Yogi Berra said, “It’s tough to make predictions, especially about the future,” and that’s certainly true for the global oil industry. A decade ago who would have forecast the recent volatility in oil prices? This challenges everyone in the oil industry, and raises the question of how to plan for an unpredictable future.
One element is to invest in scalable facilities. These can grow quickly when needed, and if necessary, shrink back to accommodate lower levels of production. A scalable operation shifts the economics of production, helping to maximize profitability in the face of uncertain demand.
Low oil prices mean companies have, “…collectively suspended investment in $380 billion of new projects…” according to a report in The Economist, yet new capacity continues to come on stream. This is because the oil industry makes investment decisions with a 30 to 40 year horizon, and responding to short term price moves is difficult.
Compounding things, as Shell’s CFO said, “it is sometimes more expensive to stop production than to keep pumping at low prices, because of the high cost of mothballing wells.” And of particular relevance to Canadian producers, a February Energy Information Administration (EIA) report said, “… the cost to shut down an existing oil sands project is estimated to be in the range of $500 million to $1 billion, which may exceed the operating losses a producer might experience in the short term.”
Scalable and modular
When designing an industrial facility engineers often think in terms of peak capacity or throughput. That can result in a large plant with high fixed costs that operates at a loss as prices drop. An alternative is to adopt a “building block” approach. Rather than a single massive facility, build a facility from smaller units.
What might be called a “modular” approach to facility design has numerous benefits, particularly in terms of quality, efficiency and time.
What does modular mean?
For process equipment and facilities, “modular” refers to fabrication off-site, followed by transport and installation. Particularly for structural steel fabrications, it’s a way of building in discrete blocks that can be replicated and so pre-fabricated in a form of production line. This creates cost effective structures that are easily added-to when a facility needs to grow.
Advantages of a modular approach
Assembling structures like large ducting or conveyor trusses on-site presents many challenges. The expense of getting skilled trades to the job site, the risk of weather delays, and the difficulty of maintaining both safety and quality are just a few. In contrast, modular fabrication offers:
In addition, there are benefits of bringing large fabrications to the job site, rather than doing the work in-place. For example:
With so much to be gained, it’s fair to ask why every facility addition isn’t fabricated off-site. The main issue is transport: whatever gets built must be moved along roads and over and under bridges and power lines. Every location has length, width, height and gross weight limits on what can be transported, and complicating matters, these vary from state-to-state. When planning a modular fabrication the transport route must be a primary consideration.
Second, the cost of transport is a concern for some Project Managers, who believe off-site fabrication a more expensive approach. This is explored in a paper first published in “Hydrocarbon Processing,” which concludes the reality is somewhat different. While transport is expensive, it’s more than offset by the increased productivity, reduced disruption on site, and better quality of a modular fabrication.
The outlook for oil?
High prices made extraction from shale and oil sands attractive. That additional production helped depress prices, which in many industries would lead to capacity being taken out. Oil is different though: for many producers, selling at a loss is the lesser of two evils.
EIA forecasts show the price of West Texas Intermediate returning to around $60/barrel by the end of 2017. But as Berra warned us, things could very well change. For example, additional renewable energy sources coming on-stream could shift the equation. Such a volatile outlook makes life tough for those considering facility enhancements, which is why it pays to explore a scalable, modular approach.
Saskarc specializes in Equipment Sales & Rentals and Custom Steel Fabrication. Our two groups work together under one parent company in order to offer our customers more!
Simply navigate to the group of your choice by selecting the tabs on the top of the pages.