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Blog Hint Cost Cutting

Blog Hint Cost Cutting

The need to economize forces oil and gas industry to innovate

Four promising ways to cut costs

With the lowest oil and gas prices since 2009, and the disappearance of work floor-based knowledge, cost cutting has become a priority for many companies in the industry. Research by Lloyd’s Register Energy shows that the reduction of costs is the main objective for 43 per cent of organizations in the oil and gas industry. Meanwhile, improvement in operational efficiency, directly related to the cost, scored 44 percent.

I believe, going forward, that investment in innovation is the best way to save. First sow and then harvest. While the crisis of the last few years can now be left to the history books, it has left its mark. Back then, there was too much resting on laurels, which allowed us to be overtaken, suddenly, by events. Now is the time for catching up. In modern industry, digital technology is most often responsible for cost reduction. I find a number of additional developments to also be promising. My top four:

  1. Every oil and gas factory is an ICT company:
    In the future, each plant in the energy industry will be controlled from a digital platform. Here all the data on the site will be measured together in one dashboard. The system would then analyze the data and draw conclusions on which engineers on the shop floor can base their actions. Think of “actions” not as physical work in the field, but as adjustments to the plants from afar. Maintenance is condition-based and not malfunction driven. This saves costs since you keep ahead of potentially bigger problems. According to a Gartner study from 2013, effective software-based asset management can, within one year, result in technology cost savings of 30 percent. With a high degree of automation, we also address the outflow of personnel and knowledge that many companies face. This becomes another cost saving because you can make do with less staff at a plant.
  2. New extraction methods:
    Oil fields are still being found, but their reserves can be difficult to exploit. Some organizations have become more adept at exploiting such reserves. In Texas, Norway’s Statoil, for example, is currently experimenting with sand of different gradations. It is spraying water and chemicals in the ground to loosen hard rock that is deep within the soil. It also varies the depth of wells in order to discern what level delivers the highest production. The engineers can control the valves remotely and can quickly adjust the flow. But does this represent cost savings or investment? As so often is the case, they go hand in hand. Statoil can now produce more with fewer rigs and the average cost of the drilling process has decreased from $4.5 million to 3.5 million by, for one, reducing the initial exploitation time from 21 to 17 days.
  3. Measurement while drilling:
    With the Measurement While Drilling (MWD) method, data about the condition of the well is collected during the drilling for oil. Information about the composition of the stone that the drill encounters on its way down, along with the pressure in the well, is analyzed real-time by engineers. Also, a three-dimensional graph can be made of the well, so that the drill is guided directly to the reserve. This makes the drilling process more efficient and precise. During drilling, the process can be adjusted for maximum yield. No more ‘trial and error’ saves money. Hours of non-productive time can be eliminated and the risk of blow-outs is made smaller.
  4. LNG metering and sampling:
    LNG is extremely popular, especially in countries that have no energy resources. LNG transport by ship is relatively easy. This would be beneficial to producers were it not that this sport is still so new and there are few or no industry standards, which leads to many losses in the loading and distribution process. What happens between the point of departure and arrival port is, in part, a black box. We have not fully penetrated the physical properties of the gas under low temperature. The measuring volume is not very accurate, and this also applies to the sampling. The margin of error can be as much as ten per cent. If measured quantities and qualities do not match, this can result in huge unexpected costs. I anticipate that there will be a lot of savings achieved in the future. The technology is in the works and Hint is also working with partners to develop the right measurement and analysis technology for LNG. We’re not there yet, but we’ll definitely get there.

Wouter Last, President Hint