port with Basra city and that is the main route for goods and cargo arriving into the port from abroad will also benefit from rehabilitation projects, which will be fi nanced by the World Bank. Director of Iraqi Ports, Salah Kadaier, recently told AKnews that 120 companies, including the likes of Mazda, Siemens, Volkswagen and Audi, are expected to invest in the development of Iraqi ports. “You’ve various people coming in and investing and taking berths and quays there to do up,” says Jones. “It’s happening, but it’s too slow.” On the export side, there is also the issue of pipelines. Once the IOCs have managed to extract the oil the next challenge is clearly getting it out of the country. Iraq’s ageing pipeline network will need major upgrades, particularly the southern export pipelines, which send 80 percent of Iraq’s total oil exports to the global market. Experts have said that these pipelines can handle no more than 1.6 million bpd without risk of rupturing. “The pipelines need to be refurbished to a level where they can transport the anticipated short-term increase, and that’s about 10 to 15 percent. And there certainly needs to be a metering system put in pretty damn quick,” says Jones. “I think the oil companies and the Iraqi government haven’t got the rollout of the assets that they need in place in the right order. So for example, there have been oil licenses given out and there have been drilling contracts let, but the pipelines don’t work, the port can’t cope with the volume of equipment, there’s no metering system in place. So one end of the process works exceptionally well but you don’t have all the other bits of critical infrastructure in place. Maybe it would have been better to have two or three oil licenses and two or three contracts sorting out the oil-related infrastructure,” suggests Jones.

Business villages The issue of security remains something that companies will need to address before establishing a presence in certain areas of Iraq. Security is far more of a problem in the south, particularly around Basra. However, in order to appease the many fi rms worried about the violence and bloodshed that has plagued Iraq in the past few years, one

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SPECIAL REPORT

Iraqi fi rm is planning to build a “village of businesses” next to Baghdad airport. The mini-city will provide a secure environment in which business people can conduct their business and relax after hours. The US$250 million project is due for completion in three to five years and will be home to apartments, hotels, offices, restaurants, cafes, 119 shops, a petrol station, a car rental agency and parks. France has decided to follow suit and is building a heavily fortified business centre and boutique hotel near its embassy in Baghdad’s Abu Nawas neighbourhood. Many companies are already relocating to the new centre including oil contractor Technip SA, engineering fi rm Alstom and oil major Total, which is moving from Baghdad’s Green Zone to the new business enclave. So whilst there is no shortage of infrastructure and logistics problems that need to be solved in order for Iraq to come anywhere close to its aggressive production tar-

gets, it would seem that progress is being made. The much needed investments in infrastructure are happening, but as Jones points out, progress will inevitably be slow. As a result of this, Bahree believes that the development of Iraqi oil resources will be sequential and capacity build up will be gradual, with limits defi ned by the infrastructure expansion that Iraq can achieve. But Jones is sure that no matter what the challenges the IOCs have to face in Iraq, they will overcome them. “The oil companies will do it, because they’ve done it before, in Nigeria, in Pakistan, they’ve done it everywhere else, and they’ll complain about it and they’ll try and leverage stuff out, and the contracts will be changed and adapted and manipulated. But the pipelines are almost there. The port is going to be a shambles for a number of years to come, but people will manage to get stuff through. Not at the right times, but it’ll sort of work,” he says. „

awarded by the Iraq Ports Authority and the Iraq Ministry of Transport – and the fact that we beat much larger competitors like DP World and APM Terminals speaks to the importance of local knowledge and the recognition that the Iraq Ports Authority gives us. Can you please tell us about Gulftainer’s development of three logistics hubs and port facilities across Iraq and how this will cater to the oil and gas industry? In addition to the terminal facilities in Umm Qasr, we are investing in logistics cities/ ICDs throughout Iraq, both in the South near Basra and in North Iraq (Kurdistan), providing storage and distribution facilities linked with transport opportunities to allow all customers – particularly those in oil and gas – to service their activities.

A portly investment As part of Iraq’s port refurbishment projects, UAE-based port operator Gulftainer was awarded, early in 2010, the concessions to operate Berth 8 in South Port Umm Qasr, and, to complete construction of and develop and operate Berths 10 and 11 ‘The Iraq Container Terminal’ (ICT). Peter Richards, Managing Director of the Gulftainer Group of Companies tells us about his company’s ambitious plans for expansion into Iraq. What is the potential for investment in the port infrastructure of Iraq and how is Gulftainer hoping to capitalise on this? Certainly everyone, including the Iraqi Government, is acutely aware that Umm Qasr needs to be in a position to cope with the rapidly increasing volumes – and this is why we have been awarded the concession to operate the already existing allpurpose Berth 8, where we will be installing container handling equipment and gradually ramping up operations over the coming months. Moreover, we have been awarded the long-term concession to build and operate Berths 10 and 11, which will be named the Iraq Container Terminal (ICT) – this will be a dedicated container terminal, able to handle larger ships in a more efficient way than the all-purpose berths. It is the largest concession

Iraq.indd 78

Can you please give us some details about Gulftainer’s planned development and operation of a Cargo Village at Sulaimaniyah airport? Work has now begun on the Sulaimaniyah Cargo Village Project at Sulaimaniyah International Airport and the project, awarded to GulfMar Ltd (a collaboration between Gulftainer and Sulaimaniyah-based Azmar Air), will provide a dedicated cargo facility for carriers flying into Kurdistan to support the huge growth in the region, including the expanding oil and gas industries and major investment projects. The site covers 250,000m2 and will eventually contain an aircraft apron capable of supporting every type of cargo aircraft, a domestic and international cargo warehouse, freight forwarding units, truck parks and office space for rent by aviation support companies and freight carriers. Work started on the site on May 19, 2010. We hope to complete the tender process in a very short space of time so that work can begin on the apron and taxiway construction. Construction is planned over several phases, with phase 1 providing an aircraft apron capable of parking three B747 freighter variants, a cargo warehouse with integrated office space, a single block of freight forwarding units and a truck park.

10/09/2010 15:55


HMS AD.indd 1

07/09/2010 09:01


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EXECUTIVE INTERVIEW

Equipped for success Kirill Molchanov gives an insight into the work of the HMS group in the Rumaila project and why it is so important to have well maintained, efficient water injection equipment.

Kirill Molchanov is the First Deputy General Manager of the Management Company HMS. He graduated from the Bauman Moscow State Technical University with a degree in Computer Engineering. Mr. Molchanov has worked in the company in various management positions since its inception in 1993.

What involvement does HMS Group have in the Rumaila project? Kirill Molchanov. We have been involved in the Rumaila project since 1970 when Soviet companies began Brownfield development of South Rumaila and Greenfield development of North Rumaila. The field was studied, designed and developed by a Soviet government contractor, which involved several specialised Soviet plants and companies and HMS’s factories among them. We have manufactured and supplied a complete water injection system for North and South Rumaila and have been supporting it until now. That is why we have more than 35 years’ experience working in Rumaila. For the last 13 years our export division HYDROMASHSERVICE has directly contracted Iraqi South Oil Company that has operated Rumaila. Moreover, Russian aged supergiant oil field Samotlor is very similar to Rumaila both in its features and tasks solved. So, we are also experienced in maintenance of this field now operated by joint venture TNK-BP. What kind of equipment do you use in the Rumaila oil field? KM. We supplied water injection equipment for nine cluster pumping stations designed by a Russian engineering company based on the Soviet oil equipment of that time. More than 30PSc huge water injection pumps of 4MW each were supplied and most of them have been successfully running for 35 years. We also equipped a water treatment station in

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Garmat Ali with a capacity of 150 mln. cub.m/year (2.5 mln. bbl/day). Now HMS Group offers not only water injection equipment, but complete projects for oil field development. Are you still producing this water injection equipment used in Rumaila? KM. Well, now we produce similar water injection pumps completely interchangeable with those legendary ones, but of course they are more up-to-date and efficient. The reliability and lifetime of the produced pumps were so high that we have a specialised factory integrated in the Group, which is engaged only in the upgrading of old injection pumps like those used in Rumaila. We also produce modular, completely ready and prefabricated water injection pumping stations in our factories. Now we bring containers to the site, put them on base, connect them and within several months hand them over to the client. It is now a widely used and demanded technology in Russian Greenfield projects with short periods of commissioning. In general, HMS Group now has not only an Industrial Pump division producing a large share of the Russian market for industrial pumps, but also a strong and modern Oil and Gas modular equipment division and EPC projects division. The strong position of the Group in water, oil and gas projects is that it can offer EPC solutions with little part of outsourcing services and equipment. It means that a broad line of services for water handling, water injection, oil field

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upper stream development, pipe lines, etc. can be fulfi lled in the HMS Group’s integrated factories and engineering companies, including engineering, manufacturing, construction and installation with rich experience and references. Based on your long experience in Rumaila maintenance support, what is your view on the most pressing concerns for Rumaila’s new consortium operator? KM. We are in regular contact with all participants of the new consortium and admire their top professionalism and commitment to the project. Their principal assessment of the situation in Rumaila is sure to be right. Along with urgent rehabilitation of the field infrastructure, they put water flooding of Rumaila as a short-term priority and it is truly right. As our general advice for start-up conception for Brownfield Rumaila we would recommend maximum use of the existing human and facilities capacity. We really believe that the initial production target (IPT) could be easily reached on existing facilities designed and equipped for a much higher production level. It could be realised within a short period and at a low cost. Some of the applied technology and equipment is not very modern and effective but it is reliable and well proved. And more importantly, the Iraqi personnel know it in detail and can effectively operate and maintain it with an easy improvement in management and material supply. The facilities and equipment that was completely destroyed must be replaced with new modern ones, equipment modular and skid-mounted with maximum levels of prefabrication and a short installation period. From what we know, based on our long-standing experience in Iraq, as well as vast expertise in operations in remote regions from Russia’s Siberia with its permafrost and severe climate to desert conditions of Middle Asia, the most sophisticated state-of-the-art equipment may be, every now and then, challenged if not tried for a long enough period under local conditions and service and fine-tuned to them. In this instance, this means the likelihood of frequent cuts in the electricity supply, high ambient temperatures, dust desert storms, possibility for manual operation, training of Iraqi personnel, etc. You mentioned that the area in which you have most expertise in Rumaila is water injection. Could you give some details and solutions for this priority task? KM. You are right. We provide detailed information and documentation in the design, technology, equipment and operation and maintenance results of the Rumaila water injection system. What is more valuable is that we know people in the South Oil Company who operate this system and whom we met a lot at site, in Basrah or in our factories in Russia, and together we sought solutions to their problems and tasks. In my opinion, there are three urgent priorities of the project. The first one is cluster pumping stations (CPS). After 35 years of operation the injection pumps lowered their efficiency and should be overhauled and repaired. That will increase their capacity up to the original level – 15-20 percent

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“The facilities and equipment that was completely destroyed must be replaced with new modern ones, equipment modular and skid-mounted with maximum levels of prefabrication and a short installation period”

above the existing level. The pioneer contract for the pumps’ overhaul repair has been agreed with the South Oil Company and could be easily completed by the new operator. We consider it more effective to overhaul and repair not only the pumps but the complete CPS with guaranteed designed output, because the effective work of the pumps should be supported by many other facilities like electric, lubrication, valves, etc. The second priority is the water treatment plant (WTP) in Garmat Ali which supplies treated water for Rumaila water injection and other consumers. The actual production of WTP is half of the designed one and not enough for the required injection. This task could be quickly solved by recovering designed technology using existing workable facilities and replacing the destroyed equipment. Meanwhile it is necessary to make an assessment of the existing repairable works and equipment, and the capacity that can be reached with them. After that, new modular equipment can be introduced in order to increase the needed output. Now we are negotiating this solution with the consortium. We are rather cautious regarding the use of sea water for Rumaila as in the other Gulf countries, at least in the midterm, due to the huge organisational and logistical challenges. However, unlike some other countries, Iraq has the option of disposing of huge resources of fresh water. The third priority is one of ecology. In addition to the technical point of view, our solution it has a big moral and ecological importance. It is a real solution to the problem of produced water recycling. The increasing quantity of produced water in Rumaila nowadays is being dumped to dammed lakes outside the degassing stations. The lakes of oily, dirty water are increasing and are causing ecological and environmental damage, as well as damaging the equipment of the degassing stations. It is not only an Iraqi problem, but an international problem and the consortium will have no other choice but to make it their first priority. This problem was well understood by Iraqis but was delayed due to lack of financing. For the last two years, HYDROMASHSERVICE has been intensively negotiating with the South Oil Company and offered them several solutions adjusted to Iraqi conditions. These solutions provide treatment and reinjection of produced water and thus solve ecological tasks and reduce consumption of fresh river water for injection. „

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SPECIAL REPORT

As BP starts to evaluate the cause of its devastating oil spill in the Gulf of Mexico, Stacey Sheppard takes a look at the consequences that the crisis will have for the oil industry and what it could mean for the MENA region.

W

hen the Deepwater Horizon drilling rig, which BP leases from Transocean Ltd, exploded on April 20, 2010 claiming the lives of 11 workers and injuring 17 before collapsing and sinking 5000 feet under the water, a shiver was sent through the oil industry. The rig, valued at more than US$560 million, has unleashed the biggest oil spill ever recorded during peace time and continues to spew oil from a blown out well under the sea, destroying the Gulf ’s economy and ecosystem. The oil industry has watched as BP has intensified its desperate efforts to stem the flow and clean up the mess that has been created. As fast as oil leaked from BP’s rig, the petro giant also haemorrhaged money with the cost of cleaning up the Gulf of Mexico now standing close to US$8bn. However, the monetary loss may not be the biggest problem that BP will have to deal with. Its reputation is in tatters and allegations of cost-savings and cutting corners when it comes to safety are not doing it any favours. Furthermore, the heavy criticism that Tony Hayward, BP’s beleaguered outgoing Chief Executive, has received for his handling of the crisis and the numerous PR gaffes he has been involved in, have only heightened the anger over the environmental disaster. Th is is particularly true of the US government, which put intense pressure on BP to pay $20 billion into a fund to compensate victims of the Gulf oil disaster.

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Global impact Although BP has understandably borne the brunt of the negative fallout, the buck does not stop there. The consequences of the worst oil spill in US waters since 1989, when the Exxon Valdez spilled 11 million gallons of crude into Alaska’s Prince William Sound, will undoubtedly be more far reaching and have implications for the oil industry as a whole. In the aftermath of the Deepwater Horizon explosion, the US initiated a reform of its federal agency responsible for overseeing the oil industry, and what was formerly known as the Minerals Management Service will now become the Bureau of Ocean Energy Management, Regulation and Enforcement. The troubled government agency has often been criticised for catering to the interests of the very industry that it should be policing. In the past, similar criticisms were also aimed at agencies in other countries that were seen to combine the critical roles of overseeing the revenue and safety aspects of the industry, which clearly leads to a confl ict of interest. However, in recent years, many countries that harvest oil and gas from offshore fields have re-examined their systems to ensure that such vital safety decisions are not left in the hands of corporations that are motivated by profit. In Britain, Norway, Australia and Canada the system is now such that governments are responsible for setting the general safety standards that must be adhered to, but it is the rig operators who are left to work out the fi ner details. Th is move away from such heavy-handed, prescriptive government regulation has gradually occurred over the last two decades or so and the reason for it is because the oil companies themselves are clearly best placed to fully understand the risk presented by offshore operations. They should also know how to minimise these risks. Th is practice of letting industry select the best safety measures is now quite wide spread and is often referred to as a “performance-based” or “goal-oriented” approach. In other words, oil companies are free to select the best technology to ensure optimum safety for their operations as long as the minimum safety regulations are met.

Lack of regulation Although it is not yet known what caused the BP disaster, congressional hearings in the US have revealed a lack of regulation covering safety aspects. Certainly, outside of the US the safety regulations tend to be stricter. In Norway, for example, regulation dictates that companies have a back up system in place and acoustic backup systems are often installed to trigger the blowout preventer remotely with sound pulses if the regular switch fails. These are also used in Brazil and off the east coast of Canada, but there is no such requirement for acoustic triggers in the US. Britain changed its system following a fi re that destroyed the Piper Alpha platform in the North Sea in 1988 killing 167 workers. Th is also prompted oversight of safety for the oil and gas industry to be moved from the Department of Energy to the Health and Safety Executive. Under

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Australia’s “performance-based” system operators must submit plans of their safeguards for approval. Canada moved to a more “goal-oriented” system last year and until recently, energy companies wishing to drill in Canada needed to have plans and permits for relief wells before drilling was approved. These plans had to describe exactly how engineers would drill a relief well if required to do so. However, the National Energy Board of Canada is considering forcing oil companies to drill a secondary relief well in any deepwater Arctic exploration project, as part of a review of its regulations following the BP Gulf of Mexico blowout. There is now an open debate about whether the industry should be forced to drill the relief well at the same time as the main one. Th is episode in the Gulf of Mexico, as devastating as it has been, has highlighted the fact that perhaps Big Oil has been given too much freedom to police itself. It has therefore underscored the need for much greater oversight of offshore oil and gas operations and better resources for holding companies accountable for their actions. In the US, a Senate committee recently voted to remove all limits on damage claims that oil companies could pay for offshore spills and there will surely be more reforms to follow. Alarm bells are certainly ringing for governments who already host or who have been considering the opportunities to host oil companies who are looking to move into deep-water offshore exploration. The BP accident has tarred the entire industry and even if it was a one-in-amillion type accident, governments will need to seriously consider the balance between risk and riches.

Spill in the Middle East The spill in the US has certainly served as an example to other countries but there is nothing like having to deal with a disaster on your own territory to really put things in perspective, as Egypt has recently been unfortunate enough to learn. With eyes around the globe firmly focused on the BP oil catastrophe, a spill off the coast of Egypt’s Red Sea has gone seemingly unnoticed, but nonetheless highlights the potential damage that an environmental crisis of this magnitude could cause in the MENA region. It was mid-June when oil started to appear off the coast of Hurghada, prompting the Hurghada Environmental Protection and Conservation Agency (HEPCA) to demand tighter regulation of offshore oil platforms. However, the possibility of the oil spill originating from any of the 188 oil platforms operating in the Gulf of Suez area was originally denied by Egypt’s Oil Minister, Sameh Fahmi, who said that a technical report indicated that the spill may have come from a passing oil tanker, seeped from the ground due to a heat wave, or been the result of attempted sabotage of a rig. The oil spill, which has polluted a 20km stretch of the popular tourist hub of the Red Sea coast from El-Gouna in the north to Sahi Hashish in the south, has outraged environmentalists who have been very disappointed with the Egyptian government’s apparent inability to identify the source of the leak. However, the Prime Minister’s spokes-

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man, Magdy Rady, later said that a spillage from an oil rig was the “probable cause” and that an investigation would be launched. The Ministry of Environment will therefore form a committee to assess the damage caused by the Hurghada oil spill. The committee will be composed of members from the regional branch of the Egyptian Environment Affairs Agency (EEAA), the Centre for the Combat of Petroleum Pollution, and the Red Sea Protectorates Authority. According to the oil ministry, no more than 30 to 40 barrels of oil were leaked, but environmentalists are disputing this estimate and HEPCA Managing Director Amr Ali has said that he would like to see more stringent standards for offshore platforms to ensure that natural areas are better protected. Oil Minister, Fahmi, is also considering drastic measures to help protect the region from future environmental crises, including the reduction of oil platforms in the Suez Gulf in the hope that this may help the authorities monitor the rigs more effectively. Fahmi has also called for the creation of a fund to help prevent any further pollution of this nature. The Egyptian authorities are naturally very protective of their eastern coastline, which has undergone a pro-

gramme of development to encourage tourism in the area. The lucrative tourism industry earned the country US$15.4 billion last year and, according to the Tourism Ministry, it is Egypt’s biggest source of foreign exchange revenue contributing 11 percent of the country’s GDP.

Spill containment exercise The spill in Hurghada has raised fears that a more major incident could wipe the town off the tourist map and has highlighted the fact that better handling of a marine environment crisis is needed. Egyptian officials have already announced plans for an oil spill containment exercise in the port of Sidi Kerir, approximately 30 kilometres west of Alexandria. Egypt’s Petro Environmental Services Company (PESCO) and Saudi state oil giant Aramco will be launching the spill containment exercise in November. Mahmoud Ismail, the head of environmental disasters and crisis management at the Egyptian Environmental Affairs Agency (EEAA), told Reuters that the exercise will test response to a big shipping spill in the Mediterranean. “We want to make sure that we have all the right equipment and people in place in the case of a disastrous spill, like the one BP had in the US,” said Ismail.

Reevaluating regulation Julian Lee is a senior energy analyst at the London-based Center For Global Energy Studies in London. Here, he gives his views on the direction that the oil and gas industry may take in light of the BP oil spill in the Gulf of Mexico. The main ramifications will be much stiffer regulations for offshore drilling, virtually everywhere in the world. At the moment we don’t really know what caused the Gulf of Mexico well to blow out and BP itself still doesn’t know so with regards to what the industry can learn, that very much depends on what they find out about the causes of this leak. What it does teach everybody though is that oil drilling is a risky business. It has become such a routine and thankfully there are so few incidences of this nature that people both within the industry and outside tend to forget that they can happen. This incident will force both the industry and the regulators to wake up to the fact that oil and gas drilling is inherently risky. In terms of actual changes in regulations and working practices, this is very difficult to determine at the moment as we don’t know what caused the accident. What we can say is that there will generally be much tighter regulation of the blowout preventer, it will need to be tested much more frequently, and there will probably need to be additional redundancy built into the control mechanisms that will allow external control in the event that something goes wrong. There will certainly be new regulations on record keeping, with the requirement that electronic records be kept offsite as well as on the rig. There will also be more stringent requirements for the clean up equipment to be on hand for use. I suspect that

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there will be requirements for the spill response capabilities to be built up. One of the things that I think should happen is rather than expecting every company to draw up its own spill response programme for every well, there should perhaps be a province wide spill response requirement that is drawn up by the US coast guard for the Gulf of Mexico and other similar bodies in other bodies of water, which companies have to buy into. This would provide a much more coordinated way of trying to deal with an eventuality like this. The problem that everybody is facing is that very few places have actually had to deal with a blowout of this nature. The industry will look at what comes out of the BP investigation but they will make up their own minds about how they should proceed with legislation. One of the problems that will come out of this, and something that the US authorities are going to have to think about very carefully, is the manner in which they have gone after BP and the sort of regulations that they are proposing to bring in, not in terms of controlling the drilling, but in terms of removing any liability limits. If these regulations are adopted there will be very few companies who can afford and who will be willing to drill in the Gulf of Mexico. Whilst the risk of something like this happening is relatively low, if it does happen the cost is going to be simply too big for any but two or three of the very biggest companies to be able to risk.

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The US$1 million dollar exercise has already garnered interest from Egypt’s Navy and Ministry of Defence, as well as a number of state environmental agencies. Other sponsors include BP, Royal Dutch Shell, Aramco’s shipping subsidiary Vela and Egypt’s Arab Petroleum Pipeline Company (SUMED). Th is fear of an environmental crisis and concern about response capabilities, however, is not limited to Egypt. The whole MENA region has sat up and started to reassess its ability to prevent, contain and respond to a large-scale oil spill similar to that in the Gulf of Mexico. Even countries that do not have any oil rigs on their territory are looking at implementing contingency plans. Dr Adel Al Zayani, Director General of Bahrain’s Public Commission for the Protection of Marine Resources, Environment and Wildlife, said that an updated plan will be tested out during a comprehensive drill immediately after Ramadan in September. “Bahrain does not have any offshore rigs, but there are plenty round the corner,” said Al Zayani. “A disaster could be just a few miles away, so we cannot be complacent.” Whilst some countries in the MENA region are looking to reexamine their national plans, there are some people in the industry who are calling for a much more coordinated approach between the countries in the area. In an interview with arabianOilandGas.com Khamis Juma Bu-Amim, CEO of the Regional Clean Sea Association (RECSO) – an organisation founded in 1972 that plays a leading role in the process of oil spill and incident response under the mutual aid concept – called for a unified national emergency response plan. “Both oil and increasingly chemical spills are a huge concern in this region,” said Bu-Amim. “When you think about the ports, urban developments, power plants and desalination infrastructure, which are all reliant on access to clean sea water – a chemical spill would be disastrous.” He stressed the urgent need for a unified plan saying: “The UAE urgently requires a national plan. There has to be a federal agreement, which brings all the stakeholders together as one. We don’t want a scenario like the Exxon Valdez or Hebei Spirit in our national waters.” According to his proposal, any federal plan would need to be administered independently of any commercial interest, which would mean that oil companies should not be given sole responsibility of implementing it, despite the fact that they have the technical capability and resources to do so. Bu-Amim also says that the plan must take into consideration the best practices used worldwide and must be set out in clear, transparent language that everybody can understand. “Meeting that need and implementing a plan like this will go a very long way to protecting the Gulf,” said BuAmim. “At the moment each Emirate has the responsibility for its own coastline. Th is isn’t practical because an oil spill won’t obey zonal waters. One central commander has to be in charge and that authority cannot be questionable.” Other countries, however, do not seem to have been quite so perturbed by the Gulf of Mexico crisis. Libya, for

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Takeover talk With BP’s share price tumbling down to a figure less than half of the 650p that it achieved in April this year, before the spill occurred, the oil giant is understandably starting to prepare a defence strategy to ward off any unwelcome takeover strategies. The Obama Administration has already forced BP to agree to place US$20 billion into an escrow account to fund the clean-up operation and any compensation claims and the company announced some time ago its need to sell off US$10 billion worth of assets. BP now finds itself at the centre of takeover speculation as reports suggest that President Obama has told ExxonMobil that it would not stand in the way of a takeover bid. If the two companies were to merge it would create a group with a stock market value of US$400 billion. This threat of a hostile takeover has led BP to look for potential strategic investors who could help the oil company fend off any potential bidders. A Senior UAE source told Reuters that the company has already met with the Kuwait Investment Authority – the Kuwait Investment Authority already has a stake of 2.8 percent, but BP would reportedly like it to increase that to as much as 10 percent – officials from Abu Dhabi Investment Authority (ADIA) and the sovereign wealth funds of Qatar and Singapore. Reports also suggest that Saudi investors are looking to buy 10 to 15 percent of BP. Shokri Ghanem, Chairman of Libya’s national oil company has expressed interest in BP now that the share price is so low and has reportedly told Dow Jones that he will be recommending that the Libyan Investment Authority invest.

example, will continue with its plans to allow BP to begin drilling in its offshore deepwater region. According to Shokri Ghanem, Libya’s de facto Oil Minister, the April explosion of the Deepwater Horizon rig and the oil spill that followed were “tragic” but he said “an accident will not stop us from digging in this new frontier. Life must go on, but we will learn a lot of lessons.” He likened the oil spill to air accidents saying: “Accidents happen all the time. If an air crash takes place, we don’t stop air traffic.” Whilst this is true, the majority of countries and oil companies, having witnessed the fallout that BP is having to deal with and the devastation that was caused in the Gulf of Mexico, are willing to do everything possible to avoid making the same mistakes. However, achieving the difficult balance between technology, complexity and regulation will not be easy, but as the Gulf of Mexico spill has highlighted, this is something we can ill afford to ignore, particularly given the increasingly global nature of the companies in this industry. The BP oil spill echoes back to some of the problems that we saw cause the global fi nancial crisis– inherent complexity, lack of sufficient regulation and excessive risk taking – all of which created new vulnerabilities and ultimately brought the industry to its knees. If offshore drilling is to avoid the same fate, radical changes will need

“This episode in the Gulf of Mexico, as devastating as it has been, has highlighted the fact that perhaps Big Oil has been given too much freedom to police itself”

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to be implemented. „

A WORLD OF REGULATION

Denmark Shortly after the BP crisis, Danish Climate and Energy Minister Lykke Friis announced that Denmark may tighten North Sea oil drilling regulations. The Danish Energy Agency is reviewing all energy safety rules at her request.

Canada The response of Canada’s offshore regulator has been to tighten the oversight of its deepest-ever exploration well, which is being drilled by Chevron off the coast of Newfoundland. Chevron is required to meet with Canada-Newfoundland and Labrador Offshore Petroleum Board (CNLOPB) every two weeks to discuss matters of interest. The frequency of audits and inspections onboard the Stena Carron will be approximately every three to four weeks. Normally, audits and inspections are conducted on offshore operators every three to four months. Prior to penetrating any of the targets, Chevron must hold an operations time-out to review and verify that all appropriate equipment, systems and procedures are in place to allow operations to proceed safely and without polluting the environment.

Brazil Following the Deepwater Horizon incident, Brazil’s National Petroleum Agency requested that all companies operating in Brazilian waters supply information on the control systems that are being employed in their wells and that they re-evaluate their emergency plans.

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Norway Following the crisis in the Gulf, Norway, the world’s fifth largest oil exporter announced that it was “not appropriate” to open new deep-water areas for drilling until an investigation sheds light on BP’s leak. The Norwegian freeze signals a push to slow expansion of exploration to new offshore areas, especially in the Norwegian Sea and the Barents Sea. The Norwegian Oil Industry Association (OLF) also commissioned Det Norske Veritas to gather and compare information on differences and similarities between factors such as regulations and procedures related to the petroleum activities in Norway and the US.

Bulgaria Bulgaria’s Deputy Prime Minister recently announced that a final decision on building an oil pipeline that bypasses Turkey’s Bosporus strait will be made after an environmental impact assessment is completed in February. Turkey is using the environmental damage caused by BP Plc’s Gulf of Mexico spill to press its case that oil traffic through the straits is unsafe and potentially dangerous.

UK The UK Department of Energy and Climate Change (DECC) announced that it is recruiting more inspectors so that it can double the rate of its offshore drilling rig inspections. UK Secretary of State Chris Huhne announced that once details are available regarding the cause of the BP blowout, the UK will review new and existing procedures. At the end of May, the industry representative organisation Oil & Gas UK set up a new Oil Spill Prevention and Response Advisory Group (OSPRAG) to review offshore drilling practices in the UK Continental Shelf and to assess the industry’s readiness to respond to a major event in the UK.

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China China National Offshore Oil Corp (CNOOC) has placed an increased focus on safety issues in light of the Deepwater Horizon oil spill. Zhou Shouwei, Vice President of CNOOC, China’s largest offshore oil and gas producer, told China Daily the company “ordered checks on every offshore oil and gas project to ensure safety.” Zhou said the company has invested close to US$73 million since developing the company’s oil leak prevention systems seven years ago. Chinese oil companies will however continue to increase deep water oil and gas exploration activities because of the huge potential it represents.

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SAFETY

Hugh Williams, Chief Executive of IMCA, explains how the vital task of collecting safety statistics enables the association to help its member companies benchmark themselves against the rest of the industry and improve their safety records.

N

o-one would dispute that safety is of paramount importance throughout industry; and that it is constantly striving for “zero incidents”. It is very much the holy grail of the offshore marine contracting industry, with companies determined to recognise and manage risk and constantly improve their safety levels. Our nearly 700 member companies in over 50 countries look to the Intercontinental Marine Contractors Association (IMCA) to provide practical means of achieving ever-higher levels of safety, and guidance to ensure that every part of their operations runs as effectively, efficiently and safely as possible. The drive to greater safety has been strongly and successfully focused over the years. Trade associations, such as IMCA, with its worldwide reach, play their part by publishing statistics for their sector. The focus has always been to major on recording incidents, and thus to enable member companies to benchmark their company against the average of the sector; to benchmark it against the average of a company’s peer group by size; and against other relevant sectors. Each year, with the help of its contractor members, IMCA publishes safety statistics. Those for 2009 have recently been published. The results recorded by IMCA members are consistent with those of the other main industry trade associations such as the International Association of Oil & Gas Producers (OGP), the International Association of Drilling Contractors (IADC), and the International Association of Geophysical Contractors (IAGC). These newly published statistics were drawn from 152 contractor members of IMCA; and are based on 602 million man-hours of work overall (474 million man-hours of them relate to offshore work). Onshore data was provided by 112 of 152 companies (74 percent).

Safety in

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In terms of the man-hours worked, the total was lower than the 2008 figure, although the number of contributors has increased roughly in line with membership, with contributors rising from 129 in 2008 to 152 in 2009. Their input enables us to produce an annual report of safety statistics covering fatalities and injuries. Each member submits their own statistics on a voluntary basis, and these are anonymised and combined into the whole report. Each company is then told where they are on the anonymised list so they can compare their performance against the whole group, against companies of comparable size and against other statistics published by similar industry bodies. Statistics provided by 152 companies and organisations represented a significant fraction of the marine contractor membership. They come from all five of IMCA’s geographical sections and all four technical divisions. Forty-six companies and organisations took part for the first time. We would like to thank all who took part in this important annual benchmarking exercise. Greater membership and greater take up by the members is extraordinarily heartening.

The headline statistics are as follows: Overall lost time injury frequency rate (overall LTIFR)

0.67

Overall number of lost time injuries

395

Overall total recordable injury rate (TRIR)

2.54

Overall fatal accident rate (FAR)

1.00

numbers

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SAFETY

“We must continue to work to alleviate risk and put responsibility with those in charge of every stage of every operation” ‘Fall on the same level’ was the largest direct cause of LTIs in 2009, contributing 29 percent of the incidents. An analysis of direct causes of LTIs on a regional basis shows that amongst North American contributors ‘muscle stress and repetitive movement’ was the most common cause. In recent years we have consistently done more analysis on the cause of incidents (e.g. ‘dropped objects’), and have gathered ‘leading’ incident statistics as well as ‘lagging’. The headline results are similar to last year and indicate that industry efforts have continued to hold incident rates at a lower level than in the past. However, achieving another step change downwards towards an even better result is proving tough to all concerned and thus there remains more to do. IMCA’s SEL (Safety Environment & Legislation) committee undertakes a review of the gathered statistics every year to see if there are trends which identify further actions for the committee’s work programme. We look through both ends of the telescope when gathering statistics and working with member companies to improve their safety record. Th is means looking at the big infrequent events with low probability but high impact, like asset integrity, as well as high probability and low impact incidents. Put simply, this means considering high impact, one-off events, such as explosions, as well as low impact incidents, such as slips and trips, which occur a lot. Both ends of the spectrum need to be addressed.

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We offer guidance and help to devise good procedures to manage asset integrity where incidents in which people could be killed and the asset damaged can be caused by the tiniest of components. There is a wellpublicised case where PLCs caused a devastating chain of events that led to deaths and damage to the asset. IMCA guidance, like the oft-quoted ‘Swiss cheese model’ provides a series of measures that can be put in place to create a ‘safety envelope’ aimed at all types of risks. We are not alone in this work; other organisations such as OGP have also produced guidance in ‘Asset integrity – the key to managing major incident risks’. No doubt the recent BP Gulf of Mexico scenario, responsible for the death of 13 people (11 immediately, and two later on) and environmental devastation will provide many lessons for the industry. We will also play our part in sharing learnings throughout our sector. We must continue to work to alleviate risk and put responsibility with those in charge of every stage of every operation. We cannot get away from the fact that however hard we, and other organisations, work with members, there are still incidents. Therefore IMCA not only publishes good practice guidance (the vast majority of it aimed at helping improve safety in the marine contracting sector) and safety statistics, but also incident reports and analysis and safety flashes (enabling organisations to learn from each other); competence and training publications; and a whole raft of safety promotion materials including videos, posters and pocket cards. Then too there is the annual IMCA Safety Seminar enabling delegates to share information on successful safety initiatives, hazards and lessons learnt from incidents. It is encouraging to fi nd IMCA material in use all around the world – in recent months we have seen ever-greater demand from two important geographic areas that are opening up for our Association, Russia and China – and look forward to working increasingly with organisations in both countries. Everything and anything that improves safety in all offshore operations around the globe is to be applauded, and we continue to work to attempt to reach that ‘zero incidents’ goal. „

13/09/2010 10:57


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08/09/2010 09:56


92

COMMERCIAL DIVING

Sink or Swim Phil Newsum, Executive Director of the Association of Diving Contractors International, explains the need for commercial divers to follow strict health and safety guidelines due to the dangers that are involved. What are the main hazards that face commercial divers working in the oil and gas industry? Phil Newsum. There are many hazards that face our industry. However, there have been many lessons learned that have helped mitigate these identified hazards. The main hazards that have resulted in the greatest number of fatalities and traumatic injuries have come from differential pressure related situations and explosions occurring as a result of underwater burning. Differential pressure (Delta P) situations can present themselves in five different scenarios: when water levels between adjoining areas vary and are attempting to equalise; when water is adjacent to a gaseous void at lower pressure

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than the water pressure; when water is mechanically drawn through intakes or pumps; when water is mechanically drawn towards propellers, or other types of thrusters on ships; and when positive pressure is released from highpressure subsea wells or pipelines. Explosions occurring from underwater burning are a result of hydrogen created as a by-product of the electricity and pure oxygen used in the burning process. When this hydrogen gas is not properly vented away from the arc of the burning torch, it can accumulate. These bubbles bond together, forming a kind of shaped charge. Th is charge does not have to be very large in size to create an explosion powerful enough to be fatal to the diver.

10/09/2010 15:45


COMMERCIAL DIVING 93

Both of these hazards can be properly mitigated by employing the services of trained, experienced and competent personnel. Additionally, the performances of a Risk Assessment Analysis, Pre-job Safety Meetings, and real time Job Safety Analysis (JSA) prior to the commencement of operations are essential towards ensuring that all underwater tasks are conducted with the highest level of safety in mind. What are the main considerations that should be taken into account when designing an effective health and safety programme? In what ways can organisations ensure that health and safety is a way of life, which is embedded in company culture, rather than just a set of rules to be followed? PN. Diving contractors and their clients should have safety programmes that allow for easy interface between both parties. Clear communication and complete understanding between the contractor and the end user is critical. Such things as “STOP WORK” authority should be granted to all personnel involved in the operation. Whether it’s the most junior ranking of personnel or the job’s superintendent, if an unsafe situation is observed, everyone has the authority to call for the suspension of operations. Th is approach should be engrained in the culture of a company, and not just lip service. Posters and other forms of company-wide communication should convey this philosophy. Additionally, those companies that are truly focused on the issue of safety will have employee incentive and recognition programmes. Money should not come at the expense of safety. When a client’s challenges to increased costs for safety are uncontested, personnel will know in very short order what is the true level of a company’s commitment to safe operations.

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How important is it to establish industry-wide safety standards for commercial diving, such as the ADCI Consensus Standards for Commercial Diving Operations, and what are the main advantages of having these international standards? PN. Worldwide standardisation of operational and equipment guidelines is important, but only to the degree that it does not stand in the way of the different external conditions that may or may not impact a certain region. Candidly, the more standardised guidelines and certifications are, the easier it is for clients to access personnel and services for their assets throughout the world. With that being said, there is room for multiple associations and countries to establish operational guidelines and requirements for personnel certifications. The one common thread for all needs to be the consistently safe approach to operations and willingness for mutual reciprocation when it comes to vetted personnel certifications. When there are major differences in the approach to these two issues it can create additional costs for both contractors and clients, as well as slow down projects.

“No test, class, or certification can adequately substitute the exercising of common sense and the recognising the dangers of complacency”

What are the main challenges that you face in trying to get as many nations as possible to sign up to the standards? PN. The biggest challenge is trying to get different regions to understand that higher costs on the front end, to provide for safe manning and equipment levels, do not negatively impact the opportunity to gain greater profits in the long run. Conversely, it is also important for others to understand that simply throwing money at a piece of equipment or having multiple redundancies does not automatically equate to safer operations. Tests and continual training for diving personnel are also important. However, no test, class, or certification can adequately substitute the exercising of common sense and the recognising the dangers of complacency. These two things, combined with the acknowledgement of lessons learned are the most important and basic components of approaching an operation safely.

How can the implementation of an effective health and safety management system help businesses to operate more efficiently whilst adding value? PN. Ironically, what seems to have altered many companies’ approach to safety is that it’s actually cheaper in the long run to invest in safety, than to cut corners. The costs associated with civil suits, replacement of equipment, and the continual turnover of personnel all prove to be higher than the cost of conducting periodic checks of operational readiness (drills), inspection and maintenance of equipment, continual education of personnel, and detailed documentation for each area mentioned. Many clients and operators will conduct audits of the contractors that bid for their contracts. The point system that measures a contractor’s number of Loss-Time-Incidents and fatalities is another major incentive for the increased focus and commitment to safety.

How do you see commercial diving in the oil and gas sector evolving over the next five years or so and what role will technology play in the future? PN. Unlike many, who feel that commercial diving will eventually become a practice of the past, I believe that new technologies will allow for greater safety in the underwater workplace. We are seeing an increase in simultaneous operations of divers and remotely operated vehicles (ROV’s), continually discovering the benefits of having this tool in the water in conjunction with diving operations. We will also continue to see greater applications of side scan sonar for inspection purposes and determining the location of worksites and equipment. Whether performing repairs to an off shore pipeline or cleaning an intake for a power plant, commercial diving, like other industries that are vital to the infrastructure, will continue to evolve and adapt to the times. „

10/09/2010 15:46


94

SURVEYING

Surveying the sea

Offshore surveying is vital for a number of industries in a variety of situations, from ensuring oil rigs are located in the best possible spot to navigating oil tankers through difficult terrains.

A

key hydrographic survey within the Traffic Separation Scheme (TSS) of the Straits of Malacca and Singapore is now underway, as part of the Marine Electronic Highway (MEH) Demonstration Project, a regional project that the International Maritime Organisation (IMO) is executing for the Global Environment Facility (GEF)/World Bank. The purpose is to produce an updated electronic navigation chart of the area. The issues affecting the Straits of Malacca and Singapore are myriad and complex but of particular and immediate concernfor the maritime industry are safety of navigation and the protection of the marine environment from the threat of pollution due to operational discharges of ships and ports, as well as oil and chemical spills due to ship accidents. The MEH Project aims to establish a regional mechanism in the Straits of Malacca and Singapore for enhanced maritime safety and marine environment protection, in a cooperative arrangement with the three littoral States (Indonesia, Malaysia and Singapore) as well as the Republic of Korea, the International Hydrographic Organisation (IHO), the International Chamber of Shipping (ICS) and the International Association of Independent Tanker Owners (INTERTANKO). The demonstration project will link shore-based marine information and communication infrastructure with the corresponding navigational and communication facilities aboard transiting ships, while also being capable of incorporating marine environmental management systems. The MEH is being built on a network of electronic navigational charts using electronic chart display and information systems (ECDIS) and environmental management tools, all combining in an integrated platform covering the region that allows the maximum amount of information to be made available both to ships and shipmasters as well as to shore-based users, such as vessel traffic services.

The overall system – which will also include positioning systems and real-time navigational information like tide and current data, as well as providing meteorological and oceanographic information – is designed to assist in the overall traffic management of the Straits and provide the basis for sound marine environmental protection and management. The specially refitted survey vessel MV ARIGAH ADNI sailed on 10 February 2010 from the Loyang Offshore Supply Base in Singapore to the survey site, with surveyors and crew from GEMS Survey Limited and the MEH Project Oversight Team, which includes six hydrographers from Indonesia (Dinas Hidro Oceanografic Office (DISHIDROS)), Malaysia (National Hydrographic Centre) and Singapore (Maritime and Port Authority of Singapore). The surveyors will use shallow-water multi-beam and side-scan sonar technology to acquire accurate hydrographic survey data, including the location of any obstructions such as wrecks, covering an area of 621.28 square kilometres around the One Fathom Bank area, representing around 14 percent of the total area of the TSS. The target area to be surveyed has a depth of less than 25 metres. Some parts of the target area have been resurveyed at various times between 1972 and 2005, but the survey will provide completely up-to-date data. Calibration of survey instruments and the deployment of tide gauges are currently taking place. Altogether, the survey will take a total of 50 days, including two port calls in Port Klang, Malaysia. The US$2.754 million contract for the hydrographic survey in the Straits was signed on 20 May 2009 between GEMS and IMO, following an international competitive tender process. The funding for the hydrographic survey comes out of a US$6.86 million grant agreement signed in June 2006 between the GEF/World Bank and IMO. „

“The MEH Project aims to establish a regional mechanism for enhanced maritime safety and marine environment protection”

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13/09/2010 10:58


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07/09/2010 09:01


97

CORROSION

CORROSION 97

Coatings for durability Corrosion continues to be a problem in all facets of the oil and gas industry. Tom Bos, a materials and corrosion engineer at Shell, discusses how the coating durability evaluated by electrochemical methods can help.

T

he total annual direct cost of corrosion in the US oil and gas production industry alone is estimated at US$1.4 billion. Fortunately, due to the application of corrosion control methods, the rate at which corrosion processes take place can be reduced, often to a point where, at least temporarily, corrosion is virtually non-existent. One of these corrosion-control methods is barrier protection. The concept of barrier protection is to separate the metal substrate from the corrosive environment. These barriers are frequently applied in the form of coatings. These coatings are integral to protecting Shell’s E&P structures against severe exposure conditions. Two ways to determine the suitability of a coating for a specific environment can be distinguished. The fi rst approach involves the use of so-called accelerated tests. Accelerated testing aims to reproduce, in a much shorter time than in the field, natural degradation processes without changing the degradation mechanism. The second approach utilises sensitive electrochemical techniques such as Electrochemical Impedance Spectroscopy (EIS) to allow early detection of relevant degradation processes under ‘non-accelerated’ conditions.

Accelerated testing The most widely used accelerated test for coating evaluation is the salt spray test. Th is has been true despite severe criticisms this type of testing has received. The constant stress imposed during the test is frequently mentioned as a cause of the poor correlation with field performance. To overcome the deficiencies of continuous salt spray tests, cyclic weathering tests were developed. Incorporation of cycling steps seems intuitively justified, considering that coatings exposed to the outdoor environment undergo similar effects on a frequent basis. Indeed, these tests produce failures more representative of field results. However, attempts to increase the acceleration factor by intensifying the laboratory testing conditions will result in unnatural changes in

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degradation mechanism and accounts for a less realistic comparison with natural weathering. In addition, the visual evaluation techniques used are subjective. The results heavily depend on the ability of the operator to translate a visual observation into a performance rating. In case of highperformance coatings that almost show no visual signs of deterioration after weathering, discrimination between systems is even impossible.

Electrochemical evaluation For EIS evaluation, a small alternating voltage is applied over the coating, while the current response of the system is measured. As impedance is frequency dependent, the frequency of the voltage signal is normally varied from a few millihertz up to the megahertz range. Depending on the frequency range, the measurements take a few minutes up to an hour. EIS data are interpreted with the aid of electrical equivalent circuits. These circuits consist of electrical elements such as resistors and capacitors and are designed to have similar impedance characteristics as the measured impedance data. Ideally, all electrical elements of the circuit are related to specific physical phenomena, which together characterise the system. A resistor, for example, represents the resistance that charge carriers (ions) encounter in the coating. The pioneering work of Bacon, Smith and Rugg determined a direct correlation between coating resistances and the ability of the coating to protect the steel substrate from corrosion. After measuring the electrical resistances of over 300 coating systems, three general classifications, based on a sustained resistance value, were established during this investigation: ‘good’, ’fair’ and ‘poor’. In every case good protection was obtained at resistances higher than 108 Ω·cm2 and poor protection was obtained at resistances lower than 106 Ω·cm2. Although this work identified the relationship between the ionic resistance of the coatings and their ability to protect the substrate, the permeability of other corrosive agents other than ionic species was not considered. Therefore, the results were presented as providing a measure of the likely protection that could

13/09/2010 11:13


98

CORROSION

ence both ionic conductivity and water uptake. The low coating resistance found for system A is related to the high ion mobility in the insufficiently cross1.00E+09 linked network. Both excess resin and hardener will result in higher ion conductivity. Deviations 1.00E+08 from ideal stoichiometry as small 1.1:1 produce notable differences in the cured network. 1.00E+07 There are several advantages EIS has over accelerated testing. Firstly, it is a quantitative 1.00E+06 technique that enables rapid examination of the corrosion protective mechanisms of coatings as 1.00E+05 well as other properties such as the mixing ratio and chemical resistance. 1.00E+04 Secondly, EIS is a sensitive technique that can pick up coating degradation prior to its visual 1.00E+03 manifestation. Th irdly, the technique can also be A1 A2 B1 B2 C1 C2 used for development of new coating formulations, Figure 1: Influence of a zinc silicate primer upon the resistance of the total system. Three systems (A,B,C) are shown. self-healing coatings or nano coatings. Finally, The numbers (1,2) indicate replicates of the same system. The coating resistance of the zinc silicate primer could not availability of portable measurement equipment be resolved and maximum values are given instead. enables in situ coating qualification. However, it should be noted that EIS is not a stand-alone technique. Only when integrated with other techniques be expected from a particular coating rather than proposing a mechanism (measurement of the open circuit potential, visual observation, etc.) and for the protective action of organic coatings. by using sources from literature, can meaningful conclusions be drawn With EIS, the protective properties of coatings can be quantified by about the protective mechanisms of the coatings. EIS is currently applied determining a range of parameters that are related to corrosion protection. for qualification of coatings at selected Shell onshore sites. „ Two examples are silicate binders and epoxies.

1.00E+10

Zinc-rich silicate primer Epoxy topcoat Zinc-rich silicate primer + epoxy topcoat

Zinc-rich silicate primers Compared to epoxies, silicate binders can be pigmented at extremely high levels of zinc dust. Th is simplifies the realisation of metallic zinc-tozinc contact, resulting in superior cathodic protection properties. For E&P applications these coatings are used for topsides and jacket protection in the atmospheric zone. Zinc-rich silicate primers are often coated with one or more topcoats. These topcoats are used to extend the life of the inorganic zinc coating by reducing the rate of zinc depletion through galvanic protection and to protect the primer against physical damage. To determine the influence of zinc-rich silicate primers upon the performance of the total system, three systems have been examined with EIS. The results are shown in Figure 1. Apparently, a synergetic effect – that exists for conventional duplex systems – could also have been confirmed for zinc-rich silicate primers with epoxy top coatings.

Mixing ratio epoxy For (offshore) E&P structures, epoxy coatings are widely used for splash-zone protection and heavy-duty deck protection as well as for the atmospheric zone. Epoxy coatings are usually delivered as two-component materials that must be mixed before use. An epoxy resin should be mixed with a hardener in a fi xed stoichiometric ratio. If there is an excess of either component, a full cross-linked network will not be achieved since some of one or the other component will remain ‘unreacted’ in the polymer network. Th is will result in inferior coating properties. On one occasion, a ‘Bisphenol A’ coating cured with TETA (triethylenetetramine) performed much worse than should be expected for this type of coating. It turned out that an incorrect mixing ratio was used. Therefore, the measurement procedure was repeated using the proper mixing ratio. A proper mixing ratio is very important for the formation of a highly crosslinked network. Deviation from the stoichiometric ratio will influ-

SHELL CORROSION ED P97, 98.indd 98

Shell’s Perdido offshore platform – the world's deepest offshore drilling and production platform – began producing on March 31, 2010

13/09/2010 11:13


FLEXITALIC AD.indd 1

07/09/2010 08:53


100

EXECUTIVE INTERVIEW

Best practice risk based inspection Implementation RBI guru Ron Selva, Engineering Director of PP SIMTECH Solutions, reveals what is RBI Best Practice and how to implement it successfully.

Ron Selva has over 35 years of industry-recognised experience relating to static equipment integrity, with the last 20 years specialising in the development and application of best practice RBI and Fitness-For-Service assessment technologies. He has published many papers on these subjects. He is also a member of several relevant British Standards Technical Committees.

Risk-based inspection implementation (RBI) is still a developing technology. What are the decisive factors to consider for best practice RBI implementation? Ron Selva. RBI implementation is a highly critical process, as it effectively manages through the assigned responsibilities of plant inspection, operations and process engineers the asset integrity safely, reliably and at the most optimum costs throughout a plant’s lifecycle. In order to deliver this, certain aspects must not be compromised, as these are the ‘bottom line’ for implementing RBI successfully. To begin with, RBI technology should be reliable, incorporating best practices, and be userfriendly for plant engineers. Secondly, the RBI team study needs to be thorough. There is no short cut to this task – the required study time must not be compromised. In addition to an RBI engineer and corrosion specialist, the study team must include inspection, operations and process engineers from plant. The study output needs to be reliable and comprehensive, and match plant site objectives. Finally, RBI soft ware needs to comprehensively support the foregoing and be transparent and auditable. For example, compromising the quality of the RBI study by not providing sufficient study time – to reduce project timescales and costs – adversely affects correct identification of active and potential damage mechanisms (DMs) applicable to an item. Th is has a detrimental effect on the confidence that can be placed on the RBI study output, particularly on the risk profi les of DMs and the related inspection interval. As such, the claimed outcomes in improvements in equipment reliability, safety and fi nancial benefits are questionable, as is the management decision to buy into RBI output and implement it in the hope of achieving the claimed benefits.

“RBI technology should be reliable, incorporating best practices, and be user-friendly for plant engineers” Various RBI methodologies are available, including API-581. Each has merits and weaknesses. What is the current industry status on RBI technology? Is there a recommended assessment level? RS. Companies that have implemented RBI report varying outcomes. Consequently, the UK Health and Safety Executive (HSE) issued additional guidance for RBI imple-

PP Simtech.indd 100

mentation to help minimise inconsistencies. The latest API-580:2009 provides guidance for key aspects to be considered for implementing RBI, using Level-1 (qualitative), Level-2 (semi-quantitative) or Level-3 (quantitative) methods. API-581:2008 provides a method of RBI implementation using a Level-3 quantitative approach. In theory, the accuracy, the detailed nature of the assessment and confidence in the results are supposed to increase with the increased level of assessment. Unfortunately, this is not the case in this instance if API-581 methodology is used. Noting that RBI is still a developing technology, the latest API-581 quantitative method has uncertainty in some of the technology used and is not end-user-friendly due to its technical complexity. Critical uncertainties include validity of ‘generic failure frequency data’ in relation to DMs and equipment types; ‘probability of failure’ assessment method; and ‘consequence of failure’ assessment in relation to each DM and its ‘failure mode’. Additionally, not all DMs applicable to a single industry sector are properly covered in API-581 methodology. As per API-580:2009, any of the three assessment levels is acceptable; but plant site must ensure that the RBI methodology provided by the service provider is defendable, user-friendly, detailed, documented, transparent and auditable with the facility for future updates of the initial implementation. Particularly, the selected service provider must have the RBI methodology to reliably assess the ‘probability of failure’ and ‘risk profi les’ of each of the DMs applicable to an item and the implementation must be supported by a comprehensive team study method. Failure to satisfy these important aspects means the confidence in the inspection interval derived for each item is fundamentally questionable. Wider industry experience shows that a Level-2 (semiquantitative) RBI methodology, which satisfies criteria outlined above, plus API-580:2009 and UK HSE guide, supported by a comprehensive multi-discipline team study, proves to deliver the required output and confidence in meeting plant site goals. Due to the fact that API is again considering revamping the API-581:2008 Quantitative RBI (Level-3 methodology), it is recommended to avoid its use until this technology is stabilised and fully approved by the wider RBI service providers and relevant industry sectors, whilst ensuring all the relevant DMs applicable, at least to the refi ning and petrochemical industries, are included in it. However, API-581 is useful for obtaining damage rate and other relevant information on certain DMs when using Level-2 (semi-quantitative) RBI methodology. „

10/09/2010 16:03


Mr Ron Selva Engineering Director

CONTACT

Ms. Anne Pritchard Managing Consultant – Technology Transfer

PPSIMTECH AD.indd 1

PP SIMTECH Solutions Ltd., Enterprise Centre Buildings, Washington Street, Bolton, BL3 5EY, United Kingdom Tel.: 0044 1204 36 56 56 Mobile.: 0044 7710 199 421 Email.: ronselva@ppsimtech.com; annepritchard@ppsimtech.com

07/09/2010 09:06


102

PIPELINE INTEGRITY

Are we doing everything that is needed to ensure the viability of this critical infrastructure? By Chris Fowler

A

fter only five years, a pedestrian walkway over a busy highway collapses. An airplane skin peels off in fl ight and kills one of the fl ight attendants. A water pipeline outside of Washington, DC fails and floods a major road and damages a number of homes and businesses. An aboveground storage tank collapses and releases hundreds of gallons of hazardous liquid, damaging the soil and the environment. An F–18 aircraft is landing, the front landing gear fails, and the plane is lost. What is the common factor in each of these catastrophic failures? Each failed due to corrosion. It was recently determined by the World Corrosion Organization that the annual cost of corrosion is US$2.2 trillion (between three to four percent of the Gross Domestic Product of industrialised nations). We must address this issue today if we want to ensure that these vital assets are available for use in the future. Unfortunately, oil and gas pipelines systems are not immune to this serious problem. A natural gas pipeline ruptures and the resulting gas plume ignites and explodes, killing 12 people. Corrosion is a slow and insidious killer, no matter what the value of the contents in the liquid or gas transmission lines that transport everything from crude oil to refi ned fuels and chemicals. Some pipelines travel a short distance, easily seen from one end to the other; most, however, traverse vast distances both above and below ground. There are growing issues related to stress corrosion, internal corrosion, and external corrosion, any of which can be the cause of, or contribute to, a catastrophic failure.

NACE.indd 102

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PIPELINE INTEGRITY 103

The science of corrosion prevention and mitigation has existed for decades. Th rough the efforts of NACE International, The Corrosion Society, a 65-year-old organisation of 23,000 members in 110 countries based in Houston, Texas, more and more is known each year, and industry standards, training, and inspection protocol offer effective solutions to owners who are demanding a longer life from their pipelines. There is a defi ned science of corrosion that can yield predictable results to extend – some say indefi nitely – the life of a pipeline. Th is is possible, with an effective plan and continuing commitment by all levels of management for corrosion prevention and mitigation practices. Th rough a NACE Technology Gap Analysis released in 2008, it is estimated that the cost of replacing and maintaining pipelines is US$1.1 million per mile. With nearly 500,000 miles of pipelines in use in the United States alone, that cost would exceed an insurmountable US$0.5 trillion. Clearly, the world community must come to terms with corrosion while maintaining pipeline infrastructure. Unprotected or poorly protected pipelines, whether buried in the ground, exposed to the atmosphere, or submerged in water, are susceptible to corrosion. Without proper maintenance, every pipeline system will eventually deteriorate. Many of today’s corrosion problems can be addressed with current technology and with proper application of mitigation methods. Let’s look at tools available to extend pipeline structural life. First, a new inspection regime as part of the pipeline integrity management will provide an opportunity to more fully understand the integrity of the systems and how to ensure pipeline safety. Th is often requires looking beyond the traditional mindset of fi nding and fi xing, moving more toward preventive maintenance. As new standards emerge, so do the tools to understand the integrity of the systems. Among the technology gaps identified in the NACE Gap Analysis were the need to understand how various factors influence corrosion and integrity, how to better detect the onset and extent of corrosion, and how to improve the overall education, training, and public awareness of the influence of corrosion. Once standards are adopted – whether voluntarily or by mandate – the next step in the battle against corrosion is investing in a trained and qualified workforce. The need to educate begins at the top with decision-makers such as chief fi nancial officers, engineering vice presidents, and owners whose important decisions today play a key role in preserving the assets tomorrow. Front-line managers and field personnel, however, all need to be involved in the process if it is to succeed. NACE and its members have developed training to address the issues facing the pipeline industry for those at all levels, many of which lead to world-recognised certifications. These include cathodic protection, one of the key techniques to address pipeline corrosion, and coatings, which most engineers believe is the number one tool to address corrosion. NACE course offerings include:

NACE.indd 103

The annual cost of corrosion is US$2.2 trillion

The cost of replacing and maintaining pipelines is US$1.1 million per mile

• Coating Inspector Programme (three benchmark courses) • Cathodic Protection Training (four courses) • Internal Corrosion Training for Pipelines (two courses: basic and management) • Pipeline Corrosion Integrity Management • Operator Qualification Training (fundamental course for pipeline operators, available on-line; complies with US DOT/PHMSA regulations) All of this plays into the vital role of research and development departments in the pipeline and related industries, which will ultimately provide solutions to the next generation of corrosion-related crises. Today, many of the corrosion problems facing industry can be solved with current solutions and techniques, but as industry continues to push critical infrastructure beyond the original design life, more and better solutions will be needed. Public awareness is also playing an important role as governments must adopt policies to preserve their infrastructure. The good news is that there is a changing mindset about corrosion, albeit slowly. For example, through legislation like the Corrosion Prevention Act pending before the US Congress, and similar actions by other governments throughout the world, corrosion is beginning to win the attention of those who can affect change. The Corrosion Prevention Act, once passed, will provide the energy industry in the United States with a 50 percent tax credit for corrosion work that goes above and beyond regulatory requirements. This is the first step in encouraging industry with financial incentives as they deal with the impact of corrosion. Planning today to mitigate immanent corrosion is vital for the future of critical pipeline assets, as well as the long-term health of the global economy. For those in the pipeline industry, now is the time to consider corrosion prevention. Taking advantage of the available knowledge and training, we can help ensure that the assets we count on today are useful when we need them tomorrow. With such solutions, the efficiency of the world’s oil delivery infrastructure will aid significantly in assuring that whatever the world’s oil supply, it is stretched into a more distant future. „

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104

TECHNOLOGY

IDC ED P104,105,106,108,110.indd 104

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TECHNOLOGY 105

In a recent IDC Energy Insight report, Rick Nicholson, Catherine Madden and Jill Feblowitz discuss the impacts of the BP oil spill on energy policy and regulation and how these changes will affect IT investments by oil and gas companies.

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ith the BP oil spill successfully capped, at least temporarily, and the completion of a relief well in sight, it's time to look forward and assess the impact this disaster will have on energy regulations and policies and, in turn, how these changes will impact IT investments by oil and gas companies. We expect to see broad regulatory and policy changes as the result of the BP oil spill that will significantly increase regulatory requirements related to health, safety and environment (HSE) in the oil and gas industry. These changes are predicted to increase spending by oil and gas companies on a range of technologies, including health, safety and environment systems; enterprise asset management (EAM) systems; application and data integration; and advanced analytics. Ultimately, however, the oil and gas industry must go beyond technology changes and invest in changes to its people and processes to achieve the standards of environmental protection and worker safety demanded by all stakeholders.

Regulatory and policy changes We have already started to see action from Washington D.C., with respect to regulatory and policy changes as a result of the BP oil spill. As is typical when a government agency is implicated in some disaster, someone associated with the problem is sacrificed to prove that the government is taking action. Th is happened in May when Elizabeth Birnbaum, Director of the Minerals Management Service (MMS), the bureau tasked with managing the offshore oil and gas resources in the US, "resigned". The following month, Michael Bromwich was sworn in as the Director of the newly renamed Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE).

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However, this bureau is still responsible for both regulating the offshore oil and gas industry and collecting an average of US$13.7 billion per year in revenue from federal offshore leases. As stated in a IDC Energy Insights blog post titled ‘Regulation in a Post-BP Oil Spill World,’ an “expected organisational change is the separation of government regulation into two or more regulatory authorities. One would focus on health, safety, and environment (HSE) regulation and the other would be tasked with hydrocarbon management. “The HSE regulator, although pressured by the government and the public to ensure that another BP-style disaster doesn't happen, [should] focus more on disaster recovery regulation [in the near term] since this area is lagging and because it is impossible to completely prevent accidents from occurring. [Ultimately, the oil and gas industry should follow the example set by the airline industry, which has a culture and regulations that are aimed at zero errors.] The hydrocarbon management body [should] be tasked with ensuring that exploration and production plans (the way an oil and gas company will develop a field) are consistent with government policy and goals. By splitting these two areas of responsibility, confl icts of interest between the desire to maximise production and the need to protect workers and the environment can be minimised.” In addition to the changes at the former MMS, the Obama administration recently announced the creation of a new National Ocean Policy that, according to a press release by the Pew Environment Group, “provides a way to unify the more than 140 federal laws and dozens of federal agencies that have some jurisdiction over US waters in the Pacific and Atlantic oceans.” The executive order also establishes a National Ocean Council to oversee policy implementation. It is expected that establishment of the policy and the council will lead to “more thorough and balanced assessment of the costs and benefits of marine activities, [...] better siting decisions for offshore development, minimisation of risks to fish and wildlife, and better management of unavoidable risks.” Onshore drilling activities will be impacted as well, as evidenced by the increasing interest by government at the federal and state levels in the health, safety and environmental impact of the chemicals used in hydraulic fracturing or “fracking” associated with natural gas wells. Henry Waxman, chair of the congressional Energy and Commerce Committee, and subcommittee chair Ed Markey have already sent letters to the 10 largest US natural gas producers, asking them to submit “a list of all oil and gas wells for which your company performed or hired another company to perform hydraulic fracturing in 2008 and 2009 and for which that hydraulic fracturing occurred in, near, or above an underground source of drinking water as defi ned by the Safe Drinking Water Act.” Th is is only the beginning – we expect to see additional broad federal and state regulatory and policy changes as the result of the BP oil spill that will significantly increase regulatory requirements related to health, safety and environment in the oil and gas industry. These changes will in

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turn drive increased investment by oil and gas companies on a range of technologies including health, safety and environment systems; enterprise asset management systems; application and data integration; and advanced analytics.

Impact on HSE and EAM systems Although the full investigation has not been completed, safety inspection and maintenance practices were very likely involved in contributing to the Deepwater Horizon blowout and subsequent oil spill. According to an article in The New York Times on July 21, 2010, Transocean “commissioned a 112-page equipment assessment [which] found that many key components – including the blowout preventer rams and failsafe valves – had not been fully inspected since 2000, even though guidelines require its inspection every three to five years. Transocean-commissioned reports obtained by The Times echo the fi ndings of a maintenance audit conducted by BP in September 2009. The 2009 BP audit found that Transocean had left 390 maintenance jobs undone, requiring more than 3500 hours of work. The BP audit also referred to the amount of deferred work as excessive.” HSE systems include a broad set of applications and technologies that cater to the HSE business needs of the oil and gas industry. Primarily, these systems automate the management of structured and unstructured HSE data and facilitate the necessary flow of HSE-related compliance actions, such as inspections and reporting. More sophisticated systems include enterprise operations risk management applications that aid asset and worker safety. HSE technologies also refer to instrumentation and supporting soft ware that aid measurement and remediation activities

“We expect to see additional broad federal and state regulatory and policy changes as the result of the BP oil spill that will significantly increase regulatory requirements related to health, safety and environment” related to ground, water and atmospheric leaks. GIS and GPS systems, as well as preventive asset management, play an important role in promoting HSE initiatives. HSE applications are typically considered a subset of governance, risk and compliance (GRC) applications that automate and document processes pertaining to the defi nition, assessment and verification of business controls and operational risk at the company level. Enterprise GRC soft ware includes fi nancial compliance management, audit management, corporate policy and procedure management, risk management and enterprise continuous controls monitoring. We expect new regulatory requirements resulting from the BP oil spill to drive increased investment by oil and gas

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companies in HSE system enhancements, upgrades and replacements. Worldwide spending by oil and gas companies on HSE soft ware is predicted to top $131 million in 2010. The expected regulatory changes could potentially double the growth rate of spending on these applications during the next two to three years. Soft ware vendors that could benefit from this increased spending include SAP, IHS, Enviance and Syntex. Other systems that play a role in supporting health, safety and environment in the oil and gas industry include EAM applications. While HSE systems track compliance and safety inspections, EAM applications track maintenance and related inspections on individual pieces of equipment. Essentially, EAM systems are used to manage physical assets such as rigs, plants and pipelines; the work performed on those assets; and the resources required to perform the work. Worldwide spending by oil and gas companies on work and asset management soft ware, which includes EAM, is predicted to be US$297 million in 2010. Expected regulatory changes may accelerate the upgrade of work and asset management systems, thus increasing the growth rate in spending. Soft ware vendors that could benefit are IBM, Oracle, SAP,and ABB(via its recent acquisition of Ventyx).

Impact on application and data integration The oil and gas industry, especially the upstream segment, has historically struggled to overcome ‘silos’ of segregated data and applications that are not integrated and therefore fail to achieve integrity and do not maximise business value. For example, to be truly effective in helping oil and gas companies manage governance, risk and

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compliance, HSE applications must be integrated with a variety of other systems including ERP systems, EAM applications, energy trading and risk management (ETRM) applications, supply chain management applications and real-time data historians. Application integration can be addressed in a number of ways but is typically approached through the use of integration and process automation middleware. Th is soft ware includes tools used by developers, business analysts and administrators to automate processes, create and deploy process-centric applications, integrate applications, exchange data among enterprises, and monitor the business and process performance of these applications and automated processes. We believe that oil and gas companies will increase their investments in integration and process automation middleware in response to the application integration issues raised by the BP oil spill. Soft ware vendors that could benefit from this increased spending include IBM, Oracle, SAP and TIBCO. Consulting and system integration fi rms are also likely to benefit from this increased spending. The top IT service vendors in the oil and gas industry include Accenture, Capgemini, CSC, Deloitte, IBM, Infosys, Logica, SAIC, Tata Consultancy Services (TCS) and Wipro. Application integration does not, however, solve all integration problems. Data integration is the other major integration issue facing oil and gas companies. According to Energistics, a global consortium that facilitates the development, management and adoption of data exchange standards for the upstream oil and gas industry, “Digital oilfield technology is hampered by incompatible data formats, preventing it from being fully implemented and real-

Worldwide spending by oil and gas companies on HSE software is predicted to top $131 million in 2010

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ising the value to solve E&P business challenges. “The use of data exchange standards by all stakeholders in upstream projects, including oil and gas companies like BP and service companies like Transocean and Haliburton, enables the interoperability between various digital oilfield technologies. We believe that adoption of data exchange standards, especially WITSML for drilling data and PRODML for production data, will increase as a result of the BP oil spill. It is even possible that the federal government will mandate the adoption of such standards.

Impact on advanced analytics Advanced analytics soft ware includes data mining and statistical soft ware. It uses technologies such as neural networks, rule induction, and clustering among others, to discover relationships in data and make predictions that are hidden, not apparent, or too complex to be extracted using query, reporting and multidimensional analysis soft ware. Th is market also includes a specialised form of statistical soft ware focused on functional areas such as the industrial design of experiments, clinical trial testing, exploratory data analysis, and high-volume and real-time statistical analysis. Due to the tremendous complexity of deepwater offshore drilling, it is becoming increasingly difficult for human operators to predict and respond to problems as they occur. Advanced analytics, especially predictive analytics and real-time or streaming analytics, can help address this issue. For example, in an article in Issue 24 of the Digital Energy Journal, CSC and Oracle discuss the development of a petroleum enterprise intelligence system that “provides dashboards, KPIs, performance metrics,and statistical analytics. Future releases will include predictive analytics, business process management and data mining.” Another example is provided in a paper presented by C. Piovesan of APO Offshore and J. Kozman of CLTech Consulting at the 2009 SPE Annual Technical Conference, which describes the use of advanced technologies to manage offshore assets with goals to “reduce equipment downtime and personnel-on-board requirements while increasing reliability, safety, regulatory compliance and environmental responsibility.” The technologies include advanced analytics such as neural networks, self-organising maps, data mining and predictive analytics. A third leading indicator is provided by work being conducted by HP Labs as part of its ‘big bet’ on analytics for operations. As part of this work, HP Labs has been developing and testing a live business intelligence platform using data from downhole oil well sensors. The platform mines historical data to identify patterns and discover root causes of problems. It then compares streaming data against the mined data in real time to generate alerts for operators. In 2008, BP completed a fiber-optic cable that links seven platforms in the Gulf of Mexico with onshore staff. The fiber-optic cable has the ability to deliver up to 10Gbps of connectivity to BP platforms with a latency of less than 20ms, and BP indicated that the system showed an 80 per-

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“Lessons learned from the BP oil spill will drive increased investment by oil and gas companies in advanced analytics” cent reduction in application response time versus the existing satellite communications. Th is level of connectivity could support the use of real-time analytics and potentially the ability to manage an asset from an onshore location. We believe that regulators and policy-makers will at least explore the possibility for oil and gas companies to manage their offshore assets from onshore locations. We also expect that lessons learned from the BP oil spill will drive increased investment by oil and gas companies in advanced analytics. Enterprise soft ware vendors that could benefit from this increased spending include SAS, IBM, TIBCO and Teradata. Certain specialty vendors that focus on the oil and gas industry such as SmartSignal and Tessella may also benefit. Although regulatory change is important, will be imminent, and will increase the level of industry oversight, it also needs to ensure that critical decisions and actions are captured and monitored to help prevent future disasters. A significant factor in this catastrophe has been operational decisions. There needs to be a fundamental shift in the approach to drilling that allows for a more holistic view of operations and greater transparency regarding the impact of decisions across the value chain. In our opinion, HSE has been an organisational function that has been focused almost exclusively on compliance versus prevention. IDC Energy Insights believes that the following three areas should not be overlooked by the industry: operations, best practices and industry culture. A more transparent as well as more holistic view of operational decision-making supports a better view on how multiple inputs impact a fi nal outcome. Th is end-to-end view may include the integration of operational decisions with aspects of HSE. A single decision by an engineer or operator may not violate any safety conditions, but the aggregation of decisions may elevate the risk of safety violations. The holistic view could ensure that human decisions don’t override potentially dangerous conditions. Second, the oil and gas industry already has experience operating in areas that are highly regulated, such as the North Slope of Alaska, where environmental conditions drive heavy regulation. Tight regulations are in place for construction of facilities, tank farms and pipelines, and most actions steps need approval from an inspector before proceeding to the next stage. Incorporating what we the industry have already learned to other areas such as operational decisions could mitigate risk and reduce the opportunity for human error. Finally, the culture of the industry needs to move to zero tolerance from highest levels to throughout operations. „

Spending by oil and gas companies on work and asset Factiod?? management software will be US$297 million in 2010

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As natural gas becomes a bigger player in the energy mix, the Middle East’s abundant supplies will be in hot demand. Malcolm Brinded, Executive Director of Upstream International at Shell, explains why natural gas is altering the region’s energy landscape and assesses the challenges that lie ahead.

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T “The Middle East currently supplies around a fifth of world cross-border LNG trade. And it is expected to deliver over half of new LNG supply to 2015”

he Middle East and North Africa region has over 40 percent of the world’s proven gas reserves and, with scope for new discoveries, it is set to play a pivotal role in the global LNG market. At the same time, domestic demand is burgeoning – fuelled by economic growth, low gas prices, and a gradual switch from oil to gas for power generation. As a result, some Middle East countries face natural gas shortages. Th is is the puzzle that needs to be solved. Global gas demand is likely to grow by around two percent per year, probably for several decades. By 2030, we’re looking at up to 4.5 trillion cubic metres (tcm) of gas per year, compared with 3.1 tcm today. That’s a rise of almost 50 percent. Most of this demand growth will come from the electricity sector, where increased reliance on natural gas is an affordable and fast route to lower CO2 emissions. A modern gas plant emits only half the CO2 of a modern coal plant, and 70 percent less than decades-old steam turbine coal plants, of which there are still hundreds in operation in North America, Europe and China. Many of these will be decommissioned in the next five to 15 years. In deciding what replaces all that old coal capacity, governments and utilities are beginning to realise that natural gas capacity is both faster and cheaper to install than other new-build sources of electricity – and much easier to link into intermittent wind or solar electricity than either coal or nuclear.

Turn up the gas In principle there’s enough gas around. The International Energy Agency (IEA) in its latest outlook speaks of total technically recoverable gas resources worth 250 years of current global production. It will cost a lot of money to get enough gas out of the ground. According to the IEA, to grow supplies by 40 percent over the next 20 years, cumulative global investment of some US$5 trillion will be needed (or US$250 billion a year). But to realise this, the industry will have to use an array of innovative production methods. Over the next decade, technological advances will further accelerate the expansion in unconventional gas production, which has already proved to be such a gamechanger in North America. By 2020, our industry will be producing from shale gas, coal bed methane, tight gas and sour gas resources in a host of new locations beyond North America. To see the direction of travel, you only have to look at China. As China seeks to diversify its energy supply, the government has thrown its weight behind natural gas. It aims to more than double its share of the primary energy mix to around the eight to 10 percent mark by 2020. Tens of thousands of kilometres of new pipelines are planned. The result will be a more flexible and integrated gas market, allowing China to import more LNG, in addition to pipeline gas from Central Asia and Russia. China’s annual gas demand – which stands at around 100 billion cubic metres today – is likely to double, and could even triple by 2020. As a result, China will likely overtake Japan as the largest gas market in Asia by 2015. LNG imports into China are likely to grow fast. To date, China has contracted some 25 to 30 million tonnes per annum (mtpa), and I

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expect that some 20 mtpa more will have been contracted within three or four years for deliveries later in the decade. Developments in China are part of a broader story of rising demand for LNG. Despite the difficult LNG shortterm market we have today, world-wide LNG demand is likely to grow – and grow much faster than overall gas demand. In fact, it could double this decade. Th is growth will be driven not only by China, but also by Europe’s growing import dependency, and by a host of countries in Asia that will begin importing LNG, including Indonesia, Malaysia, Thailand, Singapore and Pakistan, and here in the Middle East, Kuwait, Dubai and Bahrain. And why this focus on LNG? It’s because LNG offers unique supply security advantages because of its flexibility. Unlike pipelines, LNG ships can follow demand as it shift s and fluctuates around the world. Right now, supplies are growing at the rate of around six to eight percent per year, around three times the rate of natural gas overall. And the number of LNG exporters is likely to increase by nearly one third by 2015. So between now and 2030, the global natural gas story is one of surging demand, massive investment, tremendous innovation, and rapid globalisation of LNG.

MENA: the gas export opportunity Where does this leave the Middle East? Th ree of the world’s top four gas reserve holders are here: Qatar, Iran and Saudi Arabia. The Middle East currently supplies

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China’s annual gas demand is currently 100 billion cubic metres

To grow supplies by 40% over the next 20 years will require US$5 trillion of investments

around a fi ft h of world cross-border LNG trade. And it is expected to deliver over half of new LNG supply to 2015, driven by growth in Qatar, Egypt and Libya and, in addition, nearly all new global GTL supply. Shell has been involved in the region’s LNG exporting industry from the beginning. In 1964, the world’s fi rst commercial natural gas liquefaction plant came on stream in Algeria, using Shell technology. That same year, Shell undertook the management of the fi rst two LNG ships ever built. My cousin was actually Chief Engineer on one of them, the Methane Princess. Today, we have involvement in around a quarter of the global LNG fleet. In Oman we have been involved in exporting LNG as a partner in Oman LNG (OLNG) since 2000, and through OLNG as a partner in Qalhat LNG, a project that was added five years later, under construction management by Shell. Both projects have excellent track records. In Qatar, Shell has a 30 percent stake in a joint venture with Qatargas, known as Qatargas 4. LNG from the plant will go to China, Dubai and the United States. And we are working hard to send even more gas towards the East. We’re also happy at our role working with the Qatargas transport company, Nakilat, in operating and maintaining their fleet of 25 new-built LNG vessels. In Qatar, we are also building our flagship GTL (gasto-liquids) project – Pearl GTL. When fi nished, it will be the world’s largest GTL plant. Currently, more than 50,000

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workers from 60 nations are at work on a site the size of 350 football fields, one of the world’s largest industrial developments. Gas-to-liquids technology will take gas into new markets. Pearl GTL will produce enough GTL fuel to fi ll over 160,000 cars a day and enough synthetic base oil each year to make lubricants for more than 225 million cars. Last year, we secured approval for the use of GTL kerosene blend in commercial aircraft , only the fourth time in 100 years of aviation history that a new fuel has been so approved. Shortly afterwards, Qatar Airways flew the first GTL-fuelled commercial airliner, from London to Doha, with paying passengers. In short, there are plenty of opportunities in the global gas market. But these global opportunities represent only one side of the coin. The other side is domestic demand growth in the Middle East itself. The region’s strong economy is driving local gas demand higher. More gas will be needed for the switch from oil to gas in the power sector, for a growing industrial sector, and for injection into oil reservoirs to enhance oil recovery. As a result, the region’s gas consumption is predicted to grow by about five percent per annum, similar to that of China, and twice as fast as that of the major European economies. Which brings me to the question of how to solve the Middle East’s gas puzzle of resource abundance, export opportunities and rising domestic demand. I believe the solution has three crucial elements: • Increasing natural gas supplies through exploration and development; • Expanding the region’s natural gas and LNG infrastructure; • Adjustment of the region’s gas pricing policies. One reason for the imbalance is that natural gas in the Middle East is not distributed evenly and a lot of it is difficult to access. Of the currently known accumulations totaling more than 70tcm (~2500 tcf), almost 80 percent is in two countries, Iran and Qatar. Of the remaining volume outside these two countries, around 70 percent is in associated gas accumulations. Associated gas is tied to oil production so its use is not flexible. If oil production quotas go down, then a country dependent upon associated gas can fi nd itself gas short. Conversely, if oil production increases, that country must fi nd something to do with the gas. Th is sounds like a nice problem to have but in reality it isn’t so easy, as is evidenced by the amount of gas that is flared. There is of course real value in capturing associated gas instead of flaring it. Iraq is a case in point. We signed a provisional Heads of Agreement with the Iraqi Ministry of Oil in 2008, setting out the commercial principles to establish a JV with the aim of capturing and processing natural gas in southern Iraq that otherwise gets flared. By the end of 2009, projects jointly executed by Shell and South Gas Company had already resulted in 135 million cubic feet per day of gas and 500 tonnes per day of LPG (liquefied petroleum gas) being gathered that was previ-

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ously flared. Even before any binding deal was in place. Th is represents 20 percent of the currently flared gas, and over a third of the current Iraqi LPG import requirements. Gathering associated gas is important, but won’t be enough to satisfy the region’s long-term gas requirements.

From gas to liquid The second element to solving the gas puzzle is to continue investing in the infrastructure that enables countries with a gas deficit to import their needs. In that context, LNG is an interesting option. By investing in LNG regasification terminals, countries can tap into the fast-globalising LNG market and diversify their gas supplies. Regasification terminals can be built rapidly, in three years or less. And thanks to the freedom of the seas they do not require the same bilateral agreements on which cross-border pipelines depend. Who would have predicted only five years ago that one of the very fi rst LNG cargos from the Sakhalin II project in eastern Russia would be delivered to Kuwait? Dubai currently has a regas terminal under construction and will probably be the second country in the region to import LNG. Bahrain is likely to follow. The Gulf region’s market is attractive for exporters because

Shell’s major gas projects in Qatar Once complete, this integrated gas Pearl GTL project will be the world’s largest plant converting natural gas in n 140,000 barrels per day of clean-burning transport fuel and other products. It will also produce 120,000 barrels of oil equivalent per day of natural gas liquids and ethane. During its lifetime, the Pearl GTL will process three billion barrels of oil equivalent from the world’s largest single non-associated gas field, the North field. This field, which stretches from Qatar’s coast out into the Gulf, contains more than 900 trillion cubic feet of gas, about 15 percent of worldwide gas resources. Construction work began on the project in 2006 and has now reached the testing stage. Meanwhile, Qatargas 4 is Shell’s first entry into Qatar’s LNG sector. The project is 70 percent owned by Qatar Petroleum while Shell holds the remaining 30 percent. A single LNG train is expected to yield around 7.8 million tonnes of LNG per annum. Qatargas 4 LNG will be shipped to the Elba Island regasification facility in Georgia in the United States and to terminals in China and Dubai.

Number cruncher: Pearl GTL • 2 million tonnes of equipment and materials imported to the Pearl GTL site • 48,000 staff working on the project • At the peak of construction, Pearl GTL installed enough steel and pipes to build 2.5 Eiffel Towers every month. • The control room houses 1000 control cabinets hosting 179 servers programmed with 12 million lines of software code • The system is linked by 5850 kilometres of control cables which laid end-toend would stretch from Doha to London.

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“As the countries in the Middle East ponder their energy future, I am convinced that they will conclude that natural gas has many benefits and could change the region’s energy landscape”

of its anti-cyclical nature. GCC countries require LNG in the summer – for air conditioning and cooling – when demand in Europe and Asia is low. So in addition to fi nding and developing more gas supply, we need more investment in regional infrastructure, including and in particular for LNG. A common factor to unlock both the domestic gas and LNG potential is the tricky question of gas price. Part of the reason for the gas supply challenge in this region is a history of low natural gas pricing. There have been times when regional gas prices were a fi ft h of the gas price of the UK and US, a tenth of gas prices in the Far East and less than one-twelft h of the energy equivalent price of oil. While the availability of cheap gas has helped drive industrial growth and keep inflation low, it has also encouraged relatively high per capita consumption of energy and water. Some countries – mainly net gas exporters – can subsidise domestic gas with the income from exports. But other countries are only likely to attract imports at competitive export prices. So I’m not surprised that countries in the Middle East are increasingly seeking to develop energy policies that promote energy efficiency and conservation – as a way to keep open options for future generations. Part of such an approach could be for industrial users to pay gas prices that reflect the increasing cost of more difficult domestic gas production and the increasing proportion of supplies coming from imports. Egypt has done exactly that: in May 2008, the Egyptian government announced an increase in the price of natural gas to energy intensive industries by nearly 60 percent. Th is resulted in significant cuts in the government’s energy subsidy bill. As we look to the future, policymakers in the Middle East face a fascinating gas puzzle.The global gas market offers opportunities for exporters to capitalise on their resources. At the same time, there is a growing local market for gas. And a growing number of countries will have to increase gas imports to meet their domestic needs. Strong partnerships between NOCs and IOCs will be needed for deploying the technologies to increase domestic gas production. These partnerships will also be important in moving gas out of the region, into the region, or across the region, as LNG, GTL or through pipelines. NOCs can benefit through these partnerships from existing positions of the IOCs in the gas value chain. But that in itself won’t be enough: to fully realise the region’s gas potential, it would help if gas prices began to reflect global trends. Natural gas is the cleanest-burning fossil fuel and has many other advantages that make it a highly attractive fuel for the electricity sector. These benefits of gas are important to policy makers in Europe and Asia, especially China, as they move to increase their countries’ reliance on natural gas through long-term LNG supply deals. As the countries in the Middle East ponder their energy future, I am convinced that they will conclude that natural gas has many benefits and could change the region’s energy landscape – and quite literally help clear the air. „ This is article is based on a speech delivered at the Middle East Gas & Petroleum Conference in Kuwait. „

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Fine times? As refining in the Middle East looks set to take flight, O&G asks what effect this will have on the future of the global refining industry.

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he global refining sector, due to its capital-intensive nature, is a cyclical industry and has in the past been prone to boom and bust. For the fi rst few years of this century, it appeared to be experiencing what the oil and gas research team of one of the world’s largest investment banks referred to in 2002 as the “Golden Age of Refi ning.” Whilst this bullish outlook did hold true for some time, it was rather short-lived. In the fi rst half of 2008, the industry fell from grace and prompted another large investment bank to herald what it called the “Dark Ages” of the refi ning industry. Exhilaration turned to desperation as the economic downturn took hold

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and the industry found itself faced with rising crude oil prices, uncertain product demand, decreasing margins and with a surplus of refi ning capacity, all of which have hit profits hard. These developments have combined to cast a shadow of uncertainty over the future of the industry – a future that has been further threatened by the changing energy landscape. According to a recent report from the International Energy Agency, in the 30 developed countries that comprise the OECD, demand for oil products has fallen from a peak of 49.5 million bpd in 2006 to an estimated 45.4 million bpd for 2010. Yet total global demand has jumped from 85.3 million bpd in 2006 to 86.6 million bpd in 2010. Th is proves that any

growth we are experiencing in oil demand is coming predominantly from the developing world, notably China. Whilst developing countries experience this growth, developed economies are suffering a drop in demand. In 2006, the developed world was consuming 58 percent of oil product demand, compared with 52 percent in 2010. Th is can be attributed to the fact that new legislation pertaining to climate change and environmental protection has promoted the use of alternative fuels, such as biofuels and natural gas, which could potentially displace oil use in many spheres, particularly transportation. Regulators will therefore play an important role in the future of the refi ning industry and their decisions will impact refi ning margins. The short-term effects of the development of alternative fuels may not be particularly noteworthy given the lengthy periods needed to replace vehicle fleets for example. However,

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the long-term consequences could be profound as these potentially game changing developments come into play putting increasing pressure on refi ning margins. In light of these evolutions, many refi neries, particularly in the US are being forced to close as companies take the decision to divest themselves of their non-profitable assets and free up resources which could be spent elsewhere. Whilst the future remains uncertain, most international oil companies are at least tending to reduce or cancel their investments in the refi ning business. Meanwhile, national oil companies are forging ahead with refinery projects as part of their long-term strategic objectives. National oil companies in the Middle East, China and India, in particular, are planning to boost domestic production and are therefore looking to introduce new refi neries and expand existing ones. Certainly, with the Middle East’s vast crude resources, strong cash reserves and strong government support, there is the potential for the region to become a global refi ning hub. A 2010 report published by GBI Research and entitled The Future of the Global Refining Industry to 2015 – Benefitting from National Oil Companies’ Growth outlines how the regulatory constraints preventing the construction of greenfield refineries in North America and Europe will allow the Middle East to become a major petroleum product supplier to these countries rather than just being a supplier of crude. However, the commissioning of new refi neries in countries like India, China, Vietnam, Algeria and Qatar has led to refi nery throughput decreasing globally. Further decreases may well be foreseeable as OPEC Secretary General, Abdalla Salem El-Badri recently said that member countries were still investing in the industry despite the uncertainties and the price volatility. At the seventh ministerial meeting of the European Union/OPEC Energy Dialogue, in Brussels at the end of June, El-Badri told the meeting that, in 2009, around 30 projects came onstream in OPEC member countries, resulting in an increase of 1.5 million bpd in net crude and liquids capacity. He added that over the next five years the completion of another 140 projects was expected to add about 12 million bpd of gross crude and liquid capacity. El-Badri also said that it was important to note that OPEC Member Countries were not just concerned with upstream activities and had also been taking the initiative to invest downstream where appropriate. Over the next decade, El-Badri said that OPEC Member

Countries were expected to invest around US$40 billion in refi ning capacity expansion. With such substantial new refi ning capacity due to come online over the next few years, it is inevitable that increases in oil demand will be exceeded. In the period between 2009 and 2012, global refi ning capacity is expected to grow by approximately nine million bpd; in comparison demand growth is likely to be about three to four million bpd. Analysts at Deutsche Bank have termed this “refi ning Darwinism – survival of the fittest.” For an industry that has been historically plagued by the lure of incremental economics, the gloomy outlook seems set to continue into 2011, according to the International Energy Agency. In a 2008 report entitled Refining Trends: Th e Golden Age Or the Eye of the Storm? Part IV: Tough Choices Booz & Company offered some words of advice to those working in the refi ning industry: “Given the impact of regulatory changes in the refi ning industry, it is important for refi ners to monitor the signposts of impending change, remain strategically flexible, diversify portfolios, and be aware that yesterday’s planning may not suit the world that sits before us.” „

Project spotlight Just one of the latest refining projects in the MENA region, The Egyptian Refining Company’s ambitious US$3.7 billion greenfield second-stage oil refinery in the Greater Cairo Area is due for completion in 2015. A US$2.6 billion debt package has been signed to finance construction of the plant, which will eventually produce over four million tonnes of refined products per year, including over 2.3 million tonnes of EURO V diesel, the cleanest fuel of its type in the world. The refinery will sell its production to the state-owned Egyptian General Petroleum Corporation (EGPC) under a 25-year offtake agreement at international prices.

90 Global oil demand and refining capacity

88 86 CDU Capacity Demand

84 82 80 78 76 74 72 70

1996

1997

1998

1999

2000

2001

2002 2003

2004 2005

2006

2007

2008 2009 2010

Source: Ernst & Young calculations from Oil & Gas Journal and International Energy Agency data

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EXECUTIVE INTERVIEW 121

Asset integrity Stanley Deighton, Business Manager for Stork Middle East, reveals an innovative approach to guaranteeing the continuous safety and integrity of assets within the oil and gas industry.

Stanley Deighton has spent most of his working time in the Middle East dealing with issues around asset integrity. As a well-known lecturer he is seen as one of the authorities in the field of IEC 61508 functional safety. He started his career as an integrity engineer and not long after started his consultancy job in Kuwait, Oman, Abu Dhabi, Dubai and Qatar. Now a manager for Stork in the Middle East, all projects related to integrity for the coming 20 years are his ultimate challenges.

With the ageing infrastructure in most of the oil and gas plants in the Middle East, maintaining asset integrity is a major challenge. How can we be prepared to deal with unforeseen major and complex breakdowns that would surely jeopardise safety and production? Stanley Deighton. Looking into the future, a decision could be made to optimise the five-year business plans dealing with replacement or major overhauls. Reliability assessment using degradation data has become a significant approach to evaluating the reliability and safety of critical systems. A challenge for asset replacement is when to replace equipment without spending too early or jeopardising safety through late investment. Within the oil and gas industry, there are many reliability databases available to predict failures. However, these databases only supply acceptable reliability figures to make design calculations based on constant failure rates. When considering remnant life, the use of constant failure rates for any end of life prediction is not valid. Knowing the future will help to be prepared, but how can we predict the end of life situation? SD. Comparable to weather prediction, any short-term prediction is likely to be more accurate then the long-term prediction. Short-term predictions are generally based on the actual status of the system, which is the result of the history of usage, maintenance and environment. The older a system is, the nearer the end of life moment will occur and so the better the end of life forecast can be. Combining initial life expectation with physics of failures and actual health status will deliver the best predictions for the end of life situation. The approach is based on the identification of potential failure modes, failure mechanisms and failure sites for the product at a particular lifecycle loading condition. The stress at each failure site is obtained as a function of both the loading conditions and the product geometry and material properties. Lifecycle loads of a product can arise from manufacturing, shipment, storage, handling, operating and non-operating conditions. The lifecycle loads (thermal, mechanical, chemical, electrical and so on), either individually or in various combinations, may lead to performance or physical degradation of the product and reduce its service life.

or time-dependent. The term ageing refers to an internal process in systems where gradual degradation occurs, thus it brings the systems closer to failure. However, forced degradation is external to systems, where its loading gradually increases in response to increased demand so that a point is reached beyond which the systems can no longer safely carry the load. To deal with all the relevant data we use our SIAS expert system. This system combines experience-based approaches, model-based approaches, knowledge-based approaches, and data-driven approaches to determine the right prediction. The SIAS system includes the life calculation algorithms that are known and supported by many international standards. Using this system with an easy connectivity to the client’s maintenance management systems means most of the data can be treated automatically. What benefit will knowing the remaining life of their asset bring for your clients? SD. For the shareholders it will be the best basis for the calculation of the needed investment in the coming 20 years in order to make a proper analysis of their expected revenue. For the plant managers it will ensure that their asset base is fit for purpose for the next 20 years and beyond. It will minimise risk from unplanned production downtime, high-unplanned Capex, and negative impact on health and safety performance. But the most important benefit will be the continuous assurance of the safety of all operational plant staff in the field. „

Looking at the enormous sizes of oil and gas plants, there is probably a lot of data to deal with? SD. Yes, but basically there are two types of degradation: natural and forced degradation. Natural degradation is age

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122

COUNTRY FOCUS

With Iran shackled by yet more sanctions and nudged further into international isolation, Joaquím Schmidt examines what effect these tough measures will have on the country’s oil and gas industry.

T

he oil and gas sector is the lifeblood of the Islamic Republic of Iran, a country that boasts some of the largest proven reserves in the world – 138 billion barrels and more than 1000 trillion cubic feet of natural gas. Energy accounts for more than 50 percent of revenues while Iran is OPEC’s second largest oil producer and exporter behind Saudi Arabia and holds 10 percent of global reserves. Despite the country being awash with hydrocarbons, production is stifled by a severe shortage of refineries. Indeed, Iran is forced to import 40 percent of the petrol it needs to keep the nation mobile. To make matters worse, the European Union recently implemented tough new sanctions on Iran in a bid to curtail its nuclear ambitions, which will impact an oil industry that accounts for around 80 percent of the country’s exports. The EU is Iran’s top trading partner and had been reluctant in the past to go this far – until now. Tehran claims its uranium enrichment programme exists for a perfectly innocent reason – electricity production to feed domestic consumption – but a sceptical US believes atomic bombs are being produced. And they are not alone. The Russian President, Dmitry Medvedev, recently said that, “it is obvious Iran is getting close to acquiring nuclear capability that can be used in theory to create nuclear weapons”. The measures taken by the EU, which come hard on the heels of a fourth round of UN sanctions in June, are seen as much more draconian and the most comprehensive ever taken against a single state. They affect individuals, banks, and shipping as well as the energy sector. The sanctions follow a long-running standoff between the United States and Iran over the controversial nuclear weapons programme. The new sanctions will block the “sale, supply or transfer of key equipment and technology for refining, liquefied natural gas, exploration and production”. The International Atomic Energy Authority said that, “longer

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The pariah 10/09/2010 15:46


COUNTRY FOCUS 123

Iranian President Mahmoud Ahmadinejad

h

energy state Iran Article.indd 123

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COUNTRY FOCUS

term, the development of [Iran’s] oil and gas industry will clearly be adversely affected”.

Self-sufficient

“Iran’s energy sector will face no problems because of the sanctions” Massaud Mirkazemi

Iran Article.indd 124

The EU says the measures have not been imposed to harm the Iranian people but rather to prevent the authorities from developing nuclear, chemical, biological and missile programmes. Iran’s oil minister, Massoud Mirkazemi, dismissed news of the sanctions by saying, “Iran will not beg foreigners for undertaking its oil, gas and petrochemical projects.” Being unable to import fuel leaves the Islamic Republic vulnerable when it comes to energy security but a defiant Mirkazemi said sanctions on an “energy-rich” country like Iran would be useless. “I am firmly announcing that Iran’s energy sector will face no problems because of the sanctions,” Mirkazemi told reporters. His tough rhetoric was given added weight with the recent discovery of the Forouz gas field 30 kilometres southeast of the Island of Kish. Mirkazemi suggested that the field thought to hold 700 billion cubic metres of gas, could produce 70 million cubic metres of gas per day. The new discovery will eventually put added pressure on the oil ministry to overhaul the aforementioned refinery network. However, Iran recently announced plans to invest US$46 billion to construct seven new refi neries and upgrade the nine existing plants. Iran’s total refinery capacity in 2009 was about 1.5 million bbl/d. The refineries are operated by the National Iranian Oil Refining and Distri-

bution Company (NIORDC), a subsidiary of the National Iranian Oil Company (NIOC). But the country’s oil and gas industry can’t do it alone. In order for Iran to realise its full energy potential investment, expertise and drilling technology is needed from the IOCs. Indeed, Iranian officials say the country needs around US$25 billion a year in oil and gas investments. Its creaking infrastructure and ageing oil fields will need billions of dollars just to prop up output at current levels. Over two-thirds of Iran’s natural gas reserves are situated in non-associated fields, most of which have not been developed. The sanctions have deterred a clutch of IOCs from Europe and the US from investing in the Islamic state’s energy industry. Likewise, LUKOIL, Russia’s largest privately owned oil company, has withdrawn from Iran for fear of putting its network of 1600 fi lling stations in the US at jeopardy. LUKOIL announced plans last year to construct a refinery in the US. Under the Iran Sanctions Act, companies ploughing more than US$20 million into Iran’s oil and gas industry could face punitive action against their operations in or with the US. Senior government officials are unequivocal in their message: do business with Iran and put any dealings you have with the US at risk. However, Gazprom Neft, the oil arm of Russia’s statecontrolled gas giant Gazprom, is less concerned with a US backlash and sees Iran as a significant partner in its expanding overseas portfolio. The company’s CEO said last December that US sanctions did not interfere with his

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COUNTRY FOCUS 125

Iran ranks high amongst the world’s energy giants

Iran’s oil exports

Top proven world oil reserves, January 1, 2010

1995 259.9

Saudi Arabia 175.2

Canada 137.6

Iran 115.0

Iraq 101.5

Kuwait

99.4

Venezuelta

97.8

UAE 60.0

Russia 44.3

Libya Nigeria

Europe 47%

Kazahstan

30.0 Billion Barrels

Asia 23% Other 30%

37.2

Source: Oil& Gas Journal, Jan 1, 2010

World natural gas reserves by country, January 1, 2010 2009 Russia

1680.0 1045.7

Iran 899.3

Qatar Saudi Arabia

Europe 25%

263.0

USA

244.7

UAE

214.4

Nigeria

185.3

Venezuela

176.0

Algeria

159.0

Asia 36% Other 39% Source: Iran Ministry of Economy & Finance

Iran Article.indd 125

Trillion Cubic Feet

Source: Oil& Gas Journal, Jan 1, 2010

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COUNTRY FOCUS

plans. Iran itself is looking to the likes of China and India and other countries less perturbed by US threats for oil and gas investment. Indeed, China has invested around US$40 billion in Iran’s oil and gas industry, the Islamic Republic’s Deputy Oil Minister Hossein Noqrehkar Shirazi told the media recently. He said US$29 billion had been ploughed into the upstream sector while another $10 billion was headed for petrochemicals, refineries and oil and gas pipeline projects. China is also said to have submitted plans to participate in building seven new refineries. Experts say Chinese energy companies are fi lling the void left by Western oil and gas fi rms; however Samuel Cizsuk, Senior Analyst at IHS Global Insight, says Iran would be left “very vulnerable” if it too bowed to Western pressure and pulled out. China and other developing nations are taking an increasing share of Iran’s black gold. In 1995, the world’s most populous nation bought just one percent of Iran’s oil. Today China is Iran’s largest oil customer as well as being the country’s premier trading partner.

parisons were irrelevant. Th is is a project that has already been delayed through lack of investment and technology, so the sanctions are compounding problems for Iran. Iran said this summer that Western companies were “dragging their feet” over South Pars before contracts were awarded instead to Iranian consortiums. Iran has the second largest gas reserves after Russia and has grand plans of becoming a global supplier of LNG. Near neighbour Qatar has capitalised on its tremendous gas reserves by becoming the world’s largest LNG exporter. But Iran’s ability to realise its natural gas potential, including LNG, rests crucially on its willingness to abandon its nuclear ambitions. The defiant language emanating from Tehran suggests this isn’t going to happen any time soon. „

Political pressures But with Iran’s increasing isolation on the world stage, international companies like Total, Shell and Repsol cut petrol sales months ago, although Mirkazemi said there are plenty of countries that can supply Iran with the gasoline it needs. France’s Total has called a halt to sales of refi ned products to the country despite being one of the longest surviving Western refi ned products trading partners with Iran. Cizsuk says Total doesn’t want to affect its participation in Iran’s South Pars field on the northern coast of the Persian Gulf, estimated to generate US$130 billion in gas sales once it is fi nally complete. “Th is [decision] is partly due to a wish not to sour the remaining good relationships it has had with the country and not to slam shut the door on its hopes of reviving a large-scale integrated gas and LNG development project on the South Pars field,” says Ciszuk. Other heavyweights like Royal Dutch Shell and Repsol have also pulled out or are considering quitting South Pars, which lies between Iran and Qatar and is the largest gas field in the world, holding somewhere in the region of 1800 trillion cubic feet of gas (eight percent of world reserves). Just under 40 percent of it is beneath Iranian waters. Just one overseas company, China National Petroleum Corporation, is working on one phase of the field while Iran’s state-controlled and part-private companies are struggling to complete the rest of the work. South Pars is being developed in 24 phases; the fi rst eight are online but most of the rest are either less than half or a long way short of being complete. Nevertheless, Mohammad Hasan Mousavizadeh, a technology advisor to the state-owned Pars Oil and Gas Company, told the Financial Times newspaper that enough funds had been raised to bring all 24 phases on stream by 2015. There were reports that the withdrawal of Western IOCs had led to staffi ng levels on South Pars plummeting. State-owned Pars Oil and Gas Company said 16,000 were employed as of late July, compared to 100,000 when the project was in full swing a few years ago, but that com-

Iran Article.indd 126

The IOCs that have pulled out from South Pars, the world’s largest natural gas field. Total The France-based oil company withdrew from developing phase 11 of South Pars in 2008, blaming the move on the political risk being too high. In June, Total cut refined petroleum supplies to Iran. Royal Dutch Shell The energy giant was to develop phases 13 and 14 in partnership with Spain’s Repsol. However, Shell refused to sign the final contract to produce 16.2 million tonnes of LNG per year. A refusal to sell refined petroleum to Iran was initiated in March of this year. Repsol In June, Repsol pulled out of its side of the agreement to develop phases 13 and 14 of the gas field in partnership with Anglo-Dutch major Royal Dutch Shell. OMV The Austrian oil and gas company was supposed to work on phase 12 of the project, reaching an agreement in 2007. However, OMV pulled out in June of 2009. Source: The Financial Times

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128

PEAK OIL

Running on

empty? The conjecture over whether the world’s oil reserves are lurching toward the dreaded ‘E’ mark on the fuel gauge continues to rumble on. One expert and author who believes we have yet to reach Peak Oil is UAE-based Robin Mills, as O&G discovers.

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PEAK OIL 129

P

ublished in 2008, The Myth of the Oil Crisis aims to put the record straight on whether the world’s reserves of black gold have tipped past the Peak Oil scenario. Robin Mills, the polyglot author who can count Arabic and Farsi among his languages, believes the media is to blame for the public’s generally pessimistic mood about future supplies. Warnings about booming emerging economies putting enormous strains on depleting reserves whip up a storm of panic. Bereft of all the facts, Joe Public then begins to believe that Peak Oil has passed as negativity and confusion seeps into his consciousness. Mills, who is also Petroleum Economics Manager at ENOC, says he wrote the book to dispel the hype and scaremongering about oil running out any time soon.

In your book you say there is a misconception that oil is running out and that you yourself believe reserves won’t be depleted anytime soon. Do you still stand by these views? Robin Mills. I think we need to be clear what we’re talking about. It’s not a question of running out of oil, but rather a question of at what point will it become impossible to keep oil production growing significantly and at what point will oil production actually start declining? For the people who believe in Peak Oil, and there are quite a lot of them out there, this moment is very soon or perhaps has even passed. However, I don’t think we’re close to that point. The other question is peak demand, which is a very different one. At what point will we stop using so much oil because of new technologies or environmental reasons? That’s a very different question. Of course, we might well use less and less oil in the future because we have substitutes and we might end up leaving a lot of oil in the ground and never needing to recover it. I think in the longer term that’s entirely possible, but that’s a different question. The key thing for me is that the supporters of Peak Oil are pessimistic or overly pessimis-

ROBIN MILLS ED P128-131.indd 129

tic with regards to many potential sources of supply but I have a lot more confidence in all of those sources. What inspired you to write the book? RM. I was working for Shell up until the end of 2005 and one day I was in a workshop with my team – 20-25 people in senior roles within Shell Europe. We had an away day and we set ourselves a question about Peak Oil and future oil supplies. I noticed there was no real clear view in the group. There was no consensus, and this made me think that if a bunch of intelligent people working in the oil business haven’t got a clear view on this subject then what chance has an ordinary person in the street got of really getting to grips with this issue? If you go to Amazon.com and search for Peak Oil you will fi nd hundreds of books about it but you will only fi nd two or three that argue against it; that is very unbalanced. An ordinary person in the street is going to get a very distorted picture of the true situation. So I just felt there was a need for a good, scientifically robust book, but something that was more accessible to the general public and explains why there are still very large remaining oil resources. Which of your predictions in the book have come true? RM. Several of the key ones. When oil prices went over US$140 a barrel this was unsustainable. We saw that even before the global crisis really struck, prices were falling back. It was a temporary spike caused by special conditions and just shows that high prices do bring a response. Another key thing is that non-OPEC production has been much more robust than a lot of people thought and a lot of predictions were that non-OPEC production decline was inevitable at the time. Actually it has grown recently and it looks quite well set to at least stay flat for the next five years rather than declining. For example, Russia has a lot of issues in its oil supply and is a very difficult place to invest.

“It’s not a question of running out of oil, but rather a question of at what point will it become impossible to keep oil production growing significantly and at what point will oil production actually start declining?”

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Nevertheless, Russian oil production has kept creeping up slowly instead of going into sharp decline as forecasted. A lot of people have raised concerns about Saudi Arabia and that they’re approaching Peak Oil. I certainly don’t believe that – Saudi Arabia is still producing a lot of oil and they have a lot of spare capacity after bringing several big new projects into commission recently. Places like Iraq offer tremendous potential, especially considering so much of the country is unexplored. Does Iraq contribute significantly to your belief that we have not reached a Peak Oil scenario? RM. Iraq is clearly very, very important and I am extremely confident that once the oil companies get to work, Iraq’s oil reserves are going to rise significantly. The reserves are based on work done back in the 60s and 70s and there has been minimal exploration since. We have seen a string of big successes in Kurdistan because it’s a virtually unexplored area. So Iraq will play a very important part in future world oil supply over the next 10-20 years. Now I’m not resting my disbelief in Peak Oil solely on Iraq, although

ROBIN MILLS ED P128-131.indd 130

it could be a game-changer for global oil supply, because we all know that political issues or security issues can make it very difficult to increase production much. Where else in the world is under-developed? RM. I’m always cautious in picking out a new region because it is unpredictable. Apart from Iraq and Iran, some other countries in the Middle East like the UAE have been rather under-explored in recent years. There is also offshore in the Russian Arctic, and Greenland is interesting because it is high risk but a big area with promising indications. There are also deepwater discoveries that we have seen in the Brazilian ‘pre-salt’ in the past few years as well as continuing success in the other parts of the ‘Golden Triangle’ of the Gulf of Mexico, Brazil and West Africa. Deepwater areas in Southeast Asia and off eastern India are gaining attention. Do you think we’ll see increasing development of unconventional oil and new technologies to enable enhanced oil recovery (EOR)? RM. Unconventional oil is still the ultimate ‘backstop’ on world oil production. Uncon-

ventional oil resources are so enormous that they considerably outweigh conventional oil, and there’s no question that the resource base is there. A lot of Peak Oil guys say it can’t be produced fast enough, it’s too environmentally damaging, it can’t ever make enough of a contribution to offset decline, but I say you’re not trying to replace all world oil production today. We’re seeing that unconventional production has been gradually building up for many years now. So it’s steadily making a bigger and bigger contribution. Also, biofuels have grown a lot in the past two years and become quite a significant part of supply. Beyond that you have some very large and more difficult unconventional resources like oil shales, which are probably ones for the longer-term future, but still a huge resource. Why do you think so much pessimism exists when it comes to the oil reserves? RM. The media likes a dramatic story and the idea that oil’s running out, so they call it a crisis and say that there’s going to be political and economic catastrophe. There are other groups who like the idea of Peak Oil for environmental

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PEAK OIL 131

reasons because it’s part of their argument. We have environmental problems with using fossil fuels, they say, and they’re running out anyway so that’s even more reason to get onto renewables and clean energy. So to some groups it’s a convenient argument and it appeals to them. But if you look back in history we’ve run out of oil many times. In the 1880s, 1920s, 1970s there has been panic about oil, but every time the industry has responded by fi nding new sources of supply and increasing production. I also think that oil reserves are not very intuitive. People tend to think of oil reserves as though it’s a fi xed quantity like a petrol tank – you’ve got x in the tank and that’s it, once it’s gone it’s gone. Of course the amount of oil in the ground is fi xed, but the amount that we actually fi nd and develop is not based just on geology, but also dependent on economics and politics. So as technology advances and those new areas are explored, a lot more reserves are inevitably found than people estimated at first. You get cycles in the oil business where there’s been underinvestment and demand grows rapidly as we had in the early 70s and we had again in the early 2000s. Oil prices go up, people say oil prices are high so we must be running out of oil. Then those high prices bring on new investment and we get more supply coming in. Demand growth is reduced by the high prices. Oil prices fall again and then you have a period of 10 to 20 years when everybody gets complacent again about oil supplies.

a lot from the boycotts and the embargoes in the 70s. They learned that those things maybe bring them some gains in the short term, but actually are very problematic and are very painful in the longer term. Countries don’t put trillions of dollars into oil and gas infrastructure to cause trouble. They’re there to make money. Since the end of the first Gulf War in 1991 the major oil producers in general have been very reliable suppliers. Even though you get a lot of noise coming out of Venezuela and Russia and so on, the suppliers have been pretty reliable. There’s a lot of talk about the unstable Middle East and how we rely on the region for oil but you shouldn’t confuse undemocratic with unstable. There are some regimes that are undemocratic but very stable and there are others that are democratic and unstable. For all its issues, Iran has continued to produce oil and supply it to the world. In the US, people get very concerned about being dependent on the Middle East. But, of course, the largest part of the US’s oil imports come from places like Mexico and Canada, which are very reliable neighbours. What impact will climate change policies have on the oil industry and public consumption? RM. Climate change policies are going disappointingly slowly for people who are concerned about the issue. However, I do think climate change policies are clearly going to get tighter

“If you look back in history we’ve run out of oil many times. In the 1880s, 1920s, 1970s there has been panic about oil, but every time the industry has responded by finding new sources of supply and increasing production” A significant proportion of oil reserves lie in nations with political instability or controlled by despotic regimes. How can this be addressed? RM. As Churchill said, “Safety and certainty in oil lie in variety and variety alone.” So we do need diversity of different oil suppliers and also other energy sources, whether that’s renewables, nuclear power or gas, including improved energy efficiency. I also think energy security policy has advanced a lot since the 70s and the world economy is now much more robust to shortages of oil than it was. We now have strategic reserves of oil and economies are much less dependent on oil. They generate a lot more value for each barrel of oil and the major oil producers learned

ROBIN MILLS ED P128-131.indd 131

and tighter even if it takes a long time. In the medium term oil is going to be less affected and coal will be first in the firing line because it is more carbon intensive and relatively easy to substitute – electricity can be replaced with gas, nuclear power or renewables. Oil is much harder to substitute because oil is primarily used in transport and there is no really good alternative right now. Oil demand responds more to income than price. So if you have rising income as you do in developing countries, then even if oil prices are high, oil consumption tends to be going up. If you look at some specific upstream projects, and oil sands in particular, they have a big CO2 footprint. Th is is something that they’re

going to have to tackle and this could be a significant constraint on expansion if there aren’t some methods to drastically reduce that footprint. I think carbon dioxide based enhanced oil recovery could grow significantly if we see a lot more carbon capture. If carbon capture and storage really takes off then there’ll be a lot of low cost carbon dioxide available. In the short and medium term, gas is going to gain a lot from climate policy because it’s a very economically attractive and straightforward way of reducing emissions by replacing coal. Gas probably has a big role in being a back-up to renewables, as gas turbines can be switched on and off very easily so they’re good for fi lling in for things like wind power, which are not so easily predictable. In the longer term, gas is going to need carbon capture and storage because even the emissions from gas are going to be unacceptable in terms of climate change. Looking into your crystal ball, what are your overarching predictions for energy consumption in the next 20 years? RM. One uncertainty is the continuation of robust economic growth in emerging economies. Will India, China and eventually African countries continue to grow fast along with their energy demands? Most predictions assume they will, but what if there’s a political crisis in China or something that derails that? There is a good chance emerging economies will shift onto a less energy intensive growth path but overall energy use will still increase a lot. For oil specifically, the big question is whether electric and/or plug-in hybrid vehicles will take off, plus when and where. At the moment they’re still much too expensive and there are still issues on performance and range and so on. How quickly are those barriers going to be overcome? If you start getting competitive electric vehicles then it obviously completely changes the picture for oil. I think you also shouldn’t forget the potential for wildcards, like a break-through in some new energy source like bio-fuels. At the moment though, oil and coal are pretty much comparable in their share of primary fuels. Gas is a little way behind that and then the rest is fi lled in with nuclear and renewables. I’m expecting that gas will catch up and probably overtake oil and coal at some point. Renewables are going to grow fast and I’m sure they are going to keep growing, but from a very low base. Biomass too is another large part. But renewables expansion will slow down because they can’t keep growing at 50 percent year-onyear – it is difficult to maintain those rates. „

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EXECUTIVE INTERVIEW

Integrated security Ousama Kabbani highlights the common misconception of end users towards integrated security systems.

Ousama Kabbani, General Manager of Abdulla Fouad Industrial Security & Safety Division, one of the leading security solution providers in Saudi Arabia, is a veteran of the security industry with 40 years of experience in the security field.

Could you explain what exactly an integrated security system is and why it is becoming increasingly in demand? Ousama Kabbani. With the worldwide rise in crime and terrorism, integrated security systems are becoming a necessity for sensitive sites. An integrated security system is, by virtue of its defi nition, a combination of various subsystems, each performing a certain function with the purpose of detecting a threat and identifying the perpetrator so that action can be taken to neutralise the threat before damage is done. A typical integrated security system in a facility may be composed of an intrusion detection system, CCTV cameras and monitors, an access control system and of course the soft ware platform that combines all those sub-systems together in one homogeneous entity that is both coherent and user friendly. What are the criteria that govern a successful integrated security system? OK. The whole idea of the integrated security system is to detect threat and prevent damage. Unfortunately, many end users expect the integrated security system to be a plug-and-play machine. It is far more complicated and requires understanding and above all a close interaction between man and machine and full coordination among all the people involved. In order to have a successful and effective integrated security system, you have to think out of the box. Don’t limit your thinking to the machine,

but think of the ambient in which the machine is going to serve. Just as the system must be adapted to the facility it is supposed to protect, the facility must be made suitable for the system to permit it to operate correctly and efficiently. Th is is normally defi ned in what is called Concept of Operation, or CONOPS*. Do you help your clients in defining their CONOPS? OK. Although we, at Abdulla Fouad, do not basically work as consultants, we often render recommendations and advice to consulting offices and to end users with regards to the latest technologies available on the market and to the most suitable systems for their facility. We also submit recommendations with regards to the best way for them to deploy these systems in their facility for various threat scenarios. So, although we do not get involved in writing the CONOPS, we do assist by identifying risk areas and recommending proper actions accordingly. Do you normally offer your clients one solution or provide them with several alternatives to choose from? OK. Our policy has always been to offer our clients alternatives to the technologies that have already been specified for them. You must understand that by the time the project reaches tendering stage, considerable time would have elapsed from the date the project was on the drawing board. Th is lapsed time sometimes extends two to three years during which significant advances in the technology would have taken place. We feel an obligation toward our clients to make them aware of these developments so that they are not deprived of the benefits that come from the new technology that normally offers better capabilities and features. As it is with all electronic developments, such as computers, cameras, and storage devices, new technologies usually offer more features at lower costs. So, there would be additional savings for our clients from adopting our upto-date technologies. From where do you serve your clients? OK. Our Head Quarters is in Dammam with branch offices in Riyadh, Jeddah and Bahrain. We recently moved into a new Headquarter building on the Dammam-Khobar Highway. It is a prominent nine-story building fully equipped with the latest Hi-Tech equipment of security and building automation and encompassing our corporate offices and service centres. „ *For more information on CONOPS visit www.ngoilgasmena.com to see a further interview with Ousama Kabbani.

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Agenda Events not to miss in the region P138

City Guide Taking in the marvels of Mumbai P140

Gadgets Technology for today’s executive P142

Books What you should be reading this quater P143

Photo Finish A second oil platfortm explodes in the Gulf of Mexico P144

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DETAILS PROJECT ROUND UP

Oil and gas outlook In June of this year, KPMG’s Global Infrastructure Practice, in conjunction with Infrastructure Journal, released the Infrastructure 100 report, featuring the most exciting infrastructure projects from around the world. An independent judging panel selected the projects based on their scale, complexity, innovation and impact on society. One of the sections in the report focused on the oil and gas industry and a number of projects were singled out for distinction, particularly those new projects that are giving an economic boost to developing countries, allowing them to increase their export levels and better monetise their resources. Here we take a look at the top 10 oil and gas projects as featured in Infrastructure 100.

Keystone oil pipeline extension TransCanada’s Keystone Pipeline System is an 864 kilometre (537 mile) conversion of natural gas pipeline to crude oil pipeline and the construction of an innovative bullet line that brings the crude oil non-stop from Canada through North Dakota, South Dakota, Nebraska, Kansas, Missouri and Illinois to market hubs in the US Midwest. The US$12 billion Keystone pipeline will play an important role in linking a secure and growing supply of Canadian crude oil with the largest refining markets in the United States, significantly improving North American security supply.

The Cascade and Chinook Subsea Development Located in the Gulf of Mexico, the Cascade and Chinook Subsea Development has garnered a lot of attention due to Petrobras’s innovative use of a floating production, storage and offloading unit. The Cascade and Chinook fields are located in the Walker Ridge area of the Gulf of Mexico, approximately 180 miles (300 km) south of the Louisiana coast, in water depth of 8500 ft (2590 m). The recent disaster in the Gulf of Mexico will obviously cast doubts over the project’s long-term economic viability.

Peru LNG Peru LNG is the first liquefied gas terminal in Latin America. Currently under construction, both the facility and associated pipeline will have a capacity of 4.4 million metric tonnes per year generating significant economic benefits for the Pampa Melchorita region, around 170 km south of Lima.

Golar/Petrobras FLNG The Golar/Petrobras FLNG Project is a technologically advanced development that utilises floating regasification terminals offshore Brazil. The project was selected by the panel due to its potential for replication elsewhere and use as an alternative to port-connected facilities. The technology is expected to be deployed globally with plans already underway to implement it offshore Western Australia.

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KG-D6 Gas Development and East-West Pipeline The KG-D6 Gas Development and East-West Pipeline will provide India with 50 percent of its current gas consumption. Consisting of 22 subsea wells in water up to 3937 feet deep alongside an onshore processing plant, the 1440 km pipeline will then transport the gas product to India’s national grid acting as a real transformative ‘game changer’.

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DETAILS 137

Gate LNG Terminal

Nord Stream Pipeline

Holland’s Rotterdam-based Gate LNG regasification project was chosen by the panel due to the role it will play in regulating Europe’s seasonal gas supply. The US$1.26 billion project will convert distant supply from Qatar, PNG, Peru and Western Australia into consumable gas for European offtakers. Once completed in 2011, the project will aim for a total capacity of 16 bcm, taking in up to 180 shipments per year. The terminal dovetails with Dutch and European energy policies, built on the pillars of strategic diversification of LNG supplies, sustainability, safety and environmental awareness.

The Nord Stream project made waves as the first pipeline to fully bypass the former Soviet space that acts as a conduit for much of Western Europe’s gas flow from Gazprom’s Siberian fields. The dual onshore/offshore pipeline will cross an unprecedented five state jurisdictions to reach its German terminus. Carrying a total 55 bcm of gas per annum, the €7.4 billion (uS$9.3 billion) pipeline is seen as key to plugging the 120 bcm supply gap set to drain Europe over the coming years.

PNG LNG The Papua New Guinea LNG (PNG LNG) project is the single largest project financing deal of all time, coming in at US$15 billion. The exploration and production project is the first largescale infrastructure development to be planned for PNG. Although implementation has not been without trouble, the substantial import appetite from key Asian utilities has kept the ExxonMobil-sponsored project financially viable.

Project Mthombo, South Africa

Gorgon gas project

Project Mthombo is a PetroSA initiative to build a world-class crude refinery in the Coega Industrial Development Zone in the Eastern Cape. Once built, it will be the biggest in Africa and provide a national security of supply for South Africa’s future fuel requirements. It is estimated that by 2015 South Africa will have to import 8.5 billion litres of fuel per annum (equivalent to 150 000 barrels per day) if there is no significant investment in local refining capacity. Project Mthombo is set to cost US$11 billion and will help reduce the country’s reliance on external imports.

The Gargon gas project is one of the world’s largest natural gas projects and the largest single resource natural gas project in Australia’s history. The US$40 billion project will develop the Greater Gorgon Area gas fields, located about 130 kilometres off the north-west coast of Western Australia. It includes the construction of a 15 million tonne per annum (MTPA) liquefied natural gas plant on Barrow Island and a domestic gas plant with the capacity to provide 300 terajoules per day to supply gas to Western Australia.

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DETAILS AGENDA

Coming up… Film, literature, sport, fireworks: it’s all happening in the next few months. 14-23.10 Abu Dhabi Film Festival Supporting film culture, the Abu Dhabi Film Festival showcases works by Arab filmmakers alongside those by major talents of world cinema. Established in 2007, with the aim of helping to create a vibrant film culture throughout the region, the festival is committed to curating exceptional programmes to engage and educate the local community, inspire filmmakers and nurture the growth of the regional film industry.

26-29.10

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1-31.10

Israel Fringe Theatre Festival

Damascus Book Fair

Original and revolutionary plays by modern Israeli writers are performed at Acre’s annual Israel Fringe Theatre Festival, and it remains the vanguard of modern theatre in Israel. Productions are across town and some are also in English for non-Hebrew speakers.

The 19th annual Damascus book fair opens in October with over 38,000 titles for sale. The range of subjects is vast with titles covering areas from science to art and even children’s books.

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07.11 Beirut Marathon Beirut Marathon attracts elite and leisure runners from the Middle East, Africa and all over the world. You don’t have to run the full 25 miles as there are shorter races, or just soak up the atmosphere and watch. The course winds its way through the city centre and then north and south along the coast road. The marathon is divided by age group and ability – if you’re more likely to end up walking, you’re requested to go at the back.

12-14.11 Formula One: Abu Dhabi Grand Prix The Etihad Airways Abu Dhabi Grand Prix, at the Yas Marina Circuit, is the final race of the Formula One season. Watch cars race at 200mph around the floodlit track. Built at a cost of more than US$1bn, the Yas Marina Circuit was opened in 2009 and is one of the most state-of-the-art circuits on the racing calendar. Rising out of the sands of the Arabian desert, it is a truly atmospheric setting to watch Formula One motor racing.

14-17.11 Hajj to Mecca

18.11 National Day, Oman Oman’s National Day, which is also the birthday of Sultan Qaboos, is one of the most popular festivals in Oman. The double celebration has everything from food and street fairs to camel line dancing and fireworks on the agenda. Omanis spend National Day watching military bands, children and adults dancing in bright traditional costumes, folk singing and camel races. This is the best time for a full immersion into the culture and traditions of Oman.

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According to the Prophet Mohammed, there are five fundamental practices of the Muslim religion, known as the Five Pillars of Islam. The last of these, the Hajj, involves a pilgrimage to his birthplace, Mecca, in the Sirat Mountains. The Hajj is an obligation for every healthy Muslim man and woman to undertake at least once in his or her life. About two million Muslims from all over the world unite to perform the Hajj each year.

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DETAILS CITY GUIDE

Mumbai About

Time: GMT +5.5 hours Country: India Language: Hindi, Marathi Population: 14 million

To see Mumbai is to believe it. Despite the countless stream of literature, cinema and art to emerge from this unique city, nothing can prepare you for the chaos of Bombay.

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Home to extremes of wealth, myriad religions, around 10 widely spoken languages, chic restaurants cosied up to ancient bazaars, Mumbai is India’s largest, richest and most diverse city. Its economic wealth makes it a popular business as well as tourist destination; indeed, a major port city during the British colonial rule, Mumbai has historically welcomed the world’s business men and women. Today, Mumbai’s wealth and booming population continue to make it a prime destination for development, and opportunities for investment are not hard to come by. And those just looking to take some downtime can rest assured that this city is teeming with charming nightspots, cultural wonders and delectable eateries.

Economy Not only is Mumbai the richest city in India, but it also has the highest GDP of any city in South or Central Asia. Generating 6.16 percent of the total GDP of the country, it serves as the base for a number of India’s con-

glomerates as well as a popular destination for foreign companies looking to establish a base in the country. Traditionally a popular trading hub thanks to its waterside location, the economy has diversified significantly in the last 40 years, and today is recognised as one of the world’s most potentially lucrative business centres.

Eat Choosing where to eat is one of the biggest challenges thrown up by Mumbai. The melting pot of cultures and heritage found in the city has resulted in some of the fi nest food on offer in India. For the traditional local taste, though by no means the budget option, try Trishna in Kala Ghoda. Seafood on offer is brought for inspection before you make your order, and is served up using the area’s traditional style. To sample a wider array of India’s dishes, or simply for something a little more informal, Culture Curry serves up curry from many regions across India, while guitar-wielding musicians sing for their supper between the tables.

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The Taj Mahal Palace Hotel

Sleep The Taj Mahal Palace Hotel One of the grandest and most elegant hotels in the city, the Taj is a quintessential Raj-era destination. Over a hundred years old and situated on the Colaba waterfront next to the Gateway of India, this is as much a landmark in its own right as it is a luxurious hotel for Mumbai’s visitors. Rooms are predictably opulent for a hotel whose guest list includes royalty from across the world. Hotel Sea Princess Indeed, there is no shortage of luxurious hotels in Mumbai, with a great many to be found within the easy proximity of the airport. However, for those looking to locate close to heart of the city, the Sea Princess on Juhu Beach is an ideal location for exploring the attractions of the city, such as Siddi Vinayak Temple and Powai Lake. Well equipped with business amenities, this hotel is pleasant and accommodating. For those looking to get a taste of traditional Mumbai living, the Bade Miya serves up some of the fi nest street food in the city. You might have to queue, but the freshly grilled snacks of paneer masala or tikka roll are worth the wait.

Drink The entertainment capital of India, Mumbai can boast more than its fair share of hedonistic and vibrant nightspots. Dome, in the Hotel Intercontinental, is commonly cited as one of the city’s sleekest, and is often frequented by Bollywood lovelies. The slightly clumsily named Not Just Jazz By The Bay is another popular choice, and does exactly as it promises, showcasing a variety of music genres to while away a Mumbai evening. For a quieter, and perhaps more culturally fulfi lling break from the bustle of the city, Samovar Café is an intimate spot inside the art gallery overlooking the picturesque gardens at the Prince of Wales Museum, where customers can get a beer, a tasty lassi or even a light snack. „

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Time off The city is home to such a plethora of iconic sights, ights, that choosing exactly how to spend your free time own in Mumbai is one of the difficulties. Wander down to Bollywood to catch a traditional Indian movie, vie, or alternatively take the trip into the Mumbai du Harbour to Elephant Island, a spectacular Hindu site formed of temple caves carved into basaltt rock. Thought to date back around 1500 years,, this stunning edifice in the middle of ocean is an unmissable for any visitor to Mumbai. Cricket is to India what football is to South America; for a truly Indian cultural experience, head to the Oval or Azad Maidens to catch a match before kicking back on Chowpatty Beach to sample the offerings of the stall vendors, such as a traditional head massage, or simply relax and soak up the sun.

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DETAILS GADGETS

Technology for today’s executive Kodak PlaySport mini camcorder X The new PlaySport mini camcorder from Kodak is a waterproof model that can be used in depths up to three metres. It can shoot 1080p video and take five-megapixel stills. It has 128 MB of internal memory, which is not huge but it also has a SD/ SDHC card expansion slot that can increase the memory by up to 32 GB. This sturdy little camera also has 4X digital zoom and the display screen is an adequate 5.1cm. It may not be shockproof like Panasonic’s DMC-FT1 HD-capable digital camera, but it is sturdy nonetheless.

T According to Apple’s CEO, Steve Jobs, the iPhone 4 has been the most successful product launch in the company’s history, selling over 1.7 million in the first three days. The highly anticipated new phone features a five megapixel camera with LED flash, HD 720p video recording, Apple’s A4 processor, a 3-axis gyro and up to 40 percent longer talk time as well as Apple’s new Retina display, the highest resolution display ever built into a phone. But despite all the tech packed inside the striking new design, Apple have received an overwhelming number of complaints about the phone losing signal when gripped in a certain way. Apple claim that the formula for calcuating the iPhone signal strength was wrong and announced that a free software fix will be released shortly.

Apple iPhone 4

W Iriver WiFi Story ebook reader Iriver’s new WiFi Story is the successor to the original Story ebook reader. It is extremely lightweight at only 292g, making it lighter than a paperback novel and the iPad, which weighs in at 680g. With 2GB of internal memory the reader can store 30 books and the battery life supports up to 9000 page turns. It also plays up to 24 hrs of music or audio books and can record up to five hours of voice memos. It supports e-Pub as well as PDF and should be particularly appealing to business users as it also supports Microsoft Office documents.

Dell Inspiron M301z X The sleek new laptop from Dell is ultra portable at only 1” thick and under 1.8kg in weight. It features exceptional performance capabilities with up to a 500GB hard drive, 13.3” high definition WLED display, and for the first time Dell has opted to use an AMD low voltage processor rather than an Intel chip. The battery lasts just under five hours for light usage, which should be enough for most short train rides and short haul flights.

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DETAILS 143 BOOK REVIEW

Hot off the press O&G takes a quick look at the some of the books currently clamouring for space on your shelf.

From Seismic Interpretation to Modelling and Assessment of Oil and Gas Fields By Yury P. Ampilov Yury P. Ampilov is Professor, Doctor of physical and mathematical sciences, 1 Chairman of the exploration geophysics section of the RAS academic council on Earth physics, and Director of the “Offshore Oil and Gas Fields” department at Gazprom VNIIGAZ LLC. In this book, he explores the cross disciplinary problems of the geosciences and looks at how the narrow specialisation in geosciences has hindered unbiased subsurface investigation. O&G says: This book is a must-read for geologists, geophysicists, and engineers involved in the development of hydrocarbon fields.

The Arctic Gold Rush: The New Race for Tomorrow’s Natural Resources By Roger Howard

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Why We Hate the Oil Companies By John Hofmeister The Macondo oil spill in the Gulf of Mexico has seen BP become the target of American hostility and enmity, which has highlighted 3 the deep mistrust of the oil industry in the US. An industry insider, John Hofmeister, former President of Shell Oil, discusses the problems facing the US energy sector and offers his advice on how the transition to more sustainable energy consumptions requires a shift in the attitudes of politicians as well as a change in the way that Big Oil presents itself to and engages with the public. O&G says: A timely account of the popularity issues facing Big Oil and the measures that need to be taken to regain public confidence.

Confronting Collapse: The Crisis of Energy & Money in a Post Peak Oil World By Michael C. Ruppert

In this fascinating book, Howard discusses the impact that Arctic reserves are having 2 as countries across the world struggle to assert their legal sovereignty over a region, which is estimated to be home to 13 percent of the world’s undiscovered oil and 30 percent of the world’s undiscovered natural gas reserves. As Russia, the US, Canada, Denmark and Norway battle it out to secure territorial rights, Howard looks at the potential environmental and political impacts that could result from the scramble for Arctic resources. Howard Davies inspects the evidence for these arguments, inviting the reader to assess each, and the likely effectiveness of the proposed remedies.

In this book Michael C. Ruppert, a former LAPD 4 narcotics officer turned investigative journalist, explores how the spheres of energy and money are in fact closely related and he carefully examines how the oil shortages and price rises provoked the economic crisis that we bore witness to from September 2008. Ruppert argues that rather than entering a period of economic recovery, we are in fact prone to economic collapse. And the reason for this is the immense impact that oil has on our economy. Ruppert provides an insightful 25-point plan of action – including the creation of a second strategic petroleum reserve for the use of state and local governments – aimed at breaking our global addiction to oil.

O&G says: An insightful and informative read that explores the potential of a cold war in the Arctic.

O&G says: Whilst there are many books around that deal with the topic of Peak Oil, this one definitely counts as a must-read for anyone interested in the topic.

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DETAILS PHOTO FINISH

B

oats spray water on an oil platform after it exploded in the Gulf of Mexico on September 2, 2010 off the coast of Louisiana, US. The 13 crew members were rescued and some were being treated in a Louisiana hospital.

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