Category: Oil


The State of Safety in Oil & Gas Industry – 2018

Abridged from DNV Report 05/07/2018

We work safer now than ever before, but: “You can’t take anything we do for granted… “

Recently, a horrible accident happened at a small welding shop behind our offices here in Houston. In this shop worked two or three welders, each one an experienced hand with 20-30 years of welding experience. While one of the welders was heating up a sealed pipe, something went terribly wrong: the pipe exploded.

When the pipe blew, we heard a loud bang and screaming. In the pipe’s sudden explosion, the welder tragically lost his arm just below the elbow. The EMTs arrived by emergency helicopter and took the injured man to the hospital to be treated. Fortunately, the man would live; unfortunately, he might not weld ever again.

Our safety lead at RTS, Tom Anderson, called an Emergency Safety Meeting. “You can’t take anything we do for granted—we work in a dangerous environment,” he said.

The oil and gas industry has become considerably safer over the past two decades according to data from several industry bodies, such as the International Association of Oil & Gas Producers (IOGP), as well as national associations, including those in the UK, Norway, US and Australia.

Despite this, any time you work in a high-risk environment, accidents like the one at the welding shop behind us can occur. So, is enough being done to further improve safety in the oil and gas industry? Have recent market dynamics negatively affected investments in enhancing safety performance? And how aware are industry leaders of safety risks and incidents?

You just can’t be too safe.

Key Issue – Increased Risk Due to Reduced Maintenance Investment

According to the results of DNV GL’s 2018 Industry Outlook research, close to half (46%) of the 813 senior oil and gas professionals surveyed believe that too little has been invested in maintenance and inspection of installations and equipment in recent years. Some 38% said that safety management in the oil and gas industry is effective and does not need to change – 26% disagree, while 31% are neutral. This clearly shows that the industry is divided on the need to change safety practices.

It is also interesting to note that safety performance and investment increased during the strong growth years to 2014, but only risk increased through the challenging years that followed. We have heard where some companies inadvertently increased safety risk because of incentive programs that rewarded maintenance managers for being under budget on maintenance.

Certainly, many in the industry don’t believe that their business has made any compromises on safety. “The risk that we’ve got now, in the recovering market, is that companies forget about the underinvestment that they made,” says Graham Bennett, vice president, DNV GL – Oil & Gas. “Ramping up operations to take new opportunities can result in a worrying picture if companies don’t recognize the underinvestment made in the last few years. There is always a lag between periods of underinvestment and any associated safety impact.”

Downstream Sector Set to Invest More in Safety

In our survey, respondents from the downstream sector currently expect the highest increase in safety spending (41%) this year, compared with other parts of the industry. We also find the downstream sector to be more concerned about safety than other areas of the value chain. For instance, only 12% of respondents overall say that cost cutting over the past three years has increased health and safety risk, but this figure is nearly double (23%) in the downstream sector.

Digital Safety Measures Increasing

Many new investments in safety will be aimed at digitalizing safety monitoring, processes and responses this year. A clear finding from our survey is a significant increase in the proportion of respondents (54%) who intend to boost spending on digitalization in 2018 – up from 39% expected for 2017. Looking further ahead, over the next five years, 76% of respondents say they will invest in digitalization.

Already, even where cutbacks have been widespread, 40% say digitalization has improved safety over the past three years. “The industry has been a quick adopter of new technology and digitalization,” says Mr. Lu Nianming. “Technology has helped us improve safety monitoring systems, data analytics helps us determine which processes, areas and equipment are more accident-prone, while we have wearable equipment to monitor workers in case they faint or fall.”

A key advantage of digitalization in the safety context is that it can allow for the integration and transparent communication of hundreds of key indicators from across an organization. For example, DNV GL’s MyQRA service draws on data from quantitative risk assessment (QRA) reports to create a single source of safety data that can help all stakeholders generate deeper safety insights, better understand important safety signals, make decisions and predict future outcomes.

Senior Executives are More Positive About Safety Than the Field Engineers

Encouragingly, most survey participants (85%) say that safety risks and incidents are reported to senior management, and this figure rises to 91% among those working for companies with an annual revenue over USD500m. But how do perspectives on safety differ between those closer to the boardroom and those closer to the hazards?

Our survey found:

  • Senior management (45%) are more likely than engineers and technical specialists (32%) to say safety management is effective and does not need to change.
  • Nearly twice as many engineers/technical specialists (28%) as business leaders (15%) say that a focus on profitability has had a negative impact on safety performance.
  • Most business leaders (65%) say that senior management understands the impact of cost cutting on safety, while just 50% of engineers and technical specialists say the same.

This indicates that those in the boardroom are, to some degree, more optimistic about safety than those in the field. While further research is needed to understand why this is the case, it suggests that senior leaders in the oil and gas industry could benefit from spending time better understanding the risks faced by those on the front line.

The Right Mindset: Perpetual Improvement

Overall, long-term trends indicate a strong improvement in the safety of oil and gas industry workers over time. The industry appears to be largely continuing this path, increasing investment and modernizing safety procedures and equipment. However, there are reasons to caution the optimism – from lower investment in safety in recent years, to the relatively higher concerns identified in the downstream sector, and by more junior and technical employees.

“Operators cannot afford not to maintain safety – they are aware, of course, that they can’t compromise in this area – I don’t really believe they are allowing maintenance or safety standards to slip,” says Frank Ketelaars, regional manager, Americas at DNV GL – Oil & Gas. “In fact, in many places the pressure to raise standards has increased.”

In Closing

While zero risk is not achievable, much more can be done to stop preventable incidents. “We are in an industry that involves risks,” says Tom Anderson, Operations Director, RTS. “Safety incidents will happen no matter how much we do, but we can work to get the rate of incidents as low as possible. And to do that we must constantly focus on the need for improvements. Safety Matters Most.”

Today’s Midstream Market Tactic: Deferring Capital Expenditures

Recent downturns arise reduced costs and complexity among midstream operators

In March of 2014 prior to falling oil and gas prices, analysts’ modest scenario assumed long-term North American natural gas prices will average $6.00/MMBtu and oil $100.00/bbl. Midstream infrastructure investment was forecast to need close to $641 billion over the next 22 years just to keep pace with booming energy production.

For midstream companies, capital expenditure as a percentage of enterprise value increased from 15% between 2004 and 2007 to about 75% for projects forecast between 2013 and 2015.

Dealing with the Pressures

To fund this expansion, the number of master limited partnerships (MLPs) exploded with market capitalization increasing from $60 billion in 2005 to more than $350 billion by 2014. Supercycle, midstream companies sprinted to keep up with the shale gas and tight oil supply shocks and alleviate bottlenecks.

However, the dramatic fall in oil and gas prices beginning in the summer of 2014 shook the situation. Midstream companies continued to invest in their capital expenditure commitments through 2015—the peak of investment—and in 2016, capital expenditure slowed drastically. As midstream companies continue reducing their capital plans in 2017, equity valuations will receive more downward pressure.

Experience in other oil and gas sectors show that downturns create extraordinary threats and opportunities, often leading to waves of M&A activity. Given these circumstances, midstream companies are mandated to continue reducing costs and complexity.

Adjusting the Sails for Success

During the boom, speed was essential; today, cost is king. In an effort to reduce costs, most companies initially focus on simplifying administration costs and inventory management. Many operators are refurbishing and upgrading equipment to extend their life and defer capital expenditures.

The most prominent assets are the hundreds of engines and rotating equipment in the field. Many units haven’t been run in years and most are out of compliance. But for a relatively small investment, these units can be upgraded and put back into operation.

This is where TTS Energy Services can help. Our decades of experience paired with innovative technologies dealing with fuel management, controls and the new emissions compliance regulations allow us to optimize your units and bring them back online.

Read more about the first-ever application of GE Frame 7EA gas turbines to a 50Hz electrical system was accomplished through TTS Energy Services’ commissioning services here.

Energy Insights

No big surprise, but energy demand will continue to grow… “how” is the interesting part.

Originally a LinkedIn post by Scott Nyquist, McKinsey&Company

Edited and Updated by Scott Muster, Turbine Technology Services

power-linesThe successful outcome of COP21 has raised hopes and expectations of concerted global efforts to tackle climate change, and brought forward a whole raft of challenging questions:

  • How will this affect the momentum behind the deployment of key renewable technologies and the drive for greater energy efficiency?
  • Ample supply is keeping downward pressure on fossil fuel prices, coal, oil and natural gas. When and how will market dynamics change – or might lower prices for some fuels be here to stay?
  • The impact of local pollution, often energy-related, on air quality is a matter of rising social and political concern in many countries. How can governments act to tackle this problem – and what would these actions mean for the energy sector?

The World Energy Outlook 2016 published by the International Energy Agency (IEA) is coming out this month and will seek to shed some light on these questions with insightful analysis. In the meantime, there is one matter that everyone can agree on: for the near future, energy demand will continue to grow. How it is produced and used will be a critical factor in the future of the global economy, geopolitics, and the environment.

With that in mind, McKinsey took a hard look at the data, modeling energy demand by country, sector, and fuel mix, with an analysis of current conditions, historical data, and country-level assessments. On this basis, McKinsey’s Global Energy Insights team has put together a description of the global energy landscape to 2050.

It is important to understand that this is a business-as-usual scenario. It does not anticipate big disruptions in either the production or use of energy. And, of course, predicting the future of fraught with risk. Here are four of the most interesting insights.

  1. Global energy demand will continue to grow.

But growth will be slower—an average of about 0.7 percent a year through 2050 (versus an average of more than 2 percent from 2000 to 2015). The decline in the rate of growth is due to digitization, slower population and economic growth, greater efficiency, a decline in European and North American demand, and the global economic shift toward services, which use less energy than the production of goods. For example, in India, the percentage of GDP derived from services is expected to rise from 54 to 64 percent by 2035. And efficiency is a forthright good-news story. By 2035, McKinsey research expects that it will take almost 40 percent less fuel to propel a fossil-fueled car a mile than it does now. By 2050, global “energy intensity” (how much energy is used to produce each unit of GDP) will be half what it was in 2013. That may sound optimistic, but it is based on recent history. From 1990 to 2015, global energy intensity improved by almost a third, and it is reasonable to expect the rate of progress to accelerate.

  1. Demand for electricity will grow twice as fast as that for transport.

China and India will account for 71 percent of new capacity. By 2050, electricity will account for a quarter of all energy demand, compared with 18 percent now. How will that additional power be generated? More than three-quarters of new capacity (77 percent), per the McKinsey research, will come from wind and solar, 13 percent from natural gas, and the rest from everything else. The share of nuclear and hydro is also expected to grow, albeit modestly.

What that means is that by 2050, non-hydro renewables will account for more than a third of global power generation—a huge increase from the 2014 level of 6 percent. To put it another way, between now and 2050, wind and solar are expected to grow four to five times faster than every other source of power.

  1. Fossil fuels will dominate energy use through 2050.

This is because of the massive investments that have already been made and because of the superior energy intensity and reliability of fossil fuels. The mix, however, will change. Gas will continue to grow quickly, but the global demand for coal will likely peak around 2025. Growth in the use of oil, which is predominantly used for transport, will slow down as vehicles get more efficient and more electric; here, peak demand could come as soon as 2030. By 2050, the research estimates that coal will be down to just 16 percent of global power generation (from 41 percent now) and fossil fuels to 38 percent (from 66 percent now). Overall, though, coal, oil, and, gas will continue to be 74 percent of primary energy demand, down from 82 percent now. After that, the rate of decline is likely to accelerate.

  1. Energy-related greenhouse-gas emissions will rise 14 percent in the next 20 years.

Of course, this is not what needs to happen to keep the planet from warming another two degrees, the goal of the 2015 Paris climate conference. Around 2035, though, emissions will flatten and then fall, for two main reasons. First, cars and trucks will be cleaner, due to more efficient engines and the deployment of electric vehicles. Second, there is the shift in the power industry toward gas and renewables discussed above. The countervailing trends are that there are likely to be some 1.5 billion more people by 2035, and global GDP will rise by about half over that period. All those people will need to eat and work, and that means more energy.

Here are the disclaimers:

  • All the above is based on assumptions and subject to change.
  • A concerted global action complying with COP21 guidelines to reduce greenhouse-gas emissions could change the arc of these trends.
  • Technological disruptions and innovative developments could also bend the curve.
  • The IEA may see different outlooks.

Our Thoughts

Whether you agree with the predictions outlined in this report or not, for energy businesses, the implications are clear: given that global energy demand will grow substantially, prices will continue to be volatile.

To reduce related risks and costs associated to the volatility, energy efficiency while mitigating the effects on the environment is a mandate. Energy producers and technological engineering companies like TTS will need to continue working closely together on innovations that can affect the efficiency of producing energy for the world.

For more information about TTS and our energy innovations, visit www.turbinetech.com.

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