Boston Strategies Targeting Significant Emission Reduction

b2ap3_thumbnail_BSI-Carbon-FootprintBSI has committed to reduce its carbon footprint per revenue dollar for fiscal year 2015 by 63%. This follows a 21% reduction in absolute carbon emission during 2014.

As a consulting firm we do not emit any carbon through manufacturing or conversion itself, which constitutes ‘Scope 1 emissions’ according to the standard guidelines of GHG Protocol for businesses developed jointly by World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). We do, however, occupy workspace and travel on airplanes (‘Scope 2 emissions’), and commute to work (‘Scope 3 emissions’).

We are reducing our footprint by increasing local staffing, ramping up the use of videoconferencing, and incentivizing low-carbon commuting and home officing. “Multi-local staffing is an initiative we’ve been pursuing for three years. Not only is it environmentally responsible, but it also helps to meet our clients’ local content goals.” explains David Jacoby, President.

“We’ve been working on videoconferencing since 2010, and after several generations of technology we feel that we have achieved a highly effective work mode,” adds Erik Halbert, Principal.  “Telecommuting is opening up flexible options for job candidates, which helps increase the overall caliber of our talent pool,” adds Alok Gupta, Senior Associate.

Our primary goal behind calculating our carbon footprint was to see how we are performing in our efforts towards mitigating the impacts of global warming. Accordingly, we set stricter targets for ourselves to further lower our footprint. Even though our business operations are growing every year, causing an upward pressure on footprint, we still strive to lower emissions by a greater magnitude than ever before.

Our workplace practices categorically focuses on saving energy. Our employees make sure they switch off the laptops, lights, fans, and air-conditioners when not in use. A major chunk of our emissions comes from air-travels, and we give special attention to make sure that we keep our emissions level as low as possible in this area. For this, we make sure that we optimally plan our travel. For conferences and business meets, we try to send employees located closest to the venue.

Although BSI is under no compliance obligation to track or report its carbon footprint, we are doing so entirely voluntarily. Through our practice, we’d like to encourage other firms to take up the exercise of monitoring and managing their carbon footprint. At the end of the day, every drop will make a difference.

About BSI

Boston Strategies International (BSI) is a consultancy firm that compresses the lead time and reduces the investment in major capital programs for oil, gas, and power operators through value chain cost engineering, targeted strategic sourcing, and supply contract negotiation. BSI operates through its offices at multiple global locations including USA, Turkey, India, and Columbia. BSI serves national and international oil companies, power producers and Gas Utilities, Wind and Solar power providers.

BSI carries out its business activities with utmost sensitivity towards environmental concerns, which forms a principle pillar of our business ethics and work culture. We deeply understand the magnitude and criticality of global warming, and want to do our best to contribute to the mitigation efforts.

Alternative fuel vehicles:Have we passed the tipping point?

b2ap3_thumbnail_Terrafugia-copyTerrafugia’s production of the first U.S. Federal approved flying car, the Transition, suggests that we have taken a huge step closer to accomplishing a Sci-Fi like story. However, the recent global demonstrations on environment served to remind us that the key question we need to be answering is what fuels will various forms of transportation run on in the future?

Research within this arena has revolved on a number of different alternatives. Hydrogen in theory is an ideal fuel since it provides more energy per kilogram than petrol and only produces water as an exhaust.  When NASA scientists really needed a fuel that would go the distance, they used hydrogen to generate power on the Apollo missions. Unfortunately hydrogen does not seem to be the most favorable alternative – for the coming decade at least – because it is very expensive to produce and requires significant amount of space to store. Hydrogen additionally requires significant changes in the current operating infrastructure, such as determining the optimum process for producing hydrogen in the first place and establishing fueling station networks. Another alternative has been electric fuel through batteries, which can be charged using the current grid and produce no exhaust. However, batteries have a limited travel range and long charge times. Solar power is attractive in terms of cleanliness, but has so far required impractically large components to power vehicles.

The closest realistic alternative to fossil fuels in powering various forms of transportation has been bio-fuels. Despite the huge environmental debate related to this energy source, bio-fuels offer a number of advantages such as: no new delivery infrastructure is needed, it is renewable, and it can be considered carbon neutral. Combining this energy source with electricity to produce hybrid vehicles is also becoming a popular choice for auto producers. In fact, BSI’s 2007 report titled “Energy Prices Re-Shaping the Supply Chain: Charting a New Course?”acknowledged the possibility “that combination hybrid-alternative fuel vehicles will become mainstream within ten years,” but given the low baseline (0.2% of all vehicles in 2004), that prospect could take longer.

The alternative energy frontier has advanced more rapidly than expected. Between 2004 and 2014 the percent of new vehicles powered by alternative fuels in the US rose from 8.9% to 10.9%. With increasing attention being given to environmental stewardship and global warming, we can expect continued, even stronger, increases. Boston Strategies International is helping equipment manufacturers configure their partnerships and value chains for that future.

The war against ISIS: Changing the oil landscape in the Middle East

b2ap3_thumbnail_KURDISTAN-copyThe spotlight on recent events in the Middle East, while understandably focused on ISIS and the coalition battling it, has overshadowed the potential emergence of a Kurdish state, which would dramatically change the energy landscape in Iraq, Turkey, and, by extension, Europe.

Some have observed that ISIS may control oil production. In fact, ISIS’s current oil production capacity is only around 25,000-40,000 barrels per day and it would be difficult to foresee that the group would be allowed any future control over any oil production facility.

The more interesting potential outcome of these events is suggested by the image above, in the gray area labeled “Kurdistan,” which outlines the potential area of influence or domination by the Kurds. So far, the Kurdish forces have been the most active among the ground troops in the war waged against ISIS. There is no doubt that their quick and intense involvement is linked with their longstanding dream of establishing an independent state, which they have partially achieved through the current Kurdistan government. A Kurdish state with a geographic spread that currently spans four countries would immediately transform the Kurds into a significant regional energy player, not only because of the oil production capacity that the state would have, but also because of its strategic location.

Kurdish desire for the means to control their own economic destiny and the potential benefits to other countries of stabilizing governmental control in the region lend support to the rise of a Kurdish state. The Kurdistan Regional Government plans to reach a production capacity of 1 million barrels per day (bpd) by 2016. This would generate revenues of around $35 billion per year at current oil prices, but with the developments taking place in the region and should the Kurds take control of the Kirkuk Oil field they will have achieved their target much earlier than their forecast. Furthermore this would immediately pave the way to the Kirkuk-Cayhem pipeline, which could potentially transport 1.6 billion barrels per day to energy-hungry Turkey. While the Turkish Government opposes the creation of an independent Kurdistan, a stronger government in the oil-rich region would support Turkey’s ambition to become an energy corridor to Europe.

Such prospects create new opportunities, and risks, for energy companies, and their effects will be felt by end-users of gas and oil. Boston Strategies International is helping its clients identify new partners and maximize the value of potential opportunities during this window of opportunity.

Is it possible to perpetually extend the fossil fuel frontier?

b2ap3_thumbnail_graph-copy2In their book “Ecological Economics” Daly and Farley wrote: “We almost certainly will never exhaust fossil fuel stocks in physical terms, because there will always remain some stocks that are too energy-intensive or too expensive to recover.”

Technological advances have enabled us  to continuously readjust our fossil fuel reserve forecasts, but they will eventually have their limits. It is a scientific fact that it takes 9.8 joules of energy to lift 1 kg one meter and there is no techonological advance that can change that fact. Additionally, a fossil fuel is recoverable only if the net energy gain from extraction is positive (it needs to take less than a barrel of oil to extract a barrel of oil), and increased energy is being consumed to recover the remaining supplies. Therefore the energy return on investment is declining: in 2012 the top 50 American oil operators invested 20% more than in 2011 to develop new oil fields, and yet their combined production grew only 13% while after-tax profits declined 58%.

While the EIA increased its forecast of global recoverable shale gas by 10% in 2013 to 7,299 trillion cf, another 2013 survey of 35 leading companies in shale exploration revealed that their average capex spending reached $50 per barrel with average revenue per barrel of $51.5. Exploration and Production (E&P) companies will need to identify the sweet spots within this landscape if they are to reap their target ROI on E&P spending.

In addition, the countries with the most years of oil left include many of the less politically stable ones, which will provide incentive for a global political convergence. With extensive experience in the Middle East and Latin America, Boston Strategies International is helping its global client base to establish win-win joint ventures and partnerships to take advantage of this opportunity.

Corruption is Delaying Socioeconomic Benefits of Liberian E&P Investments, but Local Supply Chain Development Can Stimulate Foreign Investment and Economic Growth Indirectly

Corruption Index logoAt first glance Liberia doesn’t seem as corrupt as its West African neighbors – it received 41 out of 100 on Transparency International’s Corruption Perception Index (higher is better; 90 was the best score and 8 was the worst). Many African countries with newfound oil reserves received similarly disturbing scores – Chad scored 19; Angola 22; Cameroon 26; Cote d’Ivoire and Equatorial Guinea 29; Mozambique, Mauritania, and Sierra Leone 31; Niger 33; Tanzania 35; and Gabon 38.

Still, Liberia has spent the past year dealing with scandals related to bribery of government officials by its oil company executives who tried, unsuccessfully, to push through a round of oil concessions with limited public consultation. Governance issues are not a unique story in West Africa.Nigeria delayed a 2012 round of oil concessions as foreign investors looked on skeptically, remembering the previous corrupt rounds (2005-2007) and fields that were acquired but left undeveloped. Also, Ghana issued multiple tenders for development of its refining (downstream) sector, but many projects were not approved, not started, or not completed.

While policy reforms can take years to implement, there is another way to attract investment and stimulate jobs and economic growth in the meanwhile: Liberia can build a strong local oil and gas supply capability. By training and developing local suppliers to be competent and capable, and institutionalizing transparent commercial practices, the government can lure investors and make it easier, quicker, and cheaper for NOCAL (the national oil company of Liberia) to do business honestly with efficient suppliers while increasing the difficulty, cost, and consequences of doing business corruptly with its cronies.

Boston Strategies International benchmarks local supply capability in a number of emerging oil, gas and power supply markets. Ask us how you stack up, and how we can help accelerate strategic and economically impactful local content development.

How West African National Oil Companies Can Raise Their Equity Stake in Upcoming Projects from 15% to 50%

shutterstock_80954569Ghana National Petroleum has 15% ownership of the Deepwater Tano Contract Area. The other 85% of the ownership went to Tullow (47%), Kosmos Energy (17%), Anadarko Petroleum (17%), Sabre Oil & Gas Holdings Ltd, a wholly owned subsidiary of Petro SA (4%) (percentages are approximate).

In contrast, Sonangal holds 41% of the Mafumeira Sul project in Angola (Chevron holds 39%, Total holds 10 percent, and ENI holds 10%), and NNPC holds 40% of the Escravos project in Nigeria (Chevron holds 60%).

How can Chad, Côte d’Ivoire, Liberia, Mauritania, Cameroon, Niger, Gabon, Namibia, Sierra Leone, and Equatorial Guinea get a higher percentage ownership of projects in their own backyard? Low equity figures imply that partners are contributing 85% of the value, and by extension that the locals are only remunerated for their natural resource.

These countries can change the game by increasing their local supply chain competence upward toward a target of 50% of the value of the projects – more than the Nigerian and Angolan equity in the aforementioned deals, and just under the minimum target that Nigeria has set for the ensemble of sub-industries in its oil and gas sector (the minimum local content is 54%, on average).

The key to earning more equity is to accelerate the development of local capabilities that are: 1) critical to project execution; 2) that can be incrementally more profitable than the average oil and gas supply industry; and 3) that can meet oil companies’ qualification criteria within a relatively short investment timeframe.

Generally speaking, they can achieve most of these objectives by developing the following six industries:

  • Pressure vessel fabrication
  • Pipe fabricating and installation
  • Compressor manufacture, assembly, and maintenance
  • Well and drilling services
  • Pump and valve assembly and light manufacturing
  • Water treatment equipment and services

Boston Strategies International offers hands-on capabilities to help establish the needed capabilities in oilfield applications of each of these industries. Click here to ask us for our relevant qualifications in:

  • Formation of alliances with leading technology partners
  • Design and construction of facilities
  • Training and development of  local labor force
  • Management and supervision of operations

Note: Image courtesy of AHFRO.

Bahrain’s LNG Terminal Project: How an Independent Master Supply Chain Plan May Have Saved 29 Months and $138 million

b2ap3_thumbnail_Fast-Track-to-Funding-shutterstock_164841665Bahrain’s National Oil and Gas Authority (NOGA)’s LNG import terminal project seems to be on path for a 7-yearcycle: NOGA initiated partnering steps in 2010, and is forecasting completion for 2017.

  • During a ‘prequalification’ round, NOGA came up with an initial short list of potential EPC firms, then it enlarged the bid list to include a maximum number of responses (21). The bid turned out to be premature, but it did result in two ongoing ‘discussion partners’ (Shell and Vitol).
  • NOGA took several years to iron out governance issues. It had originally considered a joint venture with Independent Terminal Bahrain (ITB), Kuwait’s Independent Petroleum Group (IPG), and Arab Petroleum Investments Corporation (APICORP). In the end, NOGA chose a consultant and engineers to do a pre-FEED and a FEED study. It also decided on issues of ownership between NOGAholding, NOGA, and BAPCO, which it engaged as a technical advisor.
  • It set priorities and interrelationships between related projects, assessing its domestic energy needs (e.g., ALBA), evaluating alternative energy sources and configurations (FLNG, solar, etc.), negotiating the terms of pipelined oil from Saudi Arabia, and tweaking the project’s timing to synchronize anticipated supply and demand.

The introduction and integration of a supply chain ‘master plan’ at the Feasibility Study/Basis of Design stage can shrink the project cycle, improve reliability of the timetable, decrease cost, and synchronize procurement commitments with forecast cash positions, all while meeting target levels of total cost and per-unit cost. A supply chain master plan for an LNG project has three components:

  • Assessment of the cost saving potential of alternative major equipment technologies and choices, such as gas turbines, GT drives, and heat exchanger designs, which on average saves 10-25% on these major items.
  • Determination of the minimal achievable project timeline within inter-related and complex supply chain lead time constraints, especially for major equipment such as compressors. This avoids subsequent project delays and cost overruns. As a proxy, Boston Strategies International sampled 20 major refinery projects between 2005 and 2014 found that 20% of them encountered delays that inflated their schedules by an average of 35% and their cost by an average of 23%. Equivalent factors applied to the roughly $600 million, 7-year terminal project in Bahrain would yield a potential avoidance of 29 months and $138 million.
  • Calibration of the timing of financial and legal/contractual commitment to long lead time equipment, which avoids cash crunches.

Supply chain master plans should be conducted by independent third parties other than the firm that may do or manage the construction. This ensures objectivity of the costs and lead times, which an EPC often has an incentive to misrepresent in order to increase its chances of winning the construction work. By providing a range of cost benchmarks for similar projects, it also dramatically improves the owner/operator’s negotiating position in the bid evaluation phase.

Boston Strategies International developed a supply chain master plan for a major European power producer that helped to save 13% on the baseline cost of a $45 billion project ($5.8 billion).

Pemex Is Buying Jackups and Partnering with Keppel to Build More. Should It Rent The Oil Rigs Instead?

shutterstock_29118568Pemex is investing in offshore oil exploration and production to reverse a 25% drop in oil production levels over the past 10 years, and to secure its claim to domestic offshore oil leases before foreign oil companies gain access to them. Mexican oil industry reform passed in 2012 and 2013 paved the way for more offshore investment, and in 2013 Pemex announced plans to buy 8-12 new jackup rigs – supporting its goal to be the world’s most prolific jackup operator. Pemex is in a hurry to lock in its investment and drilling plans, as new legislation opens up offshore Mexican oil lease auctions to international oil companies as early as 2015. The national oil company wants to hold on to as much acreage as it can, but it needs to prove that it can drill those acres before the upcoming auctions, hence its ambitious plan to secure more jackups.

Pemex announced a Memorandum of Understanding with Keppel Offshore & Marine in October 2013 that covers the development, construction, and operation of a new yard at the Port of Altamira to build and repair offshore rigs. The yard’s first phase will cost $150m, and give Keppel and Pemex the capability to build six new jackups. In addition to the six rigs that Keppel will eventually build at Altamira, it is already building two jackups for Pemex, and Sembcorp is likely to win orders for at least two more jackups this from Pemex this year.

Why is Pemex is buying rigs instead of renting them? To avoid ever-increasing day rates and ensure availability. True, it is contracting rigs as well, having already closed six-year contracts on four Seadrill jackups (and it will soon close a similar deal on a fifth), but those are only a temporary measure until its own rigs can enter operation. Average jackup day rates rose 11% in 2013, from $120k to more than $130k. A tight market for jackup capacity can push day rates into the $300-400k range for some jackups. Part of Pemex’s goal is to plan its spending as accurately as possible, a goal not satisfied by climbing day rates for rigs. In addition, when fleet utilization rates are high, the wait for available rigs can stretch to years, which could delay Pemex’s long-term drilling goals. Its status as a National Oil Company (NOC), ultimately controlled by the Mexican Government, gives Pemex the flexibility to embark on such an ambitious buying program. In contrast, most Independent Oil Companies (IOCs) prefer not to tie up resources in such capital-intensive assets, contracting rigs wherever possible to insulate themselves from the boom-bust cycle of oil prices.

How does an oil company know whether to buy or lease rigs? A correct decision should compare a forecast of day rates to a properly negotiated purchase contract. The easy way to do this is to forecast straight-line day rates and use 2-3 recently publicized rig contracts as a basis for a comparison. Unfortunately, the actual line is often sloping or curved, and the publicized contracts are not the best price that can be had. Inaccuracies can yield a wrong decision – lease instead of buy, or buy instead of lease. Boston Strategies International recently developed a detailed rig procurement cost analysis for a major NOC that is helping it to assure future drilling capacity while saving approximately 20% on the purchase cost of the rigs – in Pemex’s case this could save approximately $400m on 10 jackups.

Supply Chain Planning Critical to Latin American Oil & Gas Capital Project Profitability

b2ap3_thumbnail_Carnaval1Budgeting and controlling investment costs for Latin American oil & gas projects can be particularly tricky. If investors and owners don’t use reliable information in negotiating with EPCs and equipment suppliers, their projects may suffer from a proliferation of risk buffers and safety margins that cumulatively make them unviable. Or, even worse, they may proceed with the projects and then suffer financially disastrous cost overruns.

Costs vary widely across Latin America, and between Latin America and other regions. Labor costs, third country national participation, and local employee benefit adders are particular to each country. Local productivity differentials, local content requirements, and union regulations together can double or even triple project costs. Steel costs vary widely due to volatile demand and limited supply. Fuel costs are subsidized in some countries and not in others. Finally, high payment risks, the chance of expropriation, hyperinflation, and economic volatility affect terms and conditions of contracting.

Projects like Sea Lion, a joint venture of Premier Oil (60%) and Rockhopper (40%), in Argentina, exemplify the need for supplementary and more methodical cost benchmarking, value chain engineering, tender design, and supplier negotiation. The total capital estimate ($5 billion) is making it hard to fund this project. In addition, Sea Lion’s project budget is fluid and has wide variances: the pre-FEED study on the FPSO plan suggested a required investment of approximately $7b, while new estimates come closer to $5.2 billion.

In order to assure project viability investors in Latin American oil and gas ventures need to access equivalency costs for similar investments in other regions, tapping into specialized expertise if necessary to accurately forecast and mitigate financial and strategic supply chain risks.

Making the Case for Floating Renewable Energy Nodes (FRENs)

442904-ea99f99a-ee0d-11e4-a82d-68ff75e6542cMost people assume that the economics of one energy technology will prevail over the others for extended stretches of time. Sure, large oil companies such as Chevron and Saudi Aramco fund small research and development projects aimed at leveraging possible interaction between the technologies, for example offshore wind powering oil and gas rigs, or solar-powered field offices, with many of the more futuristic projects being proposed and executed under academic research grants. However, less developed energy technologies get relatively little attention. In the current paradigm, wind, waves and sun are often perceived mostly as nuisances that complicate offshore installation and equipment operation and maintenance.

What if we took a more holistic approach and developed Floating Renewable Energy Nodes (FRENs) that could simultaneously harness the power of the wind, the waves, and the sun while drilling for, and producing, oil and gas? The idea is not borne out of environmental sentimentalism, but out of hard financial benefits. The following economic synergies would need to be validated for any specific project:

 

1. Could the ancillary units could hook onto the primary structure at a minor incremental cost, directly increasing the project ROI of the primary project through additional revenue streams or reduced costs?

2. Could the ancillary units connect to the same electrical system as the primary unit, either providing motive power (e.g., solar energy powering pumps) or delivering incremental electricity output (e.g., wave energy connecting to the Wind Turbine Generator) with a shared electrical infrastructure?

3. Could harvesting the various forms of energy around the tower or platform dampen the stress load on the primary structure, thereby reducing its complexity and cost? For example, could harvesting the energy of the wind and waves before they crash against the foundation enable a lighter foundation?

4. Could floating structures economically support multiple forms of energy generation? Floaters (semi-submersibles, drillships, drilling barges, FPSOs, TLPs, SPARS, etc.) have become the norm for the offshore oil and gas industry.

Oceanlinx has designed and built a range of floating wave energy capture units (called Oscillating Water Columns), one of which (ogWAVE) is designed to integrate with oil and gas platforms, supplying 500 KW of power as a microturbine might. This example is intriguing, and could pave the way for other integrated designs.

Eventually, these could form a sea of floating energy nodes, tying to common cabling systems that link them to shore.

Thoughts and comments are welcome…

Note: Image (unartfully) adapted and modified by Boston Strategies International from various images, including http://www.worldoceanobservatory.org/events/oceanenergy/current3.htm, which was originally sourced to www.windenergy.co.uk.