The current era of lower oil prices has forced oil and gas companies around the world to tighten their belts in an attempt to remain profitable in challenging market conditions. Despite a dramatic reduction in capital spending, oil and gas firms are looking to maximise the value of their investments, streamline their assets and boost their bottom lines.
Andrew Dennant, director of Oil and Gas at Emerson, explains that operators in the Middle East are well positioned to withstand a prolonged period of lower oil prices, but that they have had to adjust the way they view investment.
“When the fall in oil prices first started to happen, countries in the Gulf initially began by saying there would be no change to spending and that capital projects would still go ahead as planned. One by one, that position has started to alter. Qatar was the first to change this stance and to say that projects that focus on maintaining production would still go ahead but that some other projects would not. For example one of our customers gave me the example that if you wanted to build a new facility to house core samples, that is no longer going to happen in this type of environment. Now we are starting to see that philosophy extend across the rest of the countries too,” he said.
Emerson has invested heavily in getting close to its customers. The company manufactures a lot of products in the Middle East, specifically for use in the region. The company states that 80 per cent of the models that it currently sells are built in the Middle East region. Dennant believes that it is that local expertise which enables Emerson to deliver the very highest levels of customer service.
“The maintenance and repair business sector is an important area where we can help our customers, particularly in the Middle East. A key question for anyone in the industry at the moment is ‘how do you spend the least possible capital but achieve the biggest possible return on that operational expenditure? How can you really reduce your OPEX?’. There are certain levers you can pull that have a far bigger impact than others, it’s all about selecting the right one,” he explained.
Research shows that increasing your investment spend does not necessarily guarantee a boost in performance.
“We have seen some research that shows that people who do the best maintenance for reliability get 13 per cent better plant availability, compared to people who can spend up to 3 and a half times as much. So you are getting 13 per cent better performance for around a quarter of the spend. It’s in those kind of ways that we can help our customers in the Middle East, especially in this challenging environment.”
The future is bright
While current market conditions are undoubtedly challenging, Dennant believes that there is reason for oil firms to be optimistic about the future economic climate.
“My personal view is that I think oil prices are going to come back. Global oil demand increased by 1.5 million barrels per day last year to over 93 million bpd. In addition to this, I think that we are going to see significant political unrest in at least one of the “fragile five” producers, namely Iraq, Libya, Algeria, Venezuela and Nigeria which will affect supply to the market. Once that political turmoil takes root, it takes a long time to stabilise. So, I think we are going to see prices coming back because of that increased demand and reduced supply.”
In the medium to long term, Dennant believes that the market could even see a shortfall in supply, leading to a spike in prices.
“International Oil Companies have been cutting their exploration and production budgets across the board, and this takes a long time to put back together. What will smooth that out is that we currently have more oil in storage across the planet than at any other time in history. The US alone currently has over 525 million barrels of oil in storage, outside the strategic petroleum reserve. That means that they have enough crude in storage to supply the entire world for 6 days, just in the US. This will go some way to balancing out any shortfall that may come along in the mid to long term.”
Emerson has been involved in some of the Middle East’s biggest mega projects. One of the company’s proudest achievements was a recent cut-over of the operations systems at Saudi Aramco’s mammoth Abqaiq facility.
“Abqaiq is the world’s largest single oil processing facility. It can process between 6.5 and 8 million barrels per day; it is an enormous facility.
“They have had an Emerson control system for a long time, I think since the mid to late nineties. As technology moved on, they decided that they wanted to upgrade to one of our more up-to-date systems.
Now, you can’t just shut down an 8 million bpd processing facility, so we cut-over the entire Abqaiq plant to an entirely new control system without shutting anything down. We did that without incident, without any loss time and without any problems at all. We were absolutely delighted with the project, it was a huge deal,” he explained.
Emerson is also heavily involved with other projects in the Middle East and is working closely with the Tahrir Petrochemicals project in Ain Sokhna in Egypt.
“With this project, we are helping with the Front End Engineering and Design (FEED) element of the automation component to help ensure that they are able to take advantage of some of those benefits we have been talking about. They have had the vision to seek out a different approach that optimises automation and to use that approach to deliver benefits such as faster start up and better reliability. We have engineers on the FEED team helping to design the systems that will make that happen.”
Emerson has an extremely strong presence in the Middle East and specifically in the GCC; a position the company has worked hard to cultivate. However, the company is always open to new opportunities to work in new destinations. East Africa has long been an area of interest for E&P firms looking for the next large scale hydrocarbon discovery and Dennant agrees that the area will see a surge in activity in the coming years.
“Mozambique has some excellent opportunities coming up. It’s not a case of if but when they come online,” he explained.
With the removal of international sanctions, Iran is also a key area of interest for companies across the oil and gas sector.
“Iran is going to be a huge opportunity for a company like ours and it is one that we look forward to fully engaging with in the future. There will be a number of factors that will have to be handled very carefully of course. There will be some materials that can or can’t be shipped to Iran from the US. It’s very clear what we have to do. We have a huge integrated global supply chain and we are extremely focussed on compliance with every legal and ethical requirement and guideline and we will confidently do business in Iran without an issue,” he explained.