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Sun 29 Oct 2006 04:00 AM

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Controlling energy

The big players in the oil and gas sector are eager to invest in and utilise the latest developments in IT in order to maximise growth from an important, if volatile, industry.

The big players in the oil and gas sector are eager to invest in and utilise the latest developments in IT in order to maximise growth from an important, if volatile, industry.

Firms in the oil and gas sector are keen to minimise their exposure to price swings by keeping overheads to a minimum.|~|If old-time troupers in music hall can declare that there’s no business like show business, anyone connected with the Middle East can retort that here in the region there really is no business like the oil and gas business.

While various regional governments have used the revenues generated from it to diversify their economies, oil and gas still occupies an extremely special place in the Middle East’s economic make-up.

Actually, make that an extremely special place in the world’s economic make-up; there is no doubt that it is still the huge reserves here in the region that brings it so much attention from the rest of the world.

Unsurprisingly, the IT industry is no exception: plenty of companies here have cited the importance of doing well in the oil and gas industry above any other vertical industry sector.

“All the major oil companies across the world use SAP and consequently when we developed the business here in the region it was an obvious area for us to invest in to and bring SAP’s solutions,” says Phil Blower, sales director for SAP Arabia.

The firm has a number of major clients in the sector, including the biggest one of all — Saudi Aramco, the firm responsible for 99% of the Kingdom’s oil reserves (a rather staggering 25% of the world’s total).

However, while the oil and gas industry is an enormous sector here in the region, it can also be a tough one, with clients demanding fast results and high performance.

The nature of the industry also provides its own challenges: diverse locations, harsh environmental conditions and a need to keep the product moving freely are all factors that need to be taken into account.

“It’s very difficult to turn off a tap and stop oil or gas flowing,” points out Ian Johnson, sales manager of software supplier Industrial and Financial Systems (IFS).

“These organisations have to work all-year round. There is no way that you can just stop the clock. There can be no downtime; they need to make sure that they can fully operate 24x7 all-year round, which is different from a steel plant for instance, where they can just stop the power and stop rolling steel. So it’s a timed industry where downtime is not allowed.”

The common perception may be that the oil and gas industry provides a licence to print money (or at least pump it out of the ground), thereby ensuring that firms in this sector are happy to throw cash around; Suppliers are quick to dampen that notion. In reality, oil and gas firms are used to wildly fluctuating prices for their products, determined by global markets, which can change rapidly.

For instance, while oil was trading at a price of around US$78 a barrel in July, this month prices dipped below the US$60 mark, despite a decision by industry body the Organisation of Petroleum Exporting Countries (OPEC) to cut production.

Consequently, firms in the sector can often prove to be amongst the most parsimonious of IT buyers — keen to minimise their exposure to such price swings by keeping overheads as tight as possible.

“They are very cost conscious still, so there is still that very competitive element,” agrees STME deputy CEO Jocelyn Al Adwani.

“Companies are trying to keep their costs down as much as possible. But, of course, now the price has started to drop again and so they are all panicking.

In Kuwait there has been quite a lot in the press about how much extra money they are going to lose that they thought they would make,” she adds.

While all the above is undoubtedly true, IT suppliers are still targeting the oil and gas sector here in the region, not least because IT is essential to the exploration and production side of the business — the so-called “upstream” side (the distribution side is commonly tagged as the “downstream” side of the business).

Mohammad Ayoub of GE Oil and Gas claims his company views IT as an opportunity to add value to its customers, such as enhancing their operations. Exploration is one of the most high-profile areas where IT contributes to the oil and gas sector, which is one of the biggest users of high-performance computing systems.

Opening up new oilfields or finding new reserves in existing ones relies heavily on IT — unsurprisingly so, when a ‘dry’ hole (a hole drilled in the wrong place, therefore not producing oil) can cost tens of millions of dollars.

By using high performance computing, reservoir engineers can optimise the production of a field for a fraction of that cost, and far more quickly, allowing a firm to maximise revenues.

While the upstream usage of IT is essential to the sector’s success, IT is equally important elsewhere — much like any other business sector, firms in the oil and gas sector are facing tough competition, distribution challenges, a need to better understand their customers, and a battle to control overheads.

“On the upstream, when they are actually investigating and doing the seismic surveys, they need information access to be very fast and reliable as they have to have access to this information and it needs to be shared all the time,” says Adwani.

“On the downstream, when they have actually collected the oil and are going to sell it on, companies need to consolidate, manage the information, distribute it, make sure all the right people have access to the information required to run the business,” she states.

“Today’s energy industry thrives on IT and a significant portion of a plant or process unit comprises of high-tech equipment providing a lot of savings in terms of man hours, implementation costs, and MTBF [mean time between failure],” points out Imran Khan, head of operations and marketing at specialist consultancy Data Media Systems.

“The use of IT has optimised many processes, provides better control and has in general multiplied output many times over,” Khan claims.

Add in the fact that — however frugal they may be — oil and gas firms do still have huge budgets at their disposal and thousands of employees that they want to equip with technology and suppliers’ eagerness to work with them becomes understandable.

A large PC refresh at Aramco, for instance, can heavily impact on the quarterly PC market figures for Saudi Arabia; its influence is felt in many other sectors as well.

Aramco is still reputed to have the largest single instance implementation of SAP’s enterprise resource planning (ERP) software in the world, and is a key development partner for SAP in the oil and gas sector, sitting on the firm’s industry council.

SAP’s Blower points out that a firm such as Aramco is simply a massive entity, which necessitates it having to use IT in a number of different areas.

“Aramco has the SAP Airline solution because they have a lot of planes and a lot of helicopters charging about and servicing oil fields and servicing their production facilities.

They have a hospital solution because they have a lot of clinics onsite for their employees,” he states.

“So our ability to deliver a lot of vertical solutions for different industry sectors is of benefit to oil and gas customers as well,” Blower points out.

SAP’s vertical approach to ERP means that it offers a specific product for the petrochemical sector — a sector which has seen strong investment across the Middle East in the past year or so — rather than just relying on its oil and gas package, Blower says.

“You can’t have one size fits all in any business, and the IT industry is no exception,” he explains.

“What works in an oil company needs some refinement, if I can use the pun, for the petrochemical industry. We try to develop some vertical solutions and then get some sub-industry packages for those industries, all built obviously on the core SAP products.”

Other suppliers adopt a modular approach to their products, allowing the oil and gas firms to pick modules according to their requirements.

“Because we’ve got a lot of oil and gas customers globally we’ve got a few of the best practices in there specifically for oil and gas but also from other industries as well,” says IFS’s Johnson, of the supplier’s ERP application.

”So for instance we have a maintenance program, which will mean their assets are operating for a long period of time,” he claims.

The Emirates National Oil Corporation (ENOC) relies on an Oracle ERP implementation to help run the 40-plus companies that make up the group.

According to Shankar Iyer, CIO at Enoc Group, it has been working with Oracle since the late 1990s, adding modules as the need has arisen.

“We were a few companies [when beginning the implementation], now the group has expanded vertically, completely in the oil and gas. We have shipping interests, we have terminals and storage, we have chemicals, we have refineries, we have trading companies and so on,” he says.

While ENOC has been expanding and diversifying its business, Oracle has been adding more functionality to its ERP software, Iyer points out, meaning the group has been able to keep on working with the software.

“Today you might not have a feature, but Oracle definitely has a roadmap,” he says.

“There are many [modules] such as property management which weren’t there when we began. Even if it was available we might not have implemented it. Similarly, the asset management is a later introduction by Oracle. So things are getting added into the product functionality. Features such as analytics are going to be available to us in the future so this is very exciting for us.”

This sort of large-scale implementation is not cheap; Iyer estimates that ENOC has spent as much as US$10million on its Oracle software, including such costs as manpower resources. However, the return on investment (ROI) has been “definitely much more than that” he claims.

“For example if you take one of our subsidiaries that is very visible — Eppco the refilling station — we would have millions of transactions related from various filling stations and we maintain balance sheets and profit and loss accounts for each of the retail outlets, so we can go up to that level,” he says.

While the oil and gas sector needs to use the more ‘traditional’ IT solutions that are found in other industries, such as ERP, on the ‘upstream’ — the production side — can be seen a range of more specialised solutions.

Here as well, IT is seen as absolutely essential to delivering the productivity benefits that firms need.

“We view IT as an opportunity to add value to our customers by enhancing their operations, improving their productivity, and facilitating the sharing of information with them,” says Mohammad Ayoub, the regional general manager for specialist firm GE Oil and Gas.

For instance, he cites the ability to create remote services as one of the most beneficial innovations in IT.

Two examples of these are the remote monitoring and diagnostics (RM&D) of equipment and the ability to monitor the testing of equipment remotely.

RM&D allows for the observation of customers’ equipment in operation on a 24x7 basis. The parameters that are monitored on a nearly real time basis and processed by sophisticated computer programs allow experts to optimise machinery maintenance and reduce the incidence of unexpected equipment failures, benefiting customers in terms of equipment performance, availability, production, and the bottom line.

“Even equipment such as valves and controllers come with their own software and control systems which, if there is a malfunction, can send an automatic SMS to the operator in a matter of seconds,” says Data Media Systems’ Khan.

“With the advent of the internet and emerging IT technologies, a plant can literally be run from hundreds of miles away using software and related equipment.”

With the advent of the internet and emerging IT technologies, a plant can literally be run from hundreds of miles away using the correct software and related equipment.|~|As discussed earlier, another key area for IT usage is exploration. Applications such as reservoir modelling and simulation requires powerful number crunching machines; this role was traditionally assigned to proprietary supercomputers, but clusters, usually running Linux, are increasingly usurping these.

Aramco last year migrated its seismic processing environment from an IBM supercomputer to Linux clusters, claiming the move was “more cost-effective”.

Unsurprisingly, the makers of the proprietary machines take a different view. According to Gilbert Soufan, general manager for SGI Middle East and North Africa (MENA), he is already seeing customers deciding to switch back from Linux machines to supercomputers because of issues such as total cost of ownership (TCO) and manageability.

“We saw a big migration from our architecture two or three years ago to the cluster architecture because it was much cheaper, everybody had it, now we see that everybody is coming back to the specialised hardware to solve their problems,” he claims.

“In oil and gas seismic processing works nicely on clusters provided you have the expertise in-house to troubleshoot a cluster, to administer a cluster, to upgrade the cluster,” Soufan points out, adding that people fail to consider issues such as increased floor space and air conditioning needs.

“I know somebody that bought a cluster, because it was about US$50,000 cheaper than our machine,” Soufan says.

“The guy had to increase the air conditioning capacity of his computer room which cost US$450,000. If you look at the cost of ownership, he would have better bought a machine that was designed to be a supercomputer,” he notes.

“I think one of the challenges facing the oil and gas industry at the moment is the en masse move towards open source software, in particular Linux and the management challenges of that large scale move,” acknowledges Jeff Olds, engagement architect, for Sun Microsystems’ Oil & Gas sector.

“We’ve seen some instances where customers have preferred to stay with proprietary operating systems [OS] because of the manageability and the security of that,” he claims.

However, Olds warns, the trend towards open source software is only likely to increase with many of the specialist independent software vendors (ISVs) that cater for the industry deciding to only release versions of their products for open source platforms.

“I had a customer talking to me quite recently about their requirements and their whole team is trained on a proprietary OS, in fact it is Solaris,” he says.
“They needed to replace a lot of equipment and all of a sudden they realised the ISVs weren’t supporting the latest versions of the software on Solaris.”

Sun Microsystems supports both the Red Hat and SuSe Linux variants, Olds points out, so the firm is happy to work with this trend.

Soufan says that SGI does provide clusters for some of its customers, and supports their usage in certain areas, such as seismic processing. However, he refers to them as “destructive technology” and insists they will not solve all problems.

In particular, Soufan points to the complexity of simulation as an area where clusters do not provide a good solution. SGI’s shared memory architecture works well for the huge amounts of data that simulation entails, Soufan says, helping firms to build three-dimensional images of their reservoirs.

This can help to avoid the previously-mentioned problem of a “dry hole” — drilling carried out at the wrong location. Since this can cost anywhere between US$20 million to US$40million, an investment of US$1million in a 3-D reality centre makes good economic sense, Soufan says.

Specialists from different disciplines, such as reservoir engineers, geologists, petroleum engineers and so on, will examine a three-dimensional image and attempt to decide where best to drill.

“I saw one of the general managers of an oil company recently and he said you see thi- ngs on that screen we never knew existed in our fields,” he points out.

“It is just because when you see it on a big screen in 3D it changes the whole thing and you can make the right decision much quicker. So that for an US$1million investment you can save about US$$40million drilling a dry well.”

Such intensive number-crunching applications inevitably mean that huge amounts of data are being generated by the oil and gas sector.

Storage management is seen as a growth area; while firms in the Middle East are generally seen as lagging behind their counterparts in the US and Europe in storage management issues, the oil and gas sector may well find that it will have no choice but to adopt better practices.

“Outside the region, storage management is something that people have adopted for some time. I’m not sure the storage market here is mature enough at the present time,” says Olds.

Overall, IT is seen as essential to the development of the oil and gas sector.

“The use of IT in the oil and gas sector will only increase with time,” states Khan.

“As new intelligent equipment is introduced in the market, it will only bring more requirements for IT. Today software packages worth millions of dollars are being used worldwide in the energy sector.”

“With growing production and growing need to optimise processes and production of oil and gas products, the IT industry will play a major role in making these things happen."

Case study: GE Energy

One of the largest petrochemical plants in Kuwait has implemented a mechanical health monitoring system from power generation technology specialist GE Energy.

Joint teams from operations and maintenance will use GE Energy’s Bently Nevada 3500 hardware and System 1 asset management software to assess the mechanical and thermodynamic health of industrial equipment and detect potential faults.

The physical installation took place during a scheduled 40-day shutdown of the plant in March that only happens every ten years and so the implementation team had to plan and execute the project meticulously in order to meet the deadline.

“This was a five-month cycle, so it really represented a challenge for us to execute flawlessly and meet the time commitment,” says Akram Hamad, regional general manager for optimisation and control at GE Energy.

“During the five months we had to us a lot of our resources to ensure that we were working very close with Equate, because there was no room for any error,” he continues.

“We were given the start five months before the shutdown. The shutdown is for 40 days and we were able to finish the work ten days ahead of schedule. So it took 30 days and we had between12 and15 people in teams working in order to finish early,” Hamad adds.

The new system replaces a mix of 15-year-old legacy technology that Hamad describes as not up to the high standards of reliability and flexibility required today.

“It [the old system] lacked certain flexibility in its functionality, so for example this system did not have the functionality or required technology to allow information flow to the right decision makers to enable an integrated information flow from various assets in the plant,” he explains.

GE Energy said with the new system in place, Equate had already been able to identify and fix three “critical” issues and avoid having to shut the plant down at a later date, which could have lost the energy firm one week of operations.

“So far several faults have been detected in the start-up alone using this technology platform and reduced downtime for Equate,” Hamad claims.

GE Energy also has similar projects underway with Aramco, KNBC, Sabec, Qatar Petroleum, ADNOC and Gasco.

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