GE Oil and Gas Meeting 2016

EFFICENCY AND INNOVATION ARE THE INDUSTRY'S RESPONSE TO COLLAPSING OIL PRICES

The GE Oil & Gas Annual Meeting (AM) in Florence, Italy provides a window into the world of oil & gas. This year was all about the continuing fallout from the collapse in oil prices — how to improve efficiency and how to survive in the long run by focusing on innovation. Lorenzo Simonelli, President & CEO of GE Oil & Gas, kicked things off by stating that the industry required unprecedented levels of flexibility and agility. His answer was to find greater productivity via data, analytics and software.

More automation

GE’s strategy is to add more automation, digitization, remote monitoring and integration to its own products as well as those of its partners (Cover Story, p. 20). “Every industry that is not bringing software to the core of its business will be disrupted,” said Simonelli. “The combination of software and machines has laid the foundation for a new wave of innovation — and the economic and environmental impact cannot be understated. That’s why we at GE have been transforming into a digital industrial company.”

Simonelli noted that the company could not achieve this alone. He invited others to come together to develop through new ecosystems and partnerships more effective business and operating models.

Over the past decade, GE has expanded its oil & gas portfolio beyond turbomachinery to span the upstream, midstream and downstream marketplace. It now encompasses fields as diverse as oil platforms, subsea compression stations, drilling, surface control technologies, and measurement and control.

Accordingly, the scope of the AM has seen a marked change. This year’s event attracted over 1,000 executives from around the world, up from less than 800 a few years ago. They came from all corners of the world, representing the entire spectrum of the industry to hear presentations from companies, such as BP, Royal Dutch Shell, Saudi Aramco, Chevron, Novatek, Amec Foster Wheeler, Technip, Maersk Oil, Columbia Pipeline Group, Woodside Energy, ExxonMobil Development, Welltec, GLNG Operations and Statoil.

The crash in oil prices has brought into sharp focus the underlying inefficiency of the oil & gas industry. Oil prices had not fallen below $40 a barrel since the summer of 2003. They even surged above $100 on several occasions.

With plenty of money around, oil companies grew complacent. One 2014 study found that only 18 out of 100 large projects came in on budget. From 2000 to 2012, specifications, contractor requirements, documentation and team size rose between 139% and 275% at Shell Oil, said Harry Brekelmans, Project & Technology Director.

Construction productivity

Further statistics show that the cost per barrel has increased by a factor of four in recent years. At the same time, construction productivity has fallen off sharply (Figure).

Figure: As the price of oil soared during the 2000s, oil company costs increased by

four times while overall productivity crashed[/caption]

Oil is now trading around $40 per barrel. And few outside of Saudi Arabia can sell it profitably at that rate. Production cost per barrel is over $50 in the UK, slightly less in Brazil, and over $40 in Canada. U.S. shale oil production costs hover around $36, according to Rystad Energy.

These harsh economic realities have driven the industry to improvise. Shell, for example, has reorganized by placing its projects and technology teams into the same division. This division is more efficient because project designers are forced to talk to those piecing together the various technology elements to be used in the field, said Brekelmans.

He found fault with the sheer number of standards in the industry. There are currently hundreds of standards for valves alone. To his mind, the surfeit of standards actually defeats the entire purpose of standards.

Shell, therefore, is giving greater scrutiny to project scope. In a recent offshore project in the Gulf of Mexico, for example, well simplification brought about a 30% reduction in costs. He views tighter collaboration as a big part of the solution.

“Given the industry downturn, oil & gas companies should be collaborating with a united purpose to secure a sustainable, more efficient and competitive future for our industry,” said Brekelmans.

These sentiments were mirrored by Jakob Thomasen, CEO of Maersk Oil. His company has also embarked on a cost-transformation program. “We are right-sizing, simplifying and standardizing our organization,” he said. “Cutting costs doesn’t mean we don’t want to grow, though. We are in a period of ambidextrous growth and want to keep that momentum going.”

Jakob Thomasen, CEO of Maersk Oil, said his

company had embarked on a cost-transformation

program[/caption]

Harsh realities

But the harsh realities of the current climate were hit home by Thierry Pilenko, Chairman and Chief Executive Officer, Technip. He characterized this as the worst industry crisis ever, even worse than the downturn of 1986.

The pressure comes, he said, from not only the declining oil price but also from the fact that it is harder to get to the resources. The industry is spending double or triple man-hours per piece of equipment for quality assurance, inflation in salaries, and regulations, which are all impacting productivity.

“To slash our soaring costs, technology, innovation, standardization and simplification are critical,” said Pilenko. “But it is just as important to be able to collaborate with customers in the early stages of a project to make the right decisions, driven by safety and cost.”

In the short term, he thinks the industry may be able to cut cost by 10% to 20%. Yet customers are demanding reductions of 30-40%.

John Hickenlooper, Governor of Colorado, provided counterpoint to an agenda packed with industry insiders. His state has an abundance of oil & gas and other energy resources, which bring in $2 billion in annual revenue. He called for simplification and standardization, particularly as regards regulation.

Colorado, for example, has been making efforts to be more energy and business friendly. An inspection revealed that 17,000 regulations existed within the state related to oil & gas, emissions, and clean air and water. That number has been reduced by 8,000 by forcing industry, regulators and non-profit environmental groups to work together.

“By diminishing friction, we figured out how to get rid of regulations that inhibited transportation of energy,” said Hickenlooper. “That led to 12,000 fewer truck trips by centralizing fracking fluid operations via pipelines.”

GE’s Chairman and CEO Jeff Immelt came to the AM this year to sign a Memorandum of Understanding (MOU) that will lead to the investment of $600 million over the next five years in Italy. This effectively puts to bed any idea that GE might move its oil & gas operations from Tuscany. Florence will remain as the center of the company’s turbomachinery operations, with gas turbines and compressors firmly at the core.

GE Oil & Gas agreed to invest $600 million in Italy over the next five years. Those attending the signing ceremony included the Italian Minister of Economic Development Federica Guidi, the President of Tuscany Region Enrico Rossi, GE’s Chairman and CEO Jeff Immelt, the President and CEO of GE Italia Sandro De Poli, the President and CEO of GE Oil & Gas Lorenzo Simonelli, and the President of Nuovo Pignone Massimo Messeri[/caption]

GE is establishing a center of global excellence in Tuscany for the oil & gas sector that will involve 500 people from GE, universities, research labs, and small and medium-sized enterprises. The project aims at increasing Italian production by 50% and raising company revenue by $1.7 billion in five years. It will also train a new engineers specializing in high-tech design and industrialization.

The program, named Galileo, supports the development of gas turbines and centrifugal compressors in the 5 MW to 65 MW power range, as well as digital technologies with the aim of optimizing the performance and lifespan of its products. This includes harnesses aeroderivative material technology to introduce lighter and smaller machines to the oil & gas industry.

A further MOU was signed between Avio Aero (a GE Aviation business that employs about 4,000 people in Italy) and the Italian Minister of Economic Development, consisting of €200 million over the next four years.

Additive manufacturing

Avio Aero produces components for air transport by using new manufacturing technologies, such as additive manufacturing. Its plant in Cameri, Italy, produces aeronautical components using TiAL, a metal alloy that reduces weight and fuel consumption. These components are used in engines such as GE Aviation’s GE9X, which will be mounted on the Boeing 777X, the 400-seater plane that is expected to come into service in 2020.

Meanwhile, GE Oil & Gas has been awarded a contract for the supply of an additional 135 MW steam turbine unit at the Palm Concepcion Power Corp. (PCPC) plant in the Philippines. The contract encompasses the design, manufacturing, assembling, delivery on site and installation of the STG set, and marks the third successful collaboration between GE and Chinese EPC First Northeast Electric Power Engineering Co. (NEPC).

The company also signed a maintenance agreement with SBM Offshore for a fleet of FPSOs. GE Oil & Gas will provide spare parts, depot overhauls, field services and digital solutions including remote monitoring & diagnostics for the GE aeroderivative GTs and both GE and non-GE electrical generators, centrifugal compressors and various auxiliary systems currently operating in Sub- Saharan Africa and Brazil.

Saudi Aramco is collaborating with GE to pilot its Smart Signal predictive maintenance technology for rotating equipment at one of its gas plants to enable proactive detection of failure of critical equipment, and to increase equipment availability and reduce maintenance costs.

GE Oil & Gas has launched a Joint Industry Project (JIP) with a group of oil companies to develop a simplified subsea boosting system that has the potential to reduce lifecycle costs by up to 30% and improve operational flexibility. The initial phase includes Statoil, Total and two other operators.

The system is named the Modular Contra-rotating Pump (MCP) and draws on technology from the GE Aviation business. The MCP provides access to more oil in new and mature wells by reducing the topside and subsea footprint by up to 50% and eliminating equipment, such as the barrier fluid system needed in conventional subsea boosting systems. In addition, the company is introducing a range extension of its LNG Cryogenic Antisurge Valve product line. These large size valves can operate in temperatures down to -196 °C.

Rod Christie, the newly appointed President and CEO, Turbomachinery Solutions at GE Oil & Gas, hosted a panel at the Annual Meeting[/caption]

While GE has ventured far from the core heavy industrial machinery business of Nuovo Pignone, the company still retains a key turbomachinery focus. Rod Christie, the newly appointed President and CEO, Turbomachinery Solutions at GE Oil & Gas, explained that the company has been involved in developing its small turbine capabilities in Florence while taking advantage of the existing GE fleet of aeroderivative and heavy duty gas turbines for large applications.

“We were well covered when it came to turbines beyond 25 MW, but had not been focused so much on turbomachinery below 20 MW,” said Christie.

This is being remedied by the development of the NovaLT16 which is a 16 MW machine developed and manufactured in Florence. By deploying its Inlet Guide Vanes (IGVs), the machine is designed for high efficiency at the “partial power point” at which the machine usually operates.

Although conceived in conjunction with TransCanada Pipelines for mechanical drive duty, the designers also foresaw its use in cogeneration applications. But initial sales have been in mechanical drive (MD). In addition, the company recently added the NovaLT5 gas turbine (5 MW) and plans to introduce further NovaLT models to fill the gaps in between.

Expanding capabilities

“When you operate in the smaller MW ranges, it is important to have plenty of incremental options so you can provide customers what they need,” said Christie. “They don’t want to buy a 10 MW turbine when they only need 6 MW. We are expanding our Massa testing capabilities with a focus on supporting testing of the LM2500.”

The LM2500 is said to be the most popular choice for mechanical drive due to its robustness and the company’s ability to provide multiple sizes.

Massa, one of the largest test facilities in the world, has seen a 300% increase in test cell workload in 2015, expanding from testing 12 engines per year to 35. This is expected to grow by another 50% in 2016.

Christie addressed the issue of an MD version of the LMS100. For several years now, GE has been qualifying the LMS100 for MD use in oil & gas operations. The good news is that the qualification process of GE’s newest aeroderivative was recently completed.

As a result, Christie said it has already been selected for a variety of projects. Among them, LNG Canada Development has selected GE’s LMS100-PB dry low emission (DLE) aeroderivative as well as vertically and horizontally split centrifugal compressor technologies for its proposed gas liquefaction plant for the export of LNG in Rod Christie, the newly appointed President and CEO, Turbomachinery Solutions at GE Kitimat, British Columbia.