ASSET INTEGRITY

MANAGEMENT IN OIL & GAS:

ADOPTING A LEAN APPROACH
IN THE MIDDLE EAST

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Produced by IQPC Middle East in association with the 11th Annual Asset Integrity Management Summit in March 2016 in Muscat, Oman.
 The world must adapt to a THE CASE FOR
new reality as it braces itself ASSET INTEGRITY
Asset integrity for continued low oil prices MANAGEMENT
management is going into 2016. The Middle
In the past, oil and gas reserves
East oil and gas industry is
emerging as crucial in the Middle East were relatively
at the epicentre of this trend easy to access. High productivity
tool in reducing costs and can no longer rely on and low costs enabled operators
whilst maintaining its tried-and-true tactics to to profit substantially despite minor
inefficiencies, which went unnoticed
production goals. maintain profits and sustain or outright ignored. Only in recent
How well the oil-rich the regions oil-dependent years has asset integrity become
region implements economies. Asset integrity such an important fixture of oil and
gas companies business models in
lean processes will management is emerging as the Gulf region.
determine its future crucial tool in reducing costs
The oil price burden makes it
in the global energy whilst maintaining production increasingly more urgent for
playground. goals. How well the oil-rich companies in the Middle East to
region implements lean implement and normalise asset
integrity management schemes in
processes will determine its order to minimise costs and improve
future in the global energy output.
playground.
LEAN SCHEME
Since 2014 world oil prices
have fallen significantly, bringing BECOMES THE
both global and local oil and gas FUTURE
companies to their knees. While some
experts are painting a more favorable World-class operators have an
picture by predicting a rise of 10 approximate 15-percent greater
percent by June 2016,1 energy firms output from existing wells than the
are eager to weigh their options. The industry average, primarily because
industry is now shifting its focus from they get involved in operations based
capital expenditures and investments on what they learn from the data
towards adopting extensive asset collected about the performance of
integrity management strategies in their reservoirs.
order to strengthen their existing
1 http://marketrealist.com/2015/10/wti-crude-oil-
assets and get the most out of current
prices-rise-10-june-2016/
operations.

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Lean Six Sigma manufacturing is a deliver up to 30-percent more value
systematic approach that minimises from producing assets.2
waste across the oil and gas supply
Corrosion: Costing oil and gas
chain by evaluating the overall flow of
players billions of dollars each year,
a product through the entire course
the result of corrosion and erosion
and determining what adds value
on pipelines is a heavy burden. Oil
and what doesnt. Lean processes
and gas pipelines deliver energy
smoothens production processes
resources that are often corrosive
and cut cycle times and costs.
crude oil that can damage pipeline
Operators are focusing on areas safety and ultimately lead to leads
and spills. Operators are now
from which there is most to be
using various technologies, such
Business consulting
gained.
as ultrasonic testing and GPS, to firm Bain & Company
Inspection: Inspections result determine the internal and external followed up with a
in invaluable data and provide equipment of pipelines, shifting
insight into how equipment and their former reactive approach into report that predicted
processes can be optimised to something more proactive and oil and gas companies
analytical. Experts determined that
produce less waste. Ultimately,
between 20 percent and 25 percent
are able to boost
quality inspections reduce costs
for operators and save time as well of all corrosion-related costs could output by 6 percent
as avert malfunctions. Inspection be avoided if effective monitoring and to 8 percent if they
techniques include remote visual detections systems are in place.3
inspection, ultrasonic testing,
employed better data
Maintenance: Lean
radiographic testing, eddy current maintenance centres on regular analysis programmes.
testing and software solutions, assessment of equipment to predict McKinsey revealed
among others. or to prevent shutdowns or failures.
Management consulting firm With much at stake, unplanned
that improved
Mckinsey & Company released shutdowns and prolonged operations can deliver
a report in 2015 detailing analytic turnarounds of equipment and up to 30 percent more
habits of oil and gas players as machinery can render major daily
well as the potential rewards of financial loss for operators. value from producing
inspection programmes. When In the first half of 2014, Indonesias assets.
the firm assessed North Sea BP Migas experience 122 unplanned
operations, it discovered that rigs shutdowns, resulting in a loss
were operating only 82 percent of 6,860 barrels of oil per day. In
of the time, despite operating oil 2011, a refinery of Shell Singapore
and gas firms target of 95 percent. experienced a fire that led to a loss of
According to McKinsey, had this approximately 500,000 barrels of oil
been noticed, boosting output per day.
efficiency by 10 percentage points
could have translated to nearly How lean maintenance is employed
$260-million bottom-line impact on varies from operator to operator, but
just one brownfield asset. it hinges on the same idea to avoid
Business consulting firm Bain repairs and to focus on prediction
& Company followed up with a and/or prevention. Elite global
report that predicted oil and gas operators with fierce maintenance
companies are able to boost output
by 6 percent to 8 percent if they 2http://www.mckinsey.com/insights/energy_
employed better data analysis resources_materials/this_is_the_time_to_deliver_on_
programmes. McKinsey revealed upstream_operational_excellence
3https://www.gemeasurement.com/sites/gemc.dev/
that improved operations can files/corrosion_erosion_brochure_english_4.pdf

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 strategies tend to have a best- a higher pressure drop in the chiller
practice-facility reliability of 95 percent and realised that it was caused by
to 98 percent with maintenance costs a build up of solid particles. The
that are 30-percent less than the solid particles were analysed and
average.4 A proactive maintenance disclosed the presence of iron-
programme can salvage customer based materials, which resulted
relations, lower costs, prevent injury from corrosion in the system. Next,
and avert a potential disaster. the team improved the propane
circulation rate and pressure setting
FURTHER CASE of the propane refrigeration system.
From December 2010 to January
McKinsey & Company STUDIES INDICATE 2011, the plant witnessed not only
discovered that LEAN PROCESSES a significant increase in C3 purity

proper reservoir man- SAVE MONEY AND of the NGL products but also a rise
in the composition of C3 in NGL,
agement can lead to OPTIMISE OUTPUT a jump from 25-percent volume to
nearly 40-percent volume.8
16 percent upsurge in The global oil industry already is well
underway in applying lean processes Saudi Aramco utilised Lean Six
volume. In one to their production lines. The Middle Sigma to reduce the energy
instance, McKinsey East is no exception. intensity index (EII) of one of its
refineries. Data collected advised
saw a volume McKinsey & Company discovered the application of steam flue gas
increase of 100,000 that proper reservoir management oxygen optimisation and boiler
barrels of oil per day can lead to 16 percent upsurge in load management as solutions.
volume. In one instance, McKinsey From 2010 to 2011, the EII of the
some 15 percent of saw a volume increase of 100,000 refinery improved from 78.9 to 77.3,
total daily production barrels of oil per day some 15 resulting in cost savings of $1.4
percent of total daily production million per year.9
as a result of as a result of reservoir management The King Fahd University of
reservoir management measures.5 Petroleum & Minerals in Saudi
measures. Chevron began to apply Lean Six Arabia led a study that analysed
Sigma in 1999 and was able to cut choke valves in an oil field. Of 240
operating costs by 30 percent at a choke valves at the field under
water treatment plant in California. study, 37 reported failures. With
In 2008, Chevron saw a financial Lean Six Sigma tools at their
reward of $250 million from its Lean disposal, researches pinpointed
Six Sigma programme. In 2009, this that 78 percent of choke valve
number increased to $400 million failures were related to the design
and in 2010, to $500 million.6
Meanwhile, Halliburton is a leader
in Lean Six Sigma and Shell has 4
http://www.mckinsey.com/insights/energy_
its own brand of the methodology resources_materials/this_is_the_time_to_deliver_on_
upstream_operational_excellence
called Shell Six Sigma.7 5
http://www.mckinsey.com/insights/energy_
resources_materials/this_is_the_time_to_deliver_on_
In 2011, Saudi Aramcos Khurais upstream_operational_excellence
central processing plant revealed 6
http://www.oilandgasiq.com/strategy-management-
an increase of 70 percent in its and-information/articles/the-six-sigma-whirlwind-
reaping-the-rewards-of-pro/
NGL yield after the application of 7
http://www.oilandgasiq.com/strategy-management-
Lean Six Sigma methodology. The and-information/articles/the-six-sigma-whirlwind-
reaping-the-rewards-of-pro/
assessment was carried out on the 8
http://www.ogj.com/1/vol-109/issue-49/processing/
low C3 recovery in NGL products at gas-plant-improves-c3-full.html
9
http://www.linknovate.com/publication/profitability-
the plant. Following Lean Six Sigma through-lean-six-sigma-save-energy-save-
recommendations, experts noticed environment-2345208/

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 of the valves. Other top reasons not 30-years old, and more than 250
for failure were the existence of fixed offshore platforms of Indias Oil
foreign particles coming out the and Natural Gas Corporation (ONGC)
well, inadequate preventative are designed according to API-RP-2A
maintenance programmes and standards and are now exceeding
incorrect pressure settings. The their design life. Its oldest asset has
researchers were then able to been operating beyond its design life
determine a plan of action, which for the past 14 years.13
included upgrading choke valve
materials, ensuring the availability Life extension efforts are taking hold.
of spare parts, emphasising proper Some of the efforts initiated by Middle
rig cleaning activities, studying East operators include:
the feasibility of installing strainers
UAE-based Abu Dhabi Marine
upstream to avoid foreign particles
Operating Company has inherited
and updating the design pressure
a life extension agenda to assess
of the valves. Such measures, they
ageing wells and formulate plans
determined, would lead to a cost
to upgrade all ageing pipeline
avoidance of 50 percent.10
networks by 2030.
Ultimately, operators who execute a The Al Khafji Joint Operations
lean approach can experience valuable project, a joint venture between
cost savings as well as 80-percent Kuwait and Saudi Arabia, has
While asset integrity
schedule compliance. Meanwhile, the initiated an asset performance management tools
time frontline workers spend on value- management programme
adding activities stands at 60 percent, have long existed,
While Abu Dhabis Bunduq Oil
whilst the industry average hangs
Company and Qatars DNV GL are
they are relatively
around 30 percent.11
both pursuing structural integrity new to the Middle
LEAN MANAGEMENT management systems for their East region and
ageing offshore facilities.14
EXTENDS TO LIFE are becoming
EXTENSIONS AMIDST ASSET INTEGRITY imperative additions
AGEING ASSETS FUTURE to operators
According to the Paris-based While asset integrity management functioning in a
energy cooperation programme tools have long existed, they are troubled economic
International Energy Agency, the relatively new to the Middle East
region and are becoming imperative
environment.
demand for energy around the world
will double by 2050.12 And while additions to operators functioning in
this is a positive trend for those a troubled economic environment.
profiting from oil and gas industry Profitability hinges on how well
operations, it also underlines the companies realise the large benefits
pressing need for operators to that result from subtle, nuanced
gamble with less attractive terrain changes in existing operations
and with ageing assets, no less. The and from avoiding new capital
oil industry must take on hard-to- investments. Facing a new reality,
access, unconventional hydrocarbon the Middle Easts future lies in asset
reserves and face environmental and integrity management.
political challenges unlike any other
time in its history. Meanwhile, ageing 10 http://www.iaeng.org/publication/WCECS2014/
assets are operating far beyond their WCECS2014_pp1010-1015.pdf
11 http://www.mckinsey.com/insights/energy_
original design life, serving as another
resources_materials/this_is_the_time_to_deliver_on_
downside for an already strained oil upstream_operational_excellence
industry. 12http://www.thenational.ae/business/industry-
insights/energy/how-middle-east-oil-must-adapt-to-
new-realities
Some 70 percent of assets across 13 http://insights.claxtonengineering.com/3-signs-that-
all industries globally are mature. asset-life-extension-is-taking-off-in-the-arabian-gulf
14 https://www.dnvgl.com/oilgas/perspectives/
More than 3,000 conductors in the
operators-ramp-up-life-extension.html
Arabian Gulf are over 20-years old, if

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Sources:
http://marketrealist.com/2015/10/wti-crude-oil-prices-rise-10-june-2016/

http://www.mckinsey.com/insights/energy_resources_materials/this_is_the_time_
to_deliver_on_upstream_operational_excellence

https://www.gemeasurement.com/sites/gemc.dev/files/corrosion_erosion_
brochure_english_4.pdf

https://www.gemeasurement.com/sites/gemc.dev/files/corrosion_erosion_
brochure_english_4.pdf

http://www.mckinsey.com/insights/energy_resources_materials/this_is_the_time_
to_deliver_on_upstream_operational_excellence

http://www.mckinsey.com/insights/energy_resources_materials/this_is_the_time_
to_deliver_on_upstream_operational_excellence

http://www.oilandgasiq.com/strategy-management-and-information/articles/the-
six-sigma-whirlwind-reaping-the-rewards-of-pro/

http://www.oilandgasiq.com/strategy-management-and-information/articles/the-
six-sigma-whirlwind-reaping-the-rewards-of-pro/

http://www.ogj.com/1/vol-109/issue-49/processing/gas-plant-improves-c3-full.html

http://www.linknovate.com/publication/profitability-through-lean-six-sigma-save-
energy-save-environment-2345208/

http://www.iaeng.org/publication/WCECS2014/WCECS2014_pp1010-1015.pdf

http://www.mckinsey.com/insights/energy_resources_materials/this_is_the_time_
to_deliver_on_upstream_operational_excellence

http://www.thenational.ae/business/industry-insights/energy/how-middle-east-oil-
must-adapt-to-new-realities

http://insights.claxtonengineering.com/3-signs-that-asset-life-extension-is-taking-
off-in-the-arabian-gulf

https://www.dnvgl.com/oilgas/perspectives/operators-ramp-up-life-extension.html

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 Official Host Organisation Co-Hosted By

Dont miss the 11th Annual Asset Integrity Management Summit, offific
cially hosted by Petroleum
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Muscat, Oman.
Join the leading oil and gas operators in the region including PDO, Shell, Orpic, Saudi Aramco,
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Also, gain insights into methodologies and strategies to help you successfully plan, initialise and
implement high-level inspection, maintenance and integrity assurance framework to deliver, support
and maintain asset capabilities to ensure it is safe, cost-effective and reliable for operation.
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