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| Pushing oil |
January 2, 2008 |
From worker safety to the hourly price of crude on the world market, technology drives the global oil industry
By Ian Harvey
 If Kent F. Moors and his colleagues are right, 30 years hence crude oil will be an oddity and your SUV’s V8 gas engine will be history, shoved aside by a flock of new technologies ranging from natural gas to biodiesel to electric.
But the executive managing partner of Risk Management Associates International and a global energy consultant for EDS International said we shouldn’t wait decades to begin thinking about this: we need to start now. Between now and 2038, the real crisis will not be which technologies we’ll adopt, but how we’re going to transition to a future without crude dependence.
In a keynote speech to the Global Business Forum in Banff in September 2007, Moors said we require aggressive coping strategies to maximize our remaining fuel and develop new resources. This is because we’ve entered the era of peak oil, in which all oil reserves are currently in production and there’s little more to access. The peak is not a summit but a bell curve, whose tapering line signals the exhaustion of cheap oil supplies and the dramatic rise of prices—something we’re reminded of every time we gas up.
As EDS fellow Joe Hill said, this increasing scarcity pushes exploration to more and more inhospitable, remote and dangerous places, raising the risk factor not only in terms of investment but also in human lives.
And the need to both exploit existing oil and find new sources, plus the safety issues that creates, is pushing information technology into the limelight. “Safety becomes a mantra for these companies,” he said, and that’s where IT is making a giant difference.
Harsh conditions, higher risk
Randy Mutch, director of IT with Ensign Energy Services out of Calgary, Canada’s second- largest land-based drilling contractor and third-largest well servicing contractor, couldn’t agree more.
“When I worked on the Beaufort Sea with Dome Petroleum back in the ’80s, we went 24/7 all year round,” Mutch said. “They tarped [the work area] pretty well and had prefab walls and heaters, but it was still cold up on that derrick and if you had to go outside it was brutal.” Technology has shifted the burden, he said, and operators now work inside heated and protected cabs using joysticks to control drilling operations. “This is the PlayStation generation,” he said. “What used to take a crew of five, we can do with three now using ADRs—automated drilling rigs. You don’t need the muscle you used to have and it’s a much cleaner and safer job.”
It’s a critical shift because in Arctic conditions of sub-40 degrees Celsius, for example, small accidents can be fatal. Technology not only manages the data but also cuts down the number of workers needed on site. And for those who are there, the same wireless networks that stream operation data from sensors also provide instant tracking of personnel in the event of an emergency or if a worker fails to check in.
As such, drilling operations are a lot smarter with fibre optics, sensors and even micro-cameras mounted inside wells, all streaming data to myriad destinations. With a wireless canopy in place streaming its collective input to the base station, the benefits of IT really start to kick in.
“People anywhere in the world can look at the real-time data to see what is going on,” Hill said, checking things like pressure inside the well. “It’s like having X-ray vision.”
Worldwide oil market
It’s efficient too, given the short supply of engineers and geologists: better to centralize core knowledge and to stream data to that location than to ship human resources to the frontiers of exploration.
But there’s another dimension to that data, an element consumers see at the pumps. With a much better reading of how much crude is being pumped and the operating capacity of refineries, the industry claims that prices more accurately reflect the market demand on any given day—or hour.
And people who believe oil companies are in collusion on their pricing can see actual evidence of pricing factors. Joel Martin, vice-president of software at IDC Canada, said Big Oil has been sharing data and collaborating in much the same way airlines have used information technology to share passenger load data among their alliances, such as Air Canada’s Star Alliance affiliation with Lufthansa and United.
“The energy sector is late to the IT party, but the thing about oil and gas is that they’re modernizing supply chain applications [in a way similar to] Dell Computer or Wal-Mart.”
The goal is to move inventory: rather than having crude sitting in storage, today’s stock is in the pipes and the holds of tankers. “If you are holding inventory at $5 a gallon because there’s a storm expected in the Gulf of Mexico and it instead turns out to be a shower, your asset is suddenly a buck,” said Martin, adding large-scale enterprise systems offered by the likes of SAP, Microsoft and Oracle are being harnessed to track such global factors affecting energy pricing.
Those large Enterprise Resource Planning software platforms, which anchor everything from global retail to financial services, are mission critical in their ability to juggle, filter, collate and translate diverse data ranging from currency fluctuations, weather, demand, production, distribution and pipeline capacity in real time.
Cheaper computers, better software
A combination of this collaborative stance, cheap computing power and packaged software linked via middleware, which connects databases to make them accessible across platforms, is increasing the accuracy of predictive pricing in the crude spot market.
“It really started in the 1970s (the last oil crisis) when the companies started putting money into software and hardware,” Martin said. “At the time it was mostly in building proprietary systems as advised by all those high-flying consultants. Nothing much happened through the ’80s, maybe some upgrades, then when Y2K hit it really started to take off.”
Today, the data stream runs from the well to the gas pump with all players at all levels contributing. Ensign Energy, for example, with 8,000 employees worldwide, started deploying Microsoft Dynamics, an ERP platform, and the results have been dramatic, Mutch said. “We’re a really diverse business. For example, we rent different types of rigs and other equipment, and we also have camps and catering services, so that puts us in the hospitality business, too. So automating was a challenge.” Mutch said the process started in July 2005 and finished in spring 2006. “And we’re international, so you have issues like currency fluctuation as well.”
The payoff for the company was immediate: “Until that point we had a paper-based process with faxes, Greyhound bus deliveries and cellphones; very low tech. Now the guys in the field have laptops and portable printers. They’re capturing the data on site and they have Aircards (PC cards that deliver notebook Internet access) which log on every hour or so and dump data back to us here so we’re not waiting on the Greyhound bus to deliver paperwork.”
Not only are clients getting current data on their wells’ progress, more mundane functions like invoice and payroll processing are improved as well. And that makes Ensign more competitive. “The sales team can sit in the war room and, if a client says, “we have work,” they know where the nearest appropriate and available rig is. With paper and phone calls we might not know (availability) for a couple of days or a week. Pricing is a lot more accurate, too. Whereas it might have been an estimate from a price book before, the system now knows all the terms of the contract with that client.”
The future: LNG arbitrage
Yet even as we scramble to find more crude to pump from the ground, Moors said IT is enabling the industry to look at new hydrocarbons and at advanced refinement and delivery processes.
The future, he said, is Liquid Natural Gas (LNG). As its name suggests, LNG is compressed to a liquid form and stored at extremely cold temperatures. While it has been around for half a century, the cost of storage, transportation and distribution compared to the cheap price of crude has limited its expansion. In fact, oil fields typically burned it off as a nuisance product. However, as crude prices rise, so too does demand for LNG, and Canada is building new terminals for LNG freighters.
“In the North American market, LNG will certainly be the single most significant global energy development of the early 21st century,” he said. “North American reliance on LNG imports will increase, given the fact current projections show a decline in U.S. and Canadian natural gas production.”
Again, IT will play a key role. Those LNG tankers bobbing about on the seven seas will not be locked into their destinations, Moors said. If spot prices shift— driven by demand, disaster or even crude prices—tankers will be diverted accordingly. In this scenario, the current competitive oil market—which sees a storm in the Gulf of Mexico pushing gas prices up in Winnipeg—will only intensify, and that kind of arbitrage may see countries waging economic war in an effort to maintain their energy supplies.
So expect IT to take on an even more central role as market pressure increases and buying cycles decrease, Mutch said. “I’m from Victoria, B.C., originally and I sometimes get a hard time from folks back home because I work in the oil and gas industry. But what I tell them is, everything I do in IT is designed to reduce the cost, deliver better service and get the stuff out of the ground in a more efficient way with less waste and less damage to the environment. And that’s good.”
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