Industry trends: Restorative hibernation

The start of 2015 looks uncertain for the U.S. oil and gas industry given the continuing supply glut and slumping prices. The overall slowdown is beginning, however, and this may be the time to upgrade and integrate systems for increased efficiency when the industry ramps up again.

By Eric R. Eissler January 20, 2015

Many of the companies that are using this so-called downtime to update systems and add sensors are oilfield services companies, which can use the lower cost of fuel to finance these upgrades to systems already in place. It can be thought of restorative hibernation. Moreover, new regulations on the oil and gas industry being rolled out by the U.S. government and Environmental Protection Agency (EPA) will force producers to better monitor systems, especially concerning methane emissions, which face a pending curb to enter into force on January 1, 2016. Part of the EPA legislation would require operators to measure pipeline blowdowns; replacing pipelines is not the answer to reduce emissions, proper monitoring is. Adding sensors to pipelines and other production equipment is a trend that may begin happening sooner rather than later given the downtime. Even though the requirement has not entered into force yet, the value of adding sensors now is important due to the data and metrics that could be provided.

Commenting on these uncertain times for the oil and gas industry, Shon Isenhour, principal at Eruditio—a U.S. corporate training company—said, "What will be fun to watch is whether some companies out there, such as the super-majors, use this time to take some of their units offline to get them ready for the future. In the past, they may not have been able to take units offline for downtime. It will be interesting to see if they’re willing to make that investment now, in a rather lean time, so that when they return to previous production levels, they’ll have a fully restored and updated system." Capping wells and shutting down production in the U.S. is just a temporary phase. With vast reserves and infrastructure already in place, combined with major investments, the U.S. oil and gas industry will make an explosive comeback when prices rise. A period of hibernation will give the industry time to become very competitive and return stronger than before, so long as the proper upgrades are made.

The downward spiral

Oil prices are still sliding down to levels not seen in years, and the effects on the industry are starting to take shape with the advent of 2015. Production has slowed in high-cost unconventional plays but not stopped. The price is not going to stay this low for long, but it’s not going to rocket up to $100 per barrel anytime soon. The U.S. Energy Information Administration forecasts that Brent crude oil prices will average $58 per barrel in 2015. In the meantime, industry trends point toward the many mid- and large-sized producers weathering the storm and preparing for elevated prices by investing in automation and efficiency systems. By doing this, when the price of oil climbs back up again, they will be ready to take full advantage of the higher price by maximizing production through the integration and automation of control systems into oil and gas infrastructure. Furthermore, the use of these systems allows operators to get a better feel for the integrity of components and assist with preventative maintenance, cutting costs in the long term.

-Eric R. Eissler, associate editor, Oil & Gas Engineering, CFE Media.

Consider this: What are engineers devising to increase efficiency and upgrade current systems? Oil & Gas Engineering would like to hear from you! Please email if you are working on upgrading systems during this downtime phase. 

Original content can be found at Oil and Gas Engineering.