International, LNG, Location, Markets, Offshore, Projects

How to enhance operations during periods of cost cutting

The Australian Gas industry is in the grips of managing a low price, high cost environment, and this is forcing many companies to evolve their current operational strategies.

Mr Leideman believes Australia’s operators have responded well to this crisis, however, it is difficult to determine where the market will head next.

“I think there are mixed views in terms of how long [the low oil price environment] will last, but I think the common view in the market is that it will take some time for the oil price to recover,”? Mr Leideman says.

A key to maintaining successful projects, Mr Leideman says, is to encourage sustainable operations with a long-term outlook.

“In general I think Australian oil and gas operators have responded well,”? Mr Leideman says.

“We’ve seen that they are cutting CAPEX, we’ve seen the delay of projects and the cutting of OPEX, with companies now focusing on cutting costs and driving efficiency.

“Australia has gone through an exciting period where we have built a lot of infrastructure, and I think it’s just time to get back to basics and really focus on healthy and sustainable operations with a
long-term perspective.”?

Mr Leideman says that despite the low price environment, Australia remains an attractive market.

Close proximity to the Asian market, along with a stable investment environment and significant infrastructure that has been developed in the past few years will allow operators to focus on improving operational

“We have strong global demand, and all predictions are that demand will be up for a long period of time,”? Mr Leideman says.

A significant pool of oil and gas reserves, able to be developed via significant brownfield gas and LNG infrastructure now In place, also ensures Australia has a real capability to continue to attract investment.

An LNG boom in the United States and Canada makes it crucial that Australian petroleum production remains globally competitive by utilising innovation and collaboration across the industry.

“At current Henry Hub prices (the US natural gas benchmark), and allowing for transportation and other costs, US-sourced LNG can be landed into Asia at a competitive price, putting pressure on Australian operators,”? Mr Leideman says.

“Australia has a natural advantage given its geographical proximity to demand centres, long tradition of LNG exports, strong relationships with customers, a stable government and low political risk. However, these advantages are not entirely sufficient to offset higher cost.

“Thus, it is critical that the Australian industry be efficient and productive. It must leverage innovation and collaboration across the industry to drive down full cycle costs to ready for the oncoming competitive challenge.”?

According to the Accenture report, ‘Ready or Not? Creating a world-leading oil and gas industry in Australia’, Australian operators should focus on increasing workforce capacity and capability to drive competitiveness, adopting of technology and increasing collaboration.

The report analysed the readiness of the oil and gas industry to take on the challenge of becoming the world’s largest LNG producer at a time of low crude oil prices, highlighting the need to improve international competitiveness, remove regulatory constraints and introduce a more flexible industrial relations regime, in order for Australia to secure its place as the leading LNG producer.

Several recommendations are made in the report for Australian operators, service companies and the government to embrace in order to improve competitiveness, including:

  • Accelerate training of oil and gas professionals to build a leading industry focused on developing a competitive advantage in operations – a phase which will continue for the next 40 years;
  • Incorporate lessons learned and leverage leading practices from more mature oil and gas producing geographies such as the North Sea and the US – in particular in the areas of common shared services, standardisation, and the sharing of infrastructure to drive down cost;
  • Develop a more collaborative and integrated industry, reducing the barriers between operators and service companies through integration of supply chains and locating service companies closer to the actual operations in remote places such as Darwin;
  • Build on innovation – the hallmark of a mature and capable industry; and,
  • Continue to automate and digitise operations, focusing on leveraging technology to support remote operations and reducing offshore manning, thereby improving costs and safety.

New technologies and the embrace of digital innovations will be key to driving future operational norms for the gas industry, with the focus being on improving data and data analytics.

Mr Leideman says one example of where digital is making a big impact is in unconventional resource development, where digital technologies are quickly becoming the mainstay of efficient drilling.

“Using digital technologies and automation, the drilling process can be improved through the adoption of a manufacturing approach to reduce variability of repetitive tasks,”? Mr Leideman says.

Through the use of digital technologies, operators can reduce the cost and time of constructing, drilling and completing unconventional wells by up to 40 per cent through better planning and management of logistics, contractors and materials.

Predictive analytics and maintenance will also be particularly important, through the use of forecasts to boost performance, with the proliferation of sensors in the field in particular, feeding mass amounts of data.

“Results achieved [from implementing predictive asset maintenance programs] included reduced unplanned shutdowns of up to 80 per cent, increased production of 2-5 per cent and a reduction of overall operating costs 5-10 per cent.”?

Mr Leideman says that Australia is well positioned to capitalise on digital technologies given the country’s modern, greenfield assets and the remoteness of oil and gas operations, which together drive a strong business case for adoption, especially in LNG operations.

Another exciting opportunity for Australia is the potential to develop a knowledge base built on floating LNG (FLNG) projects currently in the pipeline, starting with Shell’s pioneering Prelude FLNG Project.

“FLNG will be another technology to be added to potential options for the future, and it will be there to stay. It’s a very exciting technology,”? Mr Leideman says.

“In addition to creating access to smaller, difficult to reach offshore fields, FLNG allows for the elimination of costly infrastructure such as pipelines, jetties and large onshore LNG processing plants.

“[Woodside’s] Browse FLNG Project is a good example of going from an onshore development to FLNG, and I think there will be others as well that will come on board in the longer term.”?

Mr Leideman says FLNG opens the access to more than 800 stranded gas fields currently identified throughout the world, with advantages including:

  • The ability to re-use the FLNG vessel in multiple fields, as once a field is depleted, the FLNG vessel can moved to a new field;
  • Limited environmental footprint due to the elimination of the need for costly infrastructure such as pipelines, jetties and large onshore LNG processing plants;
  • A “˜design one – build many’ approach, reducing CAPEX costs through re-usable design, allowing for repeated use and ability to customise to reservoir characteristics; and,
  • Offering the integration of upstream, processing, liquefaction, and marine into one single floating production facility that is approximately 25 per cent of the size of a typical onshore facility.

With technological advancements such as FLNG, along with digital disruption to operational methods largely being welcomed by the gas industry, the adoption of new and exciting operational methods will ensure the industry remains dynamic in a time of volatile global markets.

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