Chuck Newmister, Reliability Systems Account Manager with SKF takes a look at how an effective asset management strategy can help companies in the oil and gas sector protect their operating margins at a time of growing volatility.
The oil and gas sector is under pressure to maintain operating margins. Oil prices have fallen dramatically in the last twelve months, mainly driven by over-supply. This has been due to a range of factors including new reservoir discoveries and drilling techniques, the shale fracking boom, weakness in major economies, growing availability of alternative energy sources and the introduction of ever more efficient combustion engines in cars, trucks and industrial and power generation plants.
Although the market for natural gas is slightly healthier, here too there is growing concern as short term supply is likely to exceed demand, with industry analysts predicting only modest annual growth of 2.4% to 2018 .
Continuing volatility across the supply chain seems likely to become the norm in the immediate future. Companies therefore need to prepare for uncertainty, adapting their operations to become increasingly agile while developing improved methods to derive maximum value from existing and future investments in extraction, refining and distribution systems and equipment.
Asset Management & cost optimization
The oil and gas sector has from the early days of volume production and commercialization led the world in the use of predictive and preventative maintenance, developing models followed by many other sectors of industry. These techniques have been used as key tools to improve plant and process safety, efficiency and optimization and have underpinned the growth of a new discipline of asset management.
Asset management is based on a strategic assessment that identifies plant improvement opportunities based on criticality and then defines and applies the most appropriate solutions. The objective is to incorporate business goals, application challenges and organizational culture into a road map that improves the reliability, performance and functionality of all operational extraction, process and distribution assets. A methodology of Asset Efficiency Optimization (AEO) is then applied to ensure that every asset is utilized as efficiently as possible, to maximize output without increasing capital expenditure, while reducing overall maintenance and operational costs.
A successful asset management program depends on a clearly defined strategy. This has to be driven by business goals, starting with an understanding of the current situation and a vision of where the business needs to be to achieve optimum performance.
Ref: PWC http://www.strategyand.pwc.com/perspectives/2015-oil-gas-trends
This can be a difficult process to manage due to the complexity of the production and management systems found in many large, multi-site, multi-national oil and gas businesses. The starting point is generally to carry out a client needs analysis (CNA). This is based on a straightforward 40 question survey to provide a snapshot of the operation of each production facility, map the way in which its reliability processes are functioning and its position on the maintenance maturity continuum, benchmarked against industry averages and best practices. (see fig 1).
Once complete, the CNA provides the key data to draw up a detailed AEO plan to improve plant reliability and asset utilization. This work management procedure addresses four key areas: maintenance strategy, work identification, work control and work execution, providing an integrated methodology that reflects the unique processes, culture and technology at each facility or operation.
Taking a structured approach to asset management will be familiar to many companies in the oil and gas sector, especially larger organizations. However, what tends to occur is that over time carefully planned long term asset management programs become disrupted, due to financial restrictions, plant updates, company acquisitions, changes in regulations or the launch of new products. As a result, the viewpoint of managers and engineers becomes focused on short term internal issues, pushing longer term plans down the order of priority.
It’s also worth noting that although many companies in the sector have extremely effective asset management and plant reliability processes, these are not always systemized. Information and knowledge has been gained by plant engineers and operators over many years and remains largely locked in their heads, with only a small proportion being recorded and catalogued in a way that can easily be assimilated by new employees or third party contractors
A CNA analysis is a simple method of beginning the process, and can lead to the next phase, called an SKF Streamlined Reliability Centered Maintenance (RCM) project, where it is possible to begin capturing much of this valuable information in a way that is meaningful to plant engineers and senior managers alike.
Long term vision
The scale and complexity of most oil and gas operations means that to be truly successful an asset management strategy requires a clear vision and a long term tactical implementation plan. Anything less will almost certainly lead to an increase in operating costs, with the risk of growing levels of equipment downtime and system unreliability.
The growing market volatility and pressure on margins, combined with factors such as staff and skills shortages, and the particular demands of managing and maintaining oil and gas process systems, means that effective asset management can be a tough challenge. For many businesses, partnering with an experienced, knowledgeable and specialized partner such as SKF provides a far more cost-effective option. Outsourcing all or strategic parts of the process can deliver greater flexibility, accountability and control; it can also relieve the pressure on existing resources, for example, freeing internal engineering teams to concentrate on other business-critical activities.
One organization that has decided to outsource its asset management process by partnering with SKF is a major US oil and gas pipeline transportation company. The business operates over 12,000 miles of pipeline, 150 main pumping stations and a number of key distribution terminals at railheads, ports and road hubs. Over a ten-year period, however, the company has undergone several mergers and changes in ownership. Senior managers recognized that this had led to a gradual loss of focus on machine reliability, with inconsistent practices and methods of operation across the pipeline and distribution network; they also understood that the company’s predictive maintenance strategy required a complete revaluation but that the business lacked the necessary in-house resources to carry this out effectively.
Commissioned to carry out a CNA study and then to provide condition monitoring services using our network of field based service technicians to assess the status of around 700 pipeline assets across North America.
We later began investigating the most valuable assets, primarily at a number of key distribution terminals, focusing on critical systems and equipment. An important element in this procedure was the use of SKF’s RCM techniques. These concentrated on dominant failure modes and the effects of these failures; we then recommended specific actions to prevent problems reoccurring. Non-critical events were also evaluated and appropriate actions taken to optimize maintenance costs and increase productivity. The same approach is now being applied to the pipeline network of pumping stations.
SKF subsequently worked with the customer to begin developing standard job plans, which defined the critical steps that were required for each monitoring and maintenance activity, for example the repair of pump motors, including a list of the tools and parts needed, the repair steps involved and the time and resources required. This plan will be extended still further with a spare parts and stores optimization program (SPO), which minimizes stockholding and costs while improving the availability and location of key components to ensure that repairs are carried out quickly and cost-effectively.
This strategic approach to asset management has had both short and long term benefits for the customer. Outsourcing the management of condition monitoring services, paid for via an agreed monthly management fee, has allowed our customer to move the costs from CAPEX to OPEX budgets, making it far easier to cost-justify the program and improve cash-flow. Our strategic approach to asset management provides a clearly defined and consistent operating methodology that can easily be adapted as the needs of the customer’s business or the operating environment change, giving them a solution that is both secure and future-proof. Perhaps most importantly, we’ve delivered savings of over $1million in the first twelve months of the contract, through improved asset uptime and productivity, and reduced repair and maintenance costs. Savings that far outweigh the annual cost of the service contract.
Experience, knowledge & resources
Outsourcing is becoming increasingly common across industry, for core business services ranging from facilities management to logistics and IT. For companies in the oil and gas sector the challenge in outsourcing the management of mission and safety critical assets is finding a partner with the requisite knowledge, experience and global resources to provide the reassurance that each and every asset will be monitored and maintained to the highest standards at all times.
Major suppliers such as SKF are able to provide this reassurance. Just as importantly, as they have specific and specialized skills in the field of asset management, condition monitoring and preventative maintenance, they are able to deliver better results, faster and more efficiently than a comparable in-house function. An outsourced asset management partner adds an extra strategic dimension to the work of in-house maintenance and engineering teams, and can bring a fresh passion and sense of purpose. Ultimately, the outcome should be operational efficiencies, cost savings and improving levels of asset optimization that allows oil and gas companies to become increasingly agile in response to growing market volatility. At a recent program review meeting with the pipeline customer, a stakeholder applauded the fact that no asset under the SKF monitoring program had experienced a failure that could have been detected in 3 years. One of their seasoned rotating equipment specialists commented that “I can’t remember a contract or working relationship with a vendor that has been this close-knit. This reinforces the concept that success is not just about technology, but more about the people, their experience, their commitment personally and as part of a team.”
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