Optimization and Business Improvement Studies in Upstream Oil and Gas Industry

Sanjib Chowdhury

• Publisher: Wiley
• Year: 2016
• ISBN:
  9781119246572
• Edition: 1
• Topic: Technology & Engineering
• Subtopic: Fossil Fuels
• Index: Technology & Engineering

Delves into the core and functional areas in the upstream oil and gas industry covering a wide range of operations and processes

Oil and gas exploration and production (E&P) activities are costly, risky and technology-intensive. With the rise in global demand for oil and fast depletion of easy reserves, the search for oil is directed to more difficult areas – deepwater, arctic region, hostile terrains; and future production is expected to come from increasingly difficult reserves – deeper horizon, low quality crude. All these are making E&P activities even more challenging in terms of operations, technology, cost and risk. Therefore, it is necessary to use scarce resources judiciously and optimize strategies, cost and capital, and improve business performance in all spheres of E&P business.

Optimization and Business Improvement Studies in Upstream Oil and Gas Industry contains eleven real-life optimization and business improvement studies that delve into the core E&P activities and functional areas covering a wide range of operations and processes. It uses various quantitative and qualitative techniques, such as Linear Programing, Queuing theory, Critical Path Analysis, Economic analysis, Best Practices Benchmark, Business Process Simplification etc. to optimize

• Productivity of drilling operations
• Controllable rig time loss
• Deepwater exploration strategy
• Rig move time and activity schedule
• Offshore supply vessel fleet size
• Supply chain management system
• Strategic workforce and human resource productivity
• Base oil price for a country
• Standardize consumption of materials
• Develop uniform safety standards for offshore installations
• Improve organizational efficiency through business process simplification

The book will be of immense interest to practicing managers, professionals and employees at all levels/ disciplines in oil and gas industry. It will also be useful to academicians, scholars, educational institutes, energy research institutes, and consultants dealing with oil and gas. The work can be used as a practical guide to upstream professionals and students in petroleum engineering programs.

1
OPTIMIZATION AND BUSINESS IMPROVEMENT STUDIES IN UPSTREAM OIL AND GAS INDUSTRY: AN OVERVIEW

1.1 INTRODUCTION

1.1.1 Importance of Oil and Gas

Oil is inarguably the most important economic commodity and source of energy in today’s world. It has shaped contemporary civilization and is intricately interwoven with our daily life touching every household. It fuels world economy, propels industrial growth, and impacts on nation’s well-being. Oil accounts for one-third of world’s energy need, while oil and gas together meet more than half of global energy demand. It will continue to dominate global energy mix in the foreseeable future. Oil is not only an economic commodity, but it has great strategic value too. The geopolitics of oil is well known, and the world has seen fierce disputes, even wars among nations for oil and gas. It influences world economy to such an extent that no country however mighty or humble can ignore it.

Life is unthinkable without oil and gas in the present-day world, which has pervaded not only our daily life but also deeply entrenched in the nation’s economy encompassing all sectors including domestic, industrial, agricultural, transport, and other segments. For example, essential products, such as petrol, diesel, domestic gas, kerosene, naphtha, fuel oil, fuel gas, lubricants, wax, and so on, are derived from crude oil. It is a major component in many important products, such as fertilizers, organic chemicals, industrial chemicals, drugs, detergents, insecticides, cosmetics, and so on. It is also used in manufacturing household containers, furnitures, building materials, synthetic rubber, plastic goods, nylon clothes, CDs, DVDs, and many others. The transport sector is heavily dependent on it, and the world will come to a grinding halt without oil and gas. Ships, airplanes, trains, buses, cars, and so on, will stop plying; machineries, farm tractors, and factories will stop running; and industries using oil/gas as feedstock will close down [1].

1.1.2 Early Use of Oil and Gas

There are many evidences and stories connected with the use of petroleum, especially oil and bitumen, in the ancient times. The “eternal fires of Baku” were the result of the ignition of oil and natural gas from seepage, the “tower of Babel” was constructed using bitumen as mortar, the basket in which baby Moses was hidden was believed to be made waterproof using bitumen, and Persians set alight the streets with sprinkling oil when Alexander the Great visited Persia. The multiple evidences suggest that in earlier days oil was used in Egypt, Persia, and Mesopotamia for heating, lighting, and paving roads. The records also suggest that North American Indians used petroleum as medicine, Mexican Indians valued bitumen as chewing gum, and Chinese were believed to be drilling wells using bamboo canes. Many famous explorers mentioned about it, for example, Sir Walter Raleigh wrote about it in his diary, Marco Polo noted that burning of mineral oil gave light and heat, and Christopher Columbus used bitumen to make his ship seaworthy [1, 2].

But it was not until A.D. 1859 that exploration for oil and gas started in earnest, when the first oil well was drilled by Edwin Drake in northwestern Pennsylvania, United States (some quarters claim it started in 1846 in Azerbaijan). Since then, a lot of advancement took place in the field of oil exploration and production (E&P), and there has been a phenomenal growth in petroleum industry, making it one of the most important sectors in the world influencing global economy and life of the people across the planet.

1.2 E&P ACTIVITIES AND PROCESSES

Hydrocarbon E&P is a complex process beginning with prognostication and involving a series of activities, namely, geological survey, magnetic survey, gravitational survey, seismic survey, laboratory studies, geochemical study, and exploratory drilling encompassing coring, casing, cementing, mud engineering, and drill stem test (DST) followed by well testing. Based on the well testing results, the well is declared as “dry” or “hydrocarbon bearing.” If no oil and gas are found, the well is abandoned. In case of discovery, another set of activities follow, namely, drilling of appraisal well, delineating of field, and assessing commercial viability of reserves. Based on these, the decision of the development of the field is taken; however, the scale of development is dependent on the potential of the field. Accordingly, field development plans are made and development wells are drilled; production installations and surface facilities (group gathering station (GGS), gas collection station (GCS), central tank farm (CTF), effluent treatment plant (ETP), etc.) are created before commencing production. All these activities are highly capital-intensive, and the gestation period for the realization of investment is quite long.

1.2.1 High-Risk and High-Cost Activity

The upstream oil and gas industry is unique. In conventional industry, inputs and outputs are deterministic, that is, with a given input (investment), one is assured of the planned output (product or services). But in the upstream oil and gas industry, the input is deterministic, but the output (outcome of exploration activity) is stochastic. With the planned investment, one is not sure about its realization—it’s more like a gamble associated with uncertainty and high risk. More often than not, investment in exploration may not yield fruitful result or any return. Even if oil and gas are discovered, its commercial viability is to be assessed before the next course of action is decided. It takes a long time to develop the field before production begins. All these make E&P activities high-risk and high-cost operations.

1.2.2 High Technology Activity

Oil and gas E&P activities are technology-intensive and require expertise of diverse fields. E&P activities are essentially the application of various streams of science and engineering, such as science (geology, geophysics, geochemistry, palynology, mathematics, and statistics); engineering (petroleum, chemical, reservoir, mechanical, electrical, civil, marine and ocean, electronics, instrumentation, telecommunication, and computer science); and many others.

With depletion of easy reserves, E&P activities are becoming highly technology-intensive, as the search for oil and gas is directed to geographically and geologically difficult locations, such as deepwater exploration, arctic region, snowbound hostile terrains, mountains, deep oceans, high-pressure and high-temperature horizon, and other challenging areas. Moreover, with a phenomenal rise in global demand for oil and gas, future oil/gas production will mostly come from more difficult reservoirs, such as deeper horizon, low API gravity, and high sulfur content. Furthermore, the production of oil from aging field using conventional technology is a challenging task. The conventional technology too needs continuous improvement to sustain oil production from matured fields. All these necessitate continuous development and induction of state-of-the-art technology, which are costly and require experts to use it and make the best out of it. E&P activities are associated with high technology that requires multidisciplinary approach and expertise to operate “state-of-the-art technology” and cope with increasing demand and difficulties in oil and gas E&P.

1.3 NEED FOR OPTIMIZATION IN UPSTREAM INDUSTRY

We have seen in the earlier paragraph that oil and gas E&P activities are becoming increasingly costly, risky, and technology-intensive as operations are moving from easy to difficult and challenging frontiers. In order to mitigate risks and share the cost of operations, even the major and super major oil companies are forming joint ventures and consortium for venturing in new frontiers. In view of inherent risks and uncertainty associated with the upstream business where inputs are deterministic but output is probabilistic, it is important that oil companies use their capital and resources judiciously. It is necessary to optimize strategies, resources, and cost and improve business performance in all spheres of E&P activity. These are the need for survival and sustaining business. The rule of the game is “money saved is money earned.” All these require innovative ideas, change in mind-set, fresh outlook, and approaches to business.

1.3.1 Optimization Techniques

Optimization is an oft-repeated word used by all, whose meaning perhaps is not as clear as it seems to most of the people. It’s a catchy word! People use it liberally, as it sounds impressive without knowing its nuances or relevance to the context. Most people consider it as a synonym of maximization/minimization, and the differences are indistinct even to professionals and management people.

Optimization in its simplest form means the best available value or most favorable result under a given set of conditions or constraints. It is usually the maximization or minimization of objective function subject to a set of constraints. Optimization is basically a mathematical technique, which is widely used in engineering, management science, economics, science, mathematics, and many other fields. Literature is replete with definition of optimization with varying degree of simplicity or complexity.

The genesis of “optimization technique” traces back to the work of Fermat and Lagrange for identifying optima with calculus-based formula. Newton and Gauss used iterative methods for moving toward an optimum solution. In modern days, George B. Dantzig developed an optimization technique called “linear programming” based on simplex algorithm. It was developed during World War II for scheduling warfare logistics and related problems for US military. Much of the work of G. B. Dantzig was based on the theory introduced by Leonid Kantorovich in 1939, but Dantzig made substantial improvement on it making it more powerful and versatile [3]. Based on the types of objective function and set of constraints, the optimization models/techniques are classified as linear programming, integer programming, geometric programming, goal programming, quadratic programming, nonlinear programming, fractional programming, dynamic programming, and so on. These are essentially the extension of either linear programming or particular case(s) of nonlinear programming.

Various optimization and business improvement techniques have been used in this book, such as benchmarking, technical and qualitative analysis to optimize productivity of drilling operation (Chapter 2); diagnostic approach and root cause analysis to optimize controllable rig time loss (Chapter 3); technical, qualitative, and economic analysis to optimize geology and geophysics (G&G) strategy for deepwater oil and gas exploration (Chapter 4); queuing theory to determine optimum number of offshore supply vessel (OSV) fleet size (Chapter 5); technical and statistical analysis for standardizing consumption of consumables in oil/gas wells and rigs (Chapter 6); critical path analysis using Program Evaluation and Review Technique/Critical Path Method (PERT/CPM) to optimize rig move/mobilization time and activity scheduling (Chapter 7); development of uniform standards for emergency alarm systems and indicators at offshore installations based on recognized international codes (Chapter 8); qualitative and quantitative analysis to optimize supply chain management (SCM) system (Chapter 9); bes...