2014 - A Retrospective - Time to Work Even Smarter

Challenges abounded in 2014 for the process industries, and it does not look like they will let up soon. But then again, that’s life, as they say. After 40 years in the industry the old adages still ring true, “there is nothing new under the sun” and “the only constant is change.” Some of the major issues in 2014 included:

1. A 50% drop in crude oil prices;
2. In the United States, OSHA 1910.119 rules are changing for chemical threshold limit values defining covered facilities, which means the regulatory realm is expanding;
3. All eyes are on the state of California to see how refinery owner-operators will respond to a changing regulatory environment and changing laws.

With the downturn in oil prices it seems everyone is somewhat affected. As of the writing of this piece, the price of West Texas Intermediate Crude sits at $48.36 and Brent Sea Crude at $50.11. Both had been a little over $100 bbl. in late June 2014. That represents a 50% + decline!

We saw a lot of money invested in the expansion of facilities over the last few years while oil prices steadily climbed. It was also evident that oil companies were spending money exploring new technologies. Now we are hearing news of capital project cancellations, spending cutbacks, and layoffs from the producers. Naturally, this has affected the natural gas market. It is no longer a necessity for companies looking for a cheaper feedstock than crude oil or derivatives to go to the less expensive natural gas. So many natural gas projects have been cancelled or put on hold as well.

As history has shown, these swings in price do happen. But what should we expect in the immediate aftermath? Oil companies, especially companies where production and refining are still integrated have announced spending and manpower cutbacks in 2015 and are getting creative about how and when they realize losses. The most drastic cutbacks are likely to be in areas where the cost to produce oil are the highest.

A big challenge for these companies will be deciding where to cut back and where to keep spending. Certainly challenges like complying with a changing regulatory landscape will require continued spending, as will the ongoing quest to achieve the desired levels of equipment reliability, availability, and safety, regardless of the jurisdiction. Undoubtedly, we have learned that success in these areas will require continued diligence, and with less money to spend, a better understanding of the dynamics in order to best exercise prudent decision-making.

One of the most often overlooked tools to help make sound operational decisions, so we don’t “cut too close to the bone”, is good risk analysis.  Since its inception in the early 90’s, API 581 authors intended to create a tool that would help owner-operators make decisions with a thorough understanding of when it was worth it to perform certain inspection/maintenance activities what the ensuing risks would be, and also to effectively identify the risk drivers and address areas of vulnerability. An effective process should engage RBI methodology based on the pertinent interdependent considerations, provide good models and work processes with realistic parametric sensitivity weightings, and include input from knowledgeable, competent team members.

As we head into 2015, it becomes more important than ever that RBI (risk analysis applied to integrated risk drivers associated with loss of containment) is not simply used as a tool to see what you can cut out of the turnaround. Now is the time to use RBI as it was originally intended: to help owner-operators in the O&G, petrochemical, and chemical processing industries make smarter decisions about when and where to conduct certain inspection/maintenance activities based on risk. Now is the time to really understand risks, risk drivers, and risk strategies to effectively and efficiently manage your equipment.  It is also important to fully understand what services and technologies are currently available to help, as well as their costs of implementation and resulting risks. Don’t do more or less than what is needed to achieve your safety, environmental, and business objectives.

Those who are already working toward these objectives will be ahead of the curve when the industry rebounds. It will be in the best interest of others to “catch up”.

I want to encourage us all to take it up a notch in 2015. Really take time to better understand RBI. Make sure the right people are engaged and get smarter about the way RBI is used for analysis and decision making. Use the metrics it offers to make more informed decisions. Gain a deep understanding of the connectedness of the integrated ways plants operate. Improve at using risk analysis to understand what must be done to operate safely and more profitably. Then, when the market does rebound, we will all emerge smarter, stronger, and more efficient than ever.

I wish you great success in 2015 as we all continue to work smarter!