Automation Trends & Solutions in the Oil & Gas Industry

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Nov 5, 2013 (3 years and 11 months ago)

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Automation Trends & Solutions in
the Oil & Gas Industry

Larry O’Brien

Research Director

ARC Advisory Group

lobrien@arcweb.com

2

© ARC Advisory Group

Agenda


Oil and Gas Industry Definition & Trends


Size, Scope, and Automation Spending in the
Oil & Gas Industry


Automation Suppliers as Service Providers for
the Oil & Gas Industry


Summary & Conclusions

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© ARC Advisory Group

Agenda


Oil and Gas Industry Definition & Trends


Size, Scope, and Automation Spending in the
Oil & Gas Industry


Automation Suppliers as Service Providers for
the Oil & Gas Industry


Summary and Conclusions

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© ARC Advisory Group

The Oil & Gas Industry as ARC Defines It


Largely Upstream


Exploration,
Production,
Transportation,
Processing


Includes Pipeline
SCADA
Applications

(Figure Courtesy of Rolls
-
Royce)

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© ARC Advisory Group

Key Trends Affecting the Oil & Gas
Industry


Cost of Energy


Over $118 a Barrel and Counting


Simple Dynamics of Supply & Demand: Unprecedented
Demand Meets Increasingly Restricted Supplies


Rapidly Growing Economies of Asia, Eastern Europe,
Latin America are Fueling Demand


Middle East is in the Middle of the Second Oil Boom


Companies Need to Get More Out of the Ground, More
Efficiently, At Less Cost, and Without Unplanned
Downtime or Waste


Companies are Looking for and Producing Oil & Gas in
Increasingly Hostile Environments


Industry is Increasingly Vulnerable to Environment
(Natural Disasters, Hurricanes, Floods, Etc.)


Many plants and Facilities Have an Aging Infrastructure
that Needs to be Replaced

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Trends: The Cost, Need we Say More?


Capital Expenditures Focused on
Upstream


Despite record Oil Company Profits,
Refining is not very Profitable

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ROI for Upstream Operations Consistently
Tops 10 Percent

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Contrast that with the ROI on Refining!

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Trends: Supply & Demand, China Leads the
Way

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How Much is Left to Go Around?

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Trends: Middle East Hydrocarbon
Investments in a Boom Cycle

“Middle East and Libya account for 20 % of world
projects adding productive capacity between 2007 and
2011, according to CERA. Significantly, it is also the
region requiring the most manpower for design and
project management …..with 35 % of the world's
projected total”

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© ARC Advisory Group

Trends: More Efficient Production, Digital
Oil Field of the Future

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Trends: Finding New Sources of Production,
The Challenge of the 21
st

Century


Canadian Oil Sands


Arctic Circle


Deepwater Drilling


Oil from Coal


Harsher
Environments


Smaller Footprint

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Trends: Oil & Gas Industry Increasingly
Vulnerable to the Environment


Hurricanes, Floods,
Extreme Weather


Terrorist Threats


Cyber Security


Corrosion


Major Portions of
Production and
Refining Capacity
can be Wiped out at
a Moment’s Notice


Cost to Producers
can be Staggering

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Trends: Oil Infrastructure Needs
Modernization


ARC Estimates Total of $65 Billion in Installed
Process Automation Systems are Reaching the
end of their Useful Life


The Majority of this is in the Hydrocarbons
Sector in North America, Europe, and Middle
East

33.7%
16.1%
50.2%
New Plant
Expansion
Modernization
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© ARC Advisory Group

Agenda


Oil and Gas Industry Definition & Trends


Size, Scope, and Automation Spending in the
Oil & Gas Industry


Automation Suppliers as Service Providers for
the Oil & Gas Industry


Summary and Conclusions

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© ARC Advisory Group

Automation Market Observations


Increasing Plant Utilization


Increasing Capital Investment in Automation


Large Investments in Advanced Applications


Increasing use of Smart Field Devices and
Measurement Information


Increasing Importance of Automation
Systems Supporting Regulatory Compliance


Increasing Emphasis on Critical Condition
Detection and Incident Prevention


Aging Legacy Automation Infrastructure


Major Concerns over Plant and Cyber Security

Outlook for Automation Growth Never Brighter

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© ARC Advisory Group

Size and Scope of Automation in the Oil &
Gas Industry

Oil & Gas
Refining
Chemical
Pharmaceutical
Food & Beverage
Pulp & Paper
Power
Metals & Mining
W&W
Other
Upstream Oil & Gas Alone is About 12
Percent of Total Process Industry Spending
on Automation

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© ARC Advisory Group

Automation Spending in the Oil & Gas
Industry


0.0
2,000.0
4,000.0
6,000.0
8,000.0
10,000.0
12,000.0
14,000.0
2005
2006
2007
2008
2009
2010
ARC’s Forecast for Automation Spending in the Oil & Gas
Industry Worldwide Shows Very Strong Growth for the
Foreseeable Future (Millions of US Dollars)


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Automation Spending in the Oil & Gas
Industry


4.6%
5.3%
2.1%
5.9%
29.8%
2.8%
6.4%
5.6%
2.5%
0.3%
4.2%
30.5%
AC Drives
Flowmeters
Analytic
Transmitters
DCS
PLC
SCADA
Safety Systems
CPM
HMI
PAM
Other
Oil & Gas
Industry is
Number One
Growth
Industry for
DCS

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ABB is the Leading DCS Supplier to the
Upstream Oil and Gas Industry

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Agenda


Oil and Gas Industry Definition & Trends


Size, Scope, and Automation Spending in the
Oil & Gas Industry


Automation Suppliers as Service Providers for
the Oil & Gas Industry


Summary and Conclusions

23

© ARC Advisory Group

Why Demand Is Increasing for Service
Providers to Serve the Oil & Gas Industry



According to the US Journal of Petroleum
Technology, 60 percent of oil and gas industry
engineers currently employed are going to
retire by 2010.


Large Central Engineering Groups Among
Many Major Manufacturers Have Disbanded


Many Groups Have Been Spun Off Into
Separate Companies (Bayer Technology
Services)


Smaller Number of Personnel Responsible for
More Areas of the Plant

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The People Challenge: Aging Workforce

Exodus of Workers is Reducing Companies’ Ability to Sustain Operational Excellence

0
10
20
30
40
50
60
70
80
1900
1920
1940
1960
1980
1990
2000
2010
2020
2030
Millions of People
Year
People Over Age 65

Source: US Census

-
10%
21%
52%
-
20%
-
10%
0%
10%
20%
30%
40%
50%
60%
Number of People 35 to 44
Number of People 45 to 54
Number of People 55 to 64
Changing Workforce Demographics from 2000 to 2010

Source: US Bureau
of Labor Statistics


US Bureau of Labor Statistics


By 2010 more than 25% of working
population will reach retirement age


Trend will continue into foreseeable
future


Globally


Workers are Getting Older


Largest Group of Workers


over age
45 and will double in next ten years


Fastest Shrinking Age Group of
Workers between 35 and 44


arguably the most productive


Europe is expected to lose 1 million
jobs annually for the next 25 to 30
years


Severe shortage of skilled workers
and engineers!


Oil & Gas Industry


50% of its production engineers will
reach retirement age by 2010

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2
5

Loss of People and Knowledge

The Degree of Difficulty in Retaining People and
Knowledge

It’s Hard to Keep Good People, Even Harder to


Replace Them

0%
20%
40%
60%
80%
100%
All
Followers
Competitors
Leaders
Very Easy
Easy
Niether Easy nor Hard
Hard
Very Hard
Retaining People and Knowledge

0%
20%
40%
60%
80%
100%
All
Followers
Competitors
Leaders
Very Easy
Easy
Niether Easy nor Hard
Hard
Very Hard
Replacing People and Knowledge

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© ARC Advisory Group

Plants Are Outsourcing More Services to
Automation Suppliers

Today
In Three Years
No Plans
Do you purchase automation-related services from?
60
55
50
45
40
35
30
25
20
15
10
5
0
Automation Suppliers
Engineering Construction Firms
Systems Integrators
Other
63.7 %
30.6 %
48.6 %
19.4 %
17.6 %
9.7 %
18.1 %
3.2 %
18.7 %
59.7 %
33.3 %
77.4 %
ARC User Survey : Who do you Currently Purchase
Services From, Today and in Three Years

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Automation Suppliers’ Service Revenues
are Growing Faster than Third Parties

2005
2006
2007
2008
2009
2010
0.0
2,000.0
4,000.0
6,000.0
8,000.0
10,000.0
12,000.0
14,000.0
16,000.0
18,000.0
20,000.0
Automation Suppliers
Third Parties
Systems Integrators Want to do

Projects and Move On

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© ARC Advisory Group

What Advantages do Automation Suppliers
Have Over Third Parties?

Deep Product &

Application

Knowledge

Ability to Drive

End User Requirements

Into Products

Broad

Geographic

Reach

Increasingly

Deep Vertical

Industry Expertise

Long
-
Term

Collaborative

Partnerships

Supplier

Strength

In

Services

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© ARC Advisory Group

Automation Suppliers Become MACs:
Main Automation Contractors

Single Point of Responsibility = Lower Cost For End User

Customer

Supplier MAC

EPCs

Systems
Integrators

Instruments

Valves

Safety
Systems

DCSs

Production

Management

Optimization

Engineering

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© ARC Advisory Group

Main Automation Contractor (MAC) Approach Can
Result in Significant Cost Savings To Users

30% Savings Illustration
Traditional
Approach
MAC/MIV Approach
Training
Commissioning/
Startup
Installation Supervision
Field Instrumentation
Safety System
Process Control
System
Detailed Engineering
FEED Engineering
30% Savings Illustration
Traditional
Approach
MAC/MIV Approach
Training
Commissioning/
Startup
Installation Supervision
Field Instrumentation
Safety System
Process Control
System
Detailed Engineering
FEED Engineering
The MAC Approach Can Result in Project
Cost Savings of Up to 30 Percent

Traditional

Approach

MAC

Approach

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© ARC Advisory Group

Thank You.

For more information, contact the authors at
lobrien@arcweb.com

, or visit our web pages at

www.arcweb.com