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Week of Oct. 9, 2006/US$10.00

International Petroleum News and Technology / www.ogjonline.com

Process Control Technology

China seeks import security in tanker newbuild strategy

Oklahoma Woodford gathering designed at 500+ MMcfd
Optimum compressor choice boosts Brent gas production
ECDA tunes Gasunie pipeline corrosion predictions

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Oct. 9, 2006
Volume 104.38

P R O C E S S C O N T R O L TE C H N O L O G Y
Workshops identify threats to process control systems 44
Annie McIntyre, Jason Stamp, Ben Cook, Andrew Lanzone
PROCESS CONTROL—1: Best practices improve control system performance 52
David Shook

REGULAR FEATURES
Newsletter ....................................... 5
Calendar ........................................ 12 COVER
An operator controls an element of a processing plant with
Journally Speaking ........................... 17 next-generation automation and control systems—a Honey-
well Experion PKS and newly designed vertical series C I/O.
Editorial ........................................ 19 Process control systems are becoming more important as refiners
and petrochemical plant operators focus on them to improve
Area Drilling .................................. 32 operations. This issue’s special report, Process Control Technol-
ogy, begins on p. 44 with an article that discusses the issues of
Equipment/Software/Literature ......... 64 cyber and physical security risks to process control systems. The
second article, p. 52, discusses a holistic, best-practices approach
Services/Suppliers ........................... 64 that helps refiners and petrochemical plant operators sustain and
improve the performance of control system assets. Photo from
Statistics ........................................ 65 Honeywell Process Solutions.

Classifieds ...................................... 68
Advertisers’ Index ............................ 71
The full text of Oil & Gas Journal is available through OGJ Online, Oil & Gas Journal’s
internet-based energy information service, at http://www.ogjonline.com. For information, send
Editor’s Perspective/Market Journal ..... 72 an e-mail message to [email protected].

Oil & Gas Journal / Oct. 9, 2006 1

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PennWell, Houston office

1700 West Loop South, Suite 1000, Houston,TX 77027
Telephone 713.621.9720/Fax 713.963.6285/Web site
www.ogjonline.com
Editor Bob Tippee, [email protected]
Chief Editor-Exploration G. Alan Petzet, [email protected]
Chief Technology Editor-LNG/Gas Processing
Warren R.True, [email protected]
GENERAL INTEREST Production Editor Guntis Moritis, [email protected]
Drilling Editor Nina M. Rach, [email protected]
Editorial: The ethanol craze 19 Refining/Petrochemical Editor David N. Nakamura, [email protected]
China seeks oil security with new tanker fleet 20 Pipeline Editor Christopher E. Smith, [email protected]
Senior Editor-Economics Marilyn Radler, [email protected]
Gabe Collins Senior Editor Steven Poruban, [email protected]
OCS compromise eludes US Congress energy leaders 27 Senior Associate Editor Judy R. Clark, [email protected]
Nick Snow Senior Writer Sam Fletcher, [email protected]
NGSA forecasts higher gas production this winter 28 Senior Staff Writer Paula Dittrick, [email protected]
Survey Editor Leena Koottungal, [email protected]
Nick Snow
Associate Editor Angel White, [email protected]
US estimates Iraq lost $16 billion in oil revenues 28 Editorial Assistant Linda Barzar, [email protected]
Nick Snow
WATCHING THE WORLD: Nigerian oil in jeopardy 30
Petroleum Group President Michael Silber, [email protected]
Lawmakers urge MMS to aggressively recover royalties 30 Vice-President/Group Publisher Bill Wageneck, [email protected]
Nick Snow Vice-President/Custom Publishing Roy Markum, [email protected]

EXPLORATION & DEVELOPMENT PennWell, Tulsa office

1421 S. Sheridan Rd.,Tulsa, OK 74112
Oklahoma Woodford gathering designed at 500+ MMcfd 31 PO Box 1260,Tulsa, OK 74101
Gas focus in Brazilian licensing draws fire 32 Telephone 918.835.3161 / Fax 918.832.9290
Peter Howard Wertheim Presentation/Equipment Editor Jim Stilwell, [email protected]
Associate Presentation Editor Michelle Gourd, [email protected]
Algeria’s Berkine basin gets new area of promise 32 Statistics Editor Laura Bell, [email protected]
Illustrators Alana Herron, Kermit Mulkins, Mike Reeder, Kay Wayne
Editorial Assistant Donna Barnett, [email protected]
DRILLING & PRODUCTION Production Director Charlie Cole
Optimum compressor choice boosts Brent gas production 35
Thomas N. Schneider, Riccardo Brogelli London
$10 million Rocket land rig takes off from Oklahoma 42 Tel +44.(0)773.498.6359
International Editor Uchenna Izundu, [email protected]

PROCESSING Washington
Tel 703.963.7707
Special Report: Workshops identify threats to process control systems 44 Washington Correspondent Nick Snow, [email protected]
Annie McIntyre, Jason Stamp, Ben Cook, Andrew Lanzone
Special Report: PROCESS CONTROL—1: Best practices improve Los Angeles
control system performance 52 Tel 310.595.5657
David Shook Senior Correspondent Eric Watkins, [email protected]

OGJ News
TR A N S P O R T A T I O N Please submit press releases via e-mail to: [email protected]

DIRECT ASSESSMENT—Conclusion: ECDA tunes Gasunie corrosion predictions 59

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Oct. 9, 2006
International news for oil and gas professionals
For up-to-the-minute news, visit www.ogjonline.com

General Interest — Q u i c k Ta k e s

Analysts see robust future for oil sands that most often these rivers have been made unsuitable for spawn-
The outlook for Canadian oil sands growth continues to im- ing,” Mitvol said.
prove, although the next 2 years could prove critical as oil compa- Mitvol said at least 3 months would be needed to draw up a full
nies face the risks of increasing cost overruns and project delays, picture of the state of Aniva Bay after construction work has been
said Friedman, Billings, Ramsey & Co. Inc. carried out there for the Sakhalin-2 project.
In a Sept. 29 research note update on oil sands, an FBR analyst
said increasing project proposals also increase the risk profile for Concerns aired over Brazil lease round exclusions
the Canadian oil sands because of an already tight labor market. Some international oil company executives have voiced con-
“We believe that the risks of cost overruns and project delays cerns about Brazil’s National Petroleum Agency (ANP) excluding
will be increasing over the next 2 years, with the greatest risk be- the Campos basin and parts of the Santos basin from the country’s
ing borne by those who have yet to firm up their cost estimates Nov. 28 licensing round.
and to order key critical equipment,” said Amir Arif, FBR senior Excluding these areas from the 8th licensing round makes it
vice-president. “less attractive,” Alvaro Teixeira, executive secretary of the Brazilian
He estimates 25-30% cost inflation from 2004 levels for new Petroleum & Gas Institute, told OGJ.
projects that will be firmed up in 2007 with risk of an additional Most of the field development activity undertaken by interna-
10-20% cost overruns related to labor, steel, and line pipe costs, tional firms is concentrated in the Campos basin, which produces
along with infrastructure and logistic issues. 80% of Brazil’s output of 1.8 million b/d of oil.
Noting that the number of oil sands projects planned in Alberta “Is the exclusion of these basins a sign that there will be chang-
have been steadily climbing, FBR estimates the cumulative capital es concerning policies for future licensing rounds?” Teixeira posed.
to be spent in the oil sands, based on announced projects, amounts “Brazil’s Mines and Energy Minister Silas Rondeau reaffirmed that
to more than $125 billion (Can.) This is a 140% increase from the rounds will continue as normal and that the 9th Round will
FBR’s 2003 estimate of $52 billion. probably be announced right after the 8th round. We will see,” he
The increase is a result of both new projects being announced said.
and additional cost pressures on previous cost estimates, Arif The IBP executive said: “In the short term, there will be a re-
said. duction in the rhythm of annual investments in exploration. In the
medium and long terms, there will be a postponement in invest-
Sakhalin-2 project faces more authorization woes ments to develop potential commercial discoveries of exploration
Part of the pipeline built for the Sakhalin-2 project may have work that was also postponed. The end result will be a reduction in
been built without proper government authorization, according the pace and or maintenance of the present rate of oil production
to Oleg Mitvol, deputy head of the Russian Federal Service for the in the next 6-7 years.” IBP is a 50-year-old, nonprofit, private orga-
Regulation of the Use of Natural Resources (Rosprirodnadzor). nization with 220 associates including most of the multinationals
Mitvol said the pipeline segment in question was built near the operating in Brazil.
village of Sovetskoye and passes through the Zubrovyy nature re- ANP placed 284 blocks on offer in the upcoming 8th Round
serve. He believes that segment was constructed after “unauthor- (OGJ Online, Sept. 12, 2006). The blocks being offered are in seven
ized rerouting.” sedimentary basins and are considerably less in number than ANP’s
He said, “This is a crime punishable by law. We will examine the previous announcement of 1,153 blocks in 18 basins.
situation and transfer all the evidence to the prosecutor’s office.” ANP justified excluding the Campos basin by saying, “A wide
Meanwhile, starting Oct. 2 Rosprirodnadzor began taking aerial selection of acreage is to be put up for auction, including areas
photographs of the complete pipeline, which was built as part of considered to have great potential for both oil and gas, new fron-
the Sakhalin-2 project. The photographic results will be compared tier blocks, and blocks in mature areas.”
to the relevant documents on file to establish whether there are ANP considers 35 offshore areas as high potential blocks, 153
discrepancies between existing work and work authorized. offshore blocks as new frontier basins, 47 onshore blocks as new
Rosprirodnadzor inspectors flew over a 200-km section of the frontier basins (with little geological data), and 49 blocks in on-
pipeline route by helicopter on Sept. 29. The survey revealed areas shore mature basins.
prone to mud slides due to pipeline construction, Mitvol said.
He also noted the presence of incorrectly constructed crossings CAPP: Don’t upset Canada’s investment climate
over rivers. “There are problems over many crossings, which mean Speaking at the International Pipeline Conference & Exposi-
tion in Calgary, Kathy Sendall, Petro-Canada senior vice-president,
Oil & Gas Journal 5

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I n d u s t r y S c o r e b o a r d
IPE BRENT / NYMEX LIGHT SWEET CRUDE
$/bbl
US INDUSTRY SCOREBOARD — 10/9
63.00
62.00
4 wk. 4 wk. avg. Change, YTD YTD avg. Change,
61.00
Latest week 9/29 average year ago1 % average year ago* %
60.00
59.00 Demand, 1,000 b/d
58.00
57.00 Motor gasoline 9,684 8,897 8.9 9,760 9,126 6.9
56.00
Distillate 4,343 4,114 5.6 4,111 4,099 0.3
Se p t. 2 7 S e p t. 2 8 S e p t. 2 9 Oct. 2 Oct. 3 Jet fuel 1,604 1,606 –0.1 1,601 1,620 –1.2
Residual 602 1,039 –42.1 766 891 –14.0
Other products 5,188 4,441 16.8 4,928 4,903 0.5
TOTAL DEMAND 21,421 20,097 6.6 21,165 20,638 2.6
WTI CUSHING / BRENT SPOT Supply, 1,000 b/d
$/bbl
62.00 Crude production 5,127 4,214 21.7 5,101 5,278 –3.4
61.00 NGL production 2,379 1,475 61.2 2,209 1,768 24.9
60.00 Crude imports 10,829 9,078 19.3 10,244 10,066 1.8
59.00
Product imports 3,380 3,976 –15.0 3,483 3,295 5.7
Other supply2 1,147 1,166 –1.7 1,087 1,272 –14.6
58.00
TOTAL SUPPLY 22,861 19,910 14.8 22,123 21,679 2.0
57.00
56.00 Refining, 1,000 b/d
55.00
S e p t. 2 7 S e p t. 2 8 S e p t. 2 9 Oct. 2 Oct. 3 Crude runs to stills 15,666 13,974 12.1 15,166 15,420 –1.6
Input to crude stills 16,153 14,371 12.4 15,581 15,697 –0.7
% utilization 93.2 83.9 — 90.6 91.7 —

NYMEX NATURAL GAS / SPOT GAS - HENRY HUB Latest Previous Same week Change,
$/MMbt Latest week 9/29 week week* Change year ago* Change %
5.80
5.40
Stocks, 1,000 bbl
5.00
Crude oil 325,255 322,542 2,713 300,150 25,105 8.4
4.60 Motor gasoline 217,810 220,606 –2,796 197,970 19,840 10.0
4.20 Distillate 146,558 149,535 –2,977 128,017 18,541 14.5
3.80 Jet fuel 41,376 41,005 371 36,301 5,075 14.0
3.40 Residual 43,574 45,424 –1,850 32,960 10,614 32.2
3.00
S e p t. 2 7 S e p t. 2 8 S e p t. 2 9 Oct. 2 Oct. 31 Futures prices3

Light sweet crude, $/bbl 62.41 61.07 1.34 66.05 –3.64 –5.5
Natural gas, $/MMbtu 4.84 4.86 –0.01 13.42 –8.58 –63.9
IPE GAS OIL / NYMEX HEATING OIL
¢/gal 1
178.00
Based on revised figures. 2Includes other hydrocarbons and alcohol, refinery processing gain, and unaccounted for crude oil.
3
176.00 Weekly average of daily closing futures prices.
174.00
172.00
170.00
168.00
166.00
164.00
Se p t. 2 7 S e p t. 2 8 S e p t. 2 9 Oct. 2 Oct. 3

BAKER HUGHES INTERNATIONAL RIG COUNT: TOTAL WORLD / TOTAL ONSHORE / TOTAL OFFSHORE
3,300 3,174

PROPANE - MT. BELVIEU / BUTANE - MT. BELVIEU 3,000

2,700
2,794
¢/gal
2,400
120.00
2,100
115.00 1,800
110.00 1,500
105.00 1,200
100.00 900
95.00 600 380
90.00 300
July 05 Aug. 05 Sept. 05 Oct. 05 Nov. 05 Dec. 05 Jan. 06 Feb. 06 Mar. 06 Apr. 06 May. 06 June 06 July 06 Aug. 06
85.00
S e p t. 2 7 S e p t. 2 8 S e p t. 2 9 Oct. 2 Oct. 3 Note: Monthly average count

BAKER HUGHES RIG COUNT: US / CANADA

NYMEX GASOLINE / NY SPOT GASOLINE 2 1,800
¢/gal 1,600 1,483 1,744
157.00
1,400
155.00
1,200
153.00
151.00 1,000

149.00 800
147.00 600 537
145.00 400 353
143.00
S e p t. 2 7 S e p t. 2 8 S e p t. 2 9 Oct. 2 Oct. 3 200
7/15/05 7/29/05 8/12/06 8/26/05 9/9/05 9/23/05 7/14/06 7/28/06 8/11/06 8/25/06 9/8/06 9/22/06
1 Not available at press time. 7/22/05 8/5/05 8/19/05 9/2/05 9/16/05 9/30/05 7/21/06 8/4/06 8/18/06 9/1/06 9/15/06 9/29/06
2 Nonoxygenated regular unleaded. Note: End of week average count

6 Oil & Gas Journal / Oct. 9, 2006

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North American natural gas, and chair of the Canadian Association US House panel approves pipeline safety bill
of Petroleum Producers, implored the Canadian government to not The US House Energy and Commerce Committee passed a bill
“do anything stupid” regarding terms of investment in projects in Sept. 27 reauthorizing federal oil and gas pipeline safety programs.
the country. It now has to be reconciled with a similar measure passed June 19
Sendall said Canada’s transparent and stable investment climate by the Transportation and Infrastructure Committee before there
acted as a balance to the relatively high production costs in the re- can be a final vote on the House floor.
gion and that any adjustments to terms of investments should only Passage of the latest House pipeline bill by voice vote came
be undertaken with the utmost caution, lest this balance be upset. hours before Senate Commerce, Science, and Transportation Com-
Sendall also said continued progress needs to be made to keep mittee leaders introduced their own pipeline safety bill.
Canada’s regulatory process untangled, making particular note of Committee Chairman Ted Stevens (R-Ark.) and chief minor-
the manifold jurisdictions currently required to weigh in on any ity member Daniel K. Inouye (D-Hi.) sponsored the measure to
pipeline project before actual work can begin. reauthorize the federal Pipeline Safety Act for 4 years starting in
Even so, Sendall cited the combination of Canada’s resource 2007, with Trent Lott (R-Miss.) and Frank R. Lautenberg (D-NJ) as
base, innovative technology, competitive global position, and envi- cosponsors. Other provisions include a 50% increase in the num-
ronmental stewardship as key factors that will allow the country to ber of federal pipeline inspectors to 135 from 90 at a cost of $6
succeed as it sets a course toward becoming an “energy superpow- million over 4 years, application of Department of Transportation
er.” She also said “pipeliners should be salivating” at the prospect standards to all low-stress pipelines, and new civil enforcement
of bringing Canada’s hydrocarbon resources to market. authority against excavators and pipeline operators responsible for
third-party damage. ✦

Exploration & Development — Q u i c k Ta k e s

Mariner makes Gulf of Mexico discovery contract went to Italy’s Snamprogetti SPA and the Khurais gas con-
Mariner Energy Inc., Houston, said it has made a material dis- tract was let to a consortium of Hyundai Engineering & Construc-
covery with its 5ST1 well on High Island Block 116 in the Gulf of tion Co. Ltd. and Foster Wheeler Energy Ltd.
Mexico. The Khurais program covers three oil fields: Khurais, Abu Jifan,
The well, drilled to a TMD of 14,683 ft, encountered about 540 and Mazlij. The Khurais gas facility will process sour associated
ft of net vertical pay in 13 sands. Completion operations are under gas produced from the three fields into an NGL product and a dry,
way, and initial production is expected later in the fourth quarter. single-phase sour shipping gas. The plant will process a total of 563
Mariner estimates that the well’s proved and probable gas re- MMscfd of sour associated gas and 70,000 b/d of condensate.
serves could be about 40-60 bcf. The company holds 100% work- The program is the largest crude increment undertaken in Ar-
ing interest and a 72% net revenue interest in the well. amco’s history, the company said, and one of the largest industrial
HI Block 116 is part of the asset base Mariner acquired from projects being executed in the world today. The program is slated
Forest Oil Corp. in March. for completion by mid-2009.
Snamprogetti’s contract calls for construction of four identical
Total-led group tests Yemeni oil well crude processing and gas compression trains, along with the con-
A group led by Total SA reported the KHA 1-16 oil well in Ye- struction of inlet and outlet facilities to receive wet and sour crude
men’s East Shabwa Development Area on Block 10 produced more through upstream trunklines.
than 8,400 b/d when tested through a 70⁄64-in. choke, said partici- The Hyundai-Foster Wheeler contract includes construction of
pant Soco International PLC, London. two gas conditioning trains, crude and NGL storage facilities, prod-
Test results extend Khairir oil field to the east beyond current uct shipping facilities, and flares.
3D seismic survey data, Soco said. The well was drilled on the east- All related support facilities, such as roads, ponds, buildings,
ern-most 3D seismic parameter as part of a continuing appraisal electrical systems, and process control systems, are also to be pro-
and development of the field’s basement reservoir. vided under these contracts.
KHA 1-16 spudded June 5 and reached a MD of 3,298 m. The
group will evaluate the well results to decide the best way to access Max Petroleum completes second Kazakh well
the extension, Soco said. Max Petroleum PLC, London, has completed and begun pro-
Block 10 participants are operator Total and Soco’s Comeco Pe-duction from the ZMA-2X well, the second of five wells planned
troleum Inc., each with 28.57% under a production-sharing agree- on the Zhana Makat A structure on the E Block in the Pre-Caspian
ment with Yemen. Other joint venture partners are Occidental Ye- basin of Kazakhstan.
men Ltd. 28.57% and Kuwait Foreign Petroleum Exploration Co. ZMA-2X, drilled downdip from the ZMA-1X discovery well to
14.29%. further delineate the field, encountered an oil column about 18 m
thick, exceeding the company’s initial expectations for the well.
Aramco lets two Khurais development contracts As with the discovery well, the ZMA-2X production will be in-
Saudi Aramco has signed two contracts for the development of creased gradually to ensure minimal reservoir damage.
its 1.2 million b/d Khurais Increment Program. The Khurais crude Max plans to announce the production volumes when the ini-
8 Oil & Gas Journal / Oct. 9, 2006

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tial well testing is complete. crease of 45 b/d from its initial rate in mid-September. Max is
The operator also has begun drilling its ZMA-4X well, to be fol- continuing to evaluate the well and optimize its production.
lowed shortly by the ZMA-3X and ZMA-5X. These three additional The initial drilling program on Zhana Makat A is scheduled for
wells are further updip on the Zhana Makat A structure, where the completion in mid-November, and Max will then have the struc-
company believes the oil column thickness may exceed that seen in ture’s reserves independently certified before yearend.
the flank areas drilled by the first two wells. Max said it intends to drill up to 30 shallow wells, 6 intermedi-
The discovery well is producing about 225 b/d of oil, an in- ates, and 3 deep wells by the end of 2007. ✦

Drilling & Production — Q u i c k Ta k e s

Hull, topsides completed for Independence Hub Stone resumes Amberjack platform production
Atlantia Offshore Ltd., Houston, has completed integration of Stone Energy Corp., Lafayette, La., has resumed production
the hull and topsides of its deep-draft semisubmersible for the from its Amberjack platform on Mississippi Canyon Block 109 in
Independence Hub plat- the Gulf of Mexico. The platform had been shut down due to dam-
Atlantia Offshore Ltd. form on Mississippi Canyon ages caused by Hurricane Katrina in 2005.
integrates the hull Block 920 in the Gulf of Stone repaired and rerouted a severed oil pipeline and expects
and topsides of its
DeepDraft Semi for Mexico. production of 50-60 MMcfd of net gas equivalent during the
the Independence Hub The operation was com- fourth quarter. This brings Stone’s overall fourth-quarter produc-
development. Photo pleted Sept. 20 at the Kiewit tion to 250 MMcfd of gas equivalent.
from Atlantia. Offshore Services facility Stone said limited oil production from the Amberjack platform
in Ingleside, Tex. Kiewits’s was initially restored in early September via barging.
heavy lifting device was Stone is the operator on MC Block 109 and holds a 100% inter-
used to set the 8,400-ton est since this summer (OGJ, July 17, 2006, p. 30). It also owns a
deck onto the 10,000-ton 24.8% interest in Block 108.
hull.
Additional hookup and Mariner resumes Gulf of Mexico production
commissioning activities Mariner Energy Inc., Houston, has restarted production at Ochre
are expected to continue and Pluto gas fields in the deepwater Gulf of Mexico.
over the next several weeks. Ochre field, on Mississippi Canyon Block 66, has resumed pro-
The Hub will then be duction of 10.5 MMcfd of gas equivalent (gross). The field was
towed to another location shut-in due to damages caused by Hurricane Ivan in 2004.
to be moored in about 8,000 ft of water. Once installed, the Atlan- On MC Block 718, Mariner has brought Pluto production on
tia DeepDraft semisubmersible will connect to a 24-in. export gas stream. The field is expected to flow at 40-50 MMcfd of gas equiva-
line, and will have the capacity to connect to 16 infield flowlines lent (gross). The field was originally shut-in for the drilling and
and 12 umbilicals from an initial 10 ultradeepwater fields. Total completion of a new well, but start-up was delayed due to Hur-
designed throughput of the process facility will be 1 bcfd of gas. ricane Katrina last year.
Independence Hub is owned 80% by Enterprise Products Part- Mariner holds a majority interest in and is operator of these
ners LP and 20% by Helix Energy Solutions Group Inc. Anadarko two fields.
Petroleum Corp. will operate the hub on behalf of Atwater Valley The company estimates that most of its remaining 2005 hur-
Producers Group, which is comprised of Anadarko, Dominion Ex- ricane-related production shutins will restart in the fourth quar-
ploration & Production, Hydro Gulf of Mexico LLC, Devon Energy ter. ✦
Corp., and Energy Resources Technology.

Processing — Q u i c k Ta k e s

Huntsman lets contract for Port Arthur repairs Huntsman said it also will accelerate some maintenance work
Huntsman Corp., Salt Lake City, let a $60 million engineering, at the facility that was scheduled for a 2010 turnaround and in-
procurement, and construction contract to Shaw Group Inc., Baton spection. Performing the work now will make the plant run more
Rouge, La., for repairs to Huntsman’s olefins manufacturing plant efficiently, the company said.
in Port Arthur, Tex. The facility, damaged by fire in April, has pro- The maintenance work will not extend the time required to
duction capacity of 1.4 billion lb/year of ethylene and 800 million repair and restart the facility.
lb/year of propylene.
The total cost of the cleanup, engineering, and rebuild is es- Coker contract awarded for Tatarstan refinery
timated at $110 million. The project is slated for completion in CJSC Nizhnekamsk Refinery has let a contract to Foster Wheeler
second quarter 2007. Ltd. subsidiary Foster Wheeler USA Corp. to design a process pack-
age involving its proprietary delayed coking technology.
Oil & Gas Journal / Oct. 9, 2006 9

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The coker will be part of an integrated refining and petrochem- share in any third-party royalties from the past or future licensing
ical grassroots complex to be constructed at Nizhnekamsk in Ta- of the technology by ExxonMobil.
tarstan, Russia. The companies will continue to collaborate on their other ven-
The contract’s terms were not disclosed. Foster Wheeler also has tures in Saudi Arabia.
the front-end engineering design contract for the integrated com-
plex (OGJ, Sept. 25, 2006, Newsletter). Hydrocracker due Cartagena refinery
In the coking contract, Foster Wheeler will provide its thermal Repsol YPF SA has selected IFP NA subsidiary Axens NA’s tech-
conversion process to upgrade heavy residue feed and process it nologies for the planned expansion of its 100,000 b/cd Cartagena
into transport fuels. refinery in Murcia, Spain.
The new refining train will include a 50,000 b/d hydrocracker
Sabic, ExxonMobil settle technology dispute that will convert a blend of heavy vacuum and heavy coker gas-oils
Saudi Basic Industries Corp. (Sabic) said it has reached a full and into high-quality, ultralow-sulfur middle distillates for the Euro-
final settlement of its disputes with ExxonMobil Corp. concern- pean market.
ing technology and a patent that can be used in the production of Axens is committed also to provide a C5-C6 alkane isomerization
polyethylene. unit to boost gasoline pool octane, two hydrodesulfurization units
Under terms of the settlement, Sabic and its affiliates will have to produce ultralow-sulfur diesel from straight run and light coker
the right to use the technology without royalties and will equally gas-oil, and a coker naphtha HDS unit.
The new facilities are scheduled to start up in fourth quarter
2010. ✦

Tr a n s p o r t a t i o n — Q u i c k Ta k e s

Gas deliveries to UK begin through new pipeline November and come on stream in early 2008.
Gassco AS on Oct. 1 began gas deliveries from Statoil ASA-oper- During the first 10 years of plant operation, Santos Ltd. will
ated Sleipner and Troll fields in the Norwegian North Sea to Eas- supply up to 37 petajoules of gas feedstock from its 45% share of
ington in the UK after opening flow through the 600 km southern production in the John Brookes gas field operated by Apache En-
leg of the new Langeled pipeline. ergy Australia in the offshore Carnarvon basin. Gas deliveries will
This marks the completion of the first stage of the 1,200-km be via the Dampier-Bunbury gas trunkline.
submarine gas pipeline, the cost of which currently is estimated at
17 billion kroner—about 3 billion kroner below budget. ABS issues design approval for CNG carriers
“We will complete all pipelaying on the northern leg this week, The American Bureau of Shipping has issued full-class design
which means we’ll manage to finish ahead of the winter season,” approval for CNG carriers to Sea NG Corp., Calgary. The approval is
said Leif Solberg, Langeled project director. the first granted to CNG carriers, ABS said.
“The project has progressed on schedule,” he added. “What re- Sea NG’s proprietary Coselle system uses small-diameter high-
mains now is subsea connections and testing on the northern leg strength steel pipe coiled into a carousel to store the high-pressure
until next summer.” gas. Each Coselle will comprise about 10 miles of 6-in. pipe used
The northern leg, due to start up in 2007, lies in 360 m water as for storing and transporting CNG.
far as Sleipner East field (OGJ Online, Sept. 18, 2006, Newsletter). Sea NG is expected to let contracts for construction of three
It is designed for an internal pressure of 250 bar, corresponding to Coselle CNG carriers later this year. These first vessels, which will
water 2,500 m deep, a record for Norway’s gas transport system. carry the notation “A1 CNG Carrier,” will be designed to transport
The Langeled system will have a total capacity of 20 billion cu gas 200-2,000 miles. They are intended to service projects in the
m/year, one fifth of Britain’s annual gas requirements. This supple- Caribbean or Mediterranean seas.
ments the 12 billion cu m/year Vesterled system, which transports The vessels will be 120 m long and have the capacity to carry 50
gas from the BC Hydro-operated Heimdal platform to St. Fergus MMscf of gas in 16 Coselles (160 miles of pipe). The 16 Coselles
in Scotland. are arranged in four stacks of four high in a fully enclosed and
inerted cargo house on the weather deck. The vessels will feature a
Wesfarmers plans Western Australia LNG terminal dual fuel propulsion system with bow thruster and also a propri-
Perth industrial conglomerate Wesfarmers Ltd. plans to build a etary high- and low-pressure manifold system for efficient loading
$138 million (Aus.), 175-tonne/day LNG terminal and regasifi- and unloading.
cation plant in Kwinana, south of Perth in Western Australia. The ABS Project Manager Harish Patel said, “This vessel design re-
plant will supply natural gas for heavy-duty trucks as well as do- view and approval was undertaken using a risk-based design ap-
mestic industrial and electric power generation markets. proach.”
The company says that several years of trials involving 70 trucks This included a series of risk assessment studies, including HA-
traveling more than 12 million km around Australia, has shown ZID, HAZOP, gas dispersion, and explosion models, fire, flaring and
that LNG is a viable alternative to diesel fuel. heat radiation analysis, a jetting study, escape and evacuation stud-
Construction of the Wesfarmers plant is scheduled to begin in ies, and inspectability analysis. ✦
10 Oil & Gas Journal / Oct. 9, 2006

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✦ Denotes new listing or a change IOGCC Annual Meeting,

in previously published information. Austin, (405) 525-3556,
(405) 525-3592 (fax), e-
mail: [email protected],
website: www.iogcc.state.ok.us.
15-17.
Additional information on upcoming
seminars and conferences is available EAGE/EAGO/SEG Interna-
through OGJ Online, Oil & Gas
Journal’s Internet-based electronic tional Conference & Exhibi-
information source at tion, Saint Petersburg, Russia,
http://www.ogjonline.com. +31 30 6354066, +31
30 6343534 (fax), e-mail:
OCTOBER [email protected],
Europe Multiphase Pump website: www.eage.org. 15-18.
User Roundtable, Amsterdam,
(979) 458-2054, (979) SPE/IADC India
458-1844 (fax), e-mail: Conference, Mumbai,
[email protected], website: (972) 952-9393, (972)
http://mpur.org/europe. 9. 952-9435 (fax), e-mail:
[email protected], website: ___
www.
ERTC Petrochemical Confer- spe.org. 16-18.
ence, Dusseldorf, +44 1737
365100, +44 1737 Oil Shale Symposium, Golden,
365101 (fax), e-mail: Colo., (303) 384-2235,
[email protected], website: e-mail: [email protected],
www.gtforum.com. 9-11. website: www.mines.edu/
outreach/cont_ed/oilshale.
____________
API Fall Petroleum Measure- 16-20.
ment Standards Meeting,
Denver, (202) 682-8000, Annual European Autumn
(202) 682-8222 (fax), Gas Conference, Cannes, +44
website: www.api.org/events. 1737 855 108, +44 1737
9-12. 855 482 (fax), website:
www.theeagc.com. 17-18.
GPA Annual Meeting, Houston,
(918) 493-3872, (918) Saskatchewan and Northern
493-3875 (fax), e-mail: Plains Oil & Gas Symposium,
[email protected], Regina, (306) 787-2573,
website: www.gasprocessors. (306) 787-4608 (fax),
com. 10.
__ e-mail: [email protected],
website: www.sgshome.ca.
International Bottom of the 17-18.
Barrel Technology Conference
& Exhibition, Athens, +44 Energy Summit in Africa, Cape
(0) 20 7357 8394, +44 Town, 33 1 55 07 26 09, 33
(0) 20 7357 8395 (fax), 1 55 07 26 55 (fax), e-mail:
e-mail: conferences@europetro. [email protected].
com, website: www.EuroPetro. 17-19.
com. 11-12.
ISA Expo, Houston,
Pipeline Simulation Interest (919) 549-8411,
Group Annual Meeting,Wil- (919) 549-8288 (fax),
liamsburg,Va., (713) 420- e-mail: [email protected], website:
5938, (713) 420-5957 www.isa.org. 17-19.
(fax), e-mail: [email protected],
website: www.psig.org. 11-13. Permian Basin Interna-
tional Oil Show, Odessa,Tex.,
PIRA Annual Seminar, New (432) 367-1112, (432)
York, (212) 686-6808, 367-1113 (fax), e-mail:
(212) 686-6628 (fax), e- [email protected],
mail: [email protected], website: website: www.pbioilshow.org.
www.pira.com. 12-13. 17-19.
______________

12 Oil & Gas Journal / Oct. 9, 2006

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Annual International NGT2006@gastechnology. West China International Oil API Fall Refining and Equip- (918) 584-2555, (918) website: www.energyinst.org.
Petroleum Environmental org, website: www.gastech & Gas Conference & Exhibi- ment Standards Meeting, San 560-2694 (fax), e-mail: uk. 7.
__
Conference, San Antonio, nology.org. 22-25. tion, Xinjiang, +44 (0) 207 Francisco, (202) 682-8000, [email protected], website:
(918) 631-3088, e-mail: 596 5233, +44 (0) 207 (202) 682-8222 (fax), www.aapg.org. 5-8. IADC International Well
[email protected], website: IPAA Annual Meeting, Grape- 596 5106 (fax), e-mail: e-mail: [email protected], Control Conference &
www.cese.utulsa.edu. 17-20. vine,Tex., (202) 857-4722, [email protected], website: www.api.org. Oct. Abu Dhabi International Exhibition, Abu Dhabi,
(202) 857-4799 (fax), 30-Nov. 1. Petroleum Exhibition & Con- (713) 292-1945, (713)
World LP Gas Forum & website: www.ipaa.org/meet- website: www.ite-exhibitions. ference (ADIPEC), Abu Dhabi, 292-1946 (fax), e-mail:
Global Technology Conference, ings. com/og. 24-27. [email protected], website:___
www.
__ 23-25. Carbon Capture and Storage +971 2 4446900,
Chicago, (202) 452-8975, in the UK Conference, London, +971 2 4446135 (fax), iadc.org. 7-8.
(202) 452-9054 (fax), e- Power-Gen India & Central Annual Condensate & Naphtha +44 (0) 20 7467 7100, e-mail: [email protected],
mail: willis@propanecouncil. Asia Conference, New Delhi, Forum, Phuket, +65 6222 +44 (0) 20 7255 1472, website: www.adipec.com. ✦Annual Petroleum Exhibi-
org, website: www.wlpgasfo-
_______ (918) 831-9160, (918) 0230, +65 6222 0121, e- e-mail: [email protected]. 5-8 tion & Conference of Mexico,
rum2006.com. 17-20. uk, website: www.energyinst. Villahermosa, (713) 529-
_______ 831 9161 (fax), e-mail: mail: condensate@cconnection. 1616, (713) 821-1169
[email protected], org, website: www.cconnection. org.uk. 31. Purvin & Gertz Latin America (fax), e-mail: sales@ieimail.
Annual Border Energy Forum, website: www.pgen.events. org. 30-31.
__
LPG Seminar, Panama City, com, website: www.oilonline.
Tampico,Tamaulipas, (512) pennnet.com. 24-26. NOVEMBER (713) 236-0318, (713) com/mexico. 7-9.
463-5039, e-mail: Soll. Chad International Oil & Gas AAPG International Confer- 331-4000 (fax), website:
[email protected]. DryTree & Riser Forum, ence and Exhibition, San Juan, www.purvingertz.com/semi- ✦International Marine Gas
Conference, N’Djamena, +44
TX.US, website: www.glo.state. College Station,Tex., (918) 584-2555, (918) nars. 6-9.
__ CNG Standards Forum, St.
tx.us/energy.border. 19-20. (918) 831-9160, (918) 207 596 5148, +44 207 560-2694 (fax), e-mail:
_________ John’s, Newf., (709) 754-
831-9161 (fax), e-mail: 596 5071 (fax), e-mail: [email protected], website: Oil Depletion Confer- 9880, (709) 754-9881
GTI’s Natural Gas Tech- [email protected], colins.tchanga@ite-exhibi www.aapg.org. 4-7. ence, London, +44 (0) 20 (fax), e-mail: info@cmcng.
nologies Conference, Orlando, website: www.drytreeforum. tions.com, website: ___
www. 7467 7100, +44 (0) com, website: www.cmcng.
(847) 768-0940, (847) __ com. 24-26. african-events.com. 30-31. AAPG International Confer- 20 7255 1472, e-mail: com. 7-9.
__
768-0858 (fax), e-mail: ence & Exhibition, Perth, [email protected],

_____________________

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International Petroleum & Pet- e-mail: meetmail@aiche. Alta., (403) 218-7721,

rochemical Exhibition, Beijing, org, website: www.aiche.org. (403) 920-0054, e-mail:
(301) 493-5500, (301) 12-17. [email protected], website: __
www.
493-5705 (fax), e-mail: csug.ca. 15-17.
___
[email protected], website: ERTC Annual Meeting, Paris,
www.ejkcn.com/ippe06/ +44 1737 365100, +44 European Biofuels Forum,
ippe06.htm. 7-10.
______ 1737 365101 (fax), e-mail: Warsaw, 0044 20 7067
[email protected], website: 1800, 0044 20 7430 9513
IADC Contracts & Risk Man- www.gtforum.com. 13-15. (fax), e-mail: c.taylor@
Wherever the location, whatever the oil agement Conference, Houston, theenergyexchange.co.uk,
and gas project, Bechtel delivers
(713) 292-1945, (713) website: www.wraconferences.
unmatched solutions powered by nearly IADC/SPE Asia Pacific com/wra112overview.html.
40,000 of the industry’s most capable 292-1946 (fax); e-mail: Drilling Technology Conference, 21-22.
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iadc.org. 8. (713) 292-1946 (fax), e- PETEX Conference & Exhibi-
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Start achieving with one of the world’s premier engineering,
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Petrochem Arabia Confer- [email protected], ✦Renewable Energy in the 2007 Deepwater Operations Confer- Multiphase Pumping &
ence, Dubai, +44 (0) 1242 website: www.intertechusa. New Low Carbon Britain ence & Exhibition, Galveston, Technologies Conference
529 090, +44 (0) 1242 __ com. Nov. 30-Dec. 1. Conference, London, +44 Tex., (918) 831-9160, & Exhibition, Abu Dhabi,
529 060 (fax), e-mail: (0) 20 7467 7100, +44 JANUARY (918) 831-9161 (fax), e- (918) 831-9160, (918)
(0) 20 7255 1472, e-mail: Petrotech India Conference mail: registration@pennwell.
[email protected], DECEMBER 831-9161 (fax), e-mail:
[email protected], and Exhibition, New Delhi, com, website: www.deepwater-
website: www.wraconferences. Independent Operators Forum, website: www.energyinst.org.
_______ [email protected],
+44 (0) 20 8439 8890, operations.com. 23-25.
com. 26-27.
__ London, (918) 831-9160, uk. 5. _______ website: www.multi-
______
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_________
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ico Conference & Exhibition, com, website: _______
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trade-middleeast.com. 4-6. 552-2430, (432) 552- website: _______
www.offshoreas- 847-7704 (fax), e-mail:
831-9161 (fax), e-mail: 2433 (fax), website: www. iaevent.com. [email protected], website: International Petrochemicals
___ _____ 16-18.
[email protected], spe-pb.org. 6-8. www.napeonline.com. 1-2. & Gas Technology Conference
GASTECH International
website: www.pgen.events. Conference & Exhibition, & Exhibition, London, +44
API Exploration and Produc-
pennnet.com. 28-30. Abu Dhabi, +44 (0)1895 Annual China Gas Conference, tion Winter Standards Meeting, IPAA Small Cap Conference, (0) 20 7357 8394, e-mail:
454 592, +44 (0)1895 Beijing, 65 6536 8676, 65 Boca Raton, Fla., (202) 857- [email protected],
Ethanol Summit, Houston, 454 584 (fax), e-mail: 6536 4356 (fax), e-mail: Scottsdale, Ariz., (202) 682- 4722, (202) 857-4799 website: www.europetro.com.
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(207) 781-9617, (207) [email protected], website: (fax), website: www.ipaa. 12-13.
781-2150 (fax), e-mail: website: www.abf-asia.com. (fax), website: www.api.org.
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J o u r n a l l y S p e a k i n g

Traveling for good

house gases,” said fund officials. Since onstrate “understanding and maturity.”
transportation is the biggest US source The program welcomes volunteers
of CO2 emissions, they suggest ways “with special needs or disabilities,”
to reduce fuel use. Not surprisingly, a including “physically challenged, deaf,
backyard vacation is not one of the sug- visually impaired, and mentally chal-
gestions. lenged.” Diet restrictions “can be ac-
Sam Fletcher Travelocity also encouraged travelers commodated.” Lodging is in “a com-
Senior Writer to participate in the annual Public Lands fortable house in a safe, conveniently
Day Sept. 30, with volunteers building located neighborhood.” Medical, dental,
Airlines recently have suffered finan- trails and bridges, planting trees and and emergency insurance is included in
cial losses because of high fuel costs, plants, and removing trash and invasive the fee, and volunteers have free time
low fares, and other problems, but ter- plants at designated sites across the US. for vacation fun “some afternoons,
rorism and a flagging economy appar- A “growing travel trend,” Traveloc- most evenings, and every weekend.”
ently haven’t yet reduced the number of ity said, is “to spend an entire trip
passengers. or just a few hours” doing volunteer The work
“In fact, it was a strong summer [for work among local inhabitants in some The work may include infant and
travel], as predicted,” said Amy Ziff for foreign country. It has teamed with child care, teaching educational games,
Travelocity, one of the largest online US Cross-Cultural Solutions, Earthwatch, arts, crafts, and sports. “Simply holding
travel agencies and part of Sabre Hold- and Globe Aware in such “voluntour” infants, sharing your affection, and pro-
ings Corp., Southlake, Tex. “However, programs. viding individual attention is important
industry reports are starting to indicate Cross-Cultural Solutions operates as a to their future well-being,” said pro-
a fall in travel levels. Some drop is nor- nongovernment “short-term alternative gram officials. True, but one wonders
mal for the fall, so it remains to be seen to the Peace Corps” in Brazil, China, how much more effective it might be
if this will truly occur.” Costa Rica, Ghana, Guatemala, India, if the caretaker could speak the child’s
To combine travel with public ser- Peru, Russia, Tanzania, and Thailand. It language. Volunteers may “shadow”
vice, Travelocity launched its “Travel for claims 10,000 participants since 1995 health practitioners, “exchanging ideas
Good” program with “three easy ways” and offers three programs: Volunteer and experiences,” officials said. Other
to help the environment and other Abroad, the most popular, starts at programs include teaching English,
people while jetting about the globe. $2,489/individual for 2 weeks; Intern as well as “science, music, sports, and
Abroad for students seeking academic drama,” an ambitious agenda for just
Offset emissions credit, work experience, or field re- 1-2 weeks.
Travelers booking trips online can search, $2,789 for 2 weeks; and Insight These are all good programs, but one
donate funds through the “Go Zero” Abroad, a 1-week program “for people needn’t fly around the globe to be a
program, in partnership with The Con- with limited vacation time” at $1,595. volunteer. There are plenty of orphanag-
servation Fund, Arlington, Va., to plant Those fees are tax-deductible for US es, hospitals, clinics, schools, and retire-
trees to offset carbon emissions from residents, and Cross-Cultural Solutions ment homes seeking volunteer helpers
fossil fuels. The Conservation Fund has can suggest fund-raising techniques to in our own hometowns. Of course,
a web site calculator that can formulate help finance trips. there’s no way to estimate the value of
donations based on home energy use, No special skills are required, and, personal connections among the people
automobiles, and air travel. A family unlike the Peace Corps, no training is of different nations. But a cynical news
generating 39.77 tons/year of CO2 provided. It’s not necessary to speak reporter has to wonder if it might be
emissions can plant 30 trees in a “Car- the local language, although English is more effective if “voluntourists” donat-
bon Zero” forest at a cost of $159.08, required to follow staff instructions. ed the price of airfares and fees to hire
plus a $5 administration fee. “Over the Minimum age is 18 for volunteers un- local workers who already know the
next 70 years, these trees will sequester accompanied by an adult, but younger languages and customs of those exotic
approximately 39.77 tons of carbon volunteers are welcome if they dem- locales and who will be on the job for
dioxide—one of the most potent green- more than 2 weeks. ✦

Oil & Gas Journal / Oct. 9, 2006 17

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How many things in the world cannot be improved?

Instances of perfection are few and far between.

Regardless of how good something may appear, a closer examination can reveal
that a change, however slight, can have quite an impact.

Competitive pressures demand us all to seek constant improvements and this is at the
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E d i t o r i a l

The ethanol craze

Private businesses shut down mistakes that can’t to exceed the minimum levels set by Congress.
be fixed. Governments make hopeless programs But the wrong combination of oil and corn prices
bigger and claim success. could make a lot of ethanol capacity surplus to de-
With tax incentives and a market mandate, the mand. If that happens, ethanol prices will slump.
US government has stirred up a national craze over At last report, of course, oil prices were falling. In
fuel ethanol. Politicians from both major parties, his statement, Collins said corn prices could set
including President George W. Bush, have over- record highs during the next 5-6 years.
sold ethanol as a way to reduce US dependence When market-wrecking surpluses hit private
on foreign oil and improve air quality. In truth, business, manufacturers respond by idling capac-
the purpose is political: to stimulate agricultural ity. They permanently close plants that show no
businesses and farm-state economies. There’d be hope of regaining profitability. Eventually, demand
nothing horrible about that if the help came at no restored by low prices combines with supply
one else’s expense. But the ethanol program costs lowered by capacity withdrawals to bring prices
fuel consumers and taxpayers plenty. back to profitable levels. The process is painful. But
The craze, however, has begun. Automakers it’s business.
enticed by tax breaks have co-opted the ethanol This won’t happen with ethanol, which is
lobby’s environmental exaggerations to tout flex- not a real business. The fuel ethanol industry is a
ible-fuel vehicles. Politicians claim to have done creature of government. Investors in ethanol plants
something for energy independence. And ethanol threatened by adverse corn and ethanol price
plants, some of them helped by tax breaks, are movements will naturally resort to government for
proliferating. protection against the types of market risks real
businesses must manage on their own. And the
Overshooting standards government will respond.
In fact, total US capacity to produce grain etha- Lawmakers in both houses of Congress already
nol probably will overshoot the generous renew- have proposed bills that would, in various ways,
able fuel standards Congress set when it passed the require more ethanol. There will be no overbuild-
Energy Policy Act of 2005. The law increases the ing of ethanol capacity relative to the mandate,
ethanol mandate to 7.5 billion gal/year by 2012. which Congress will just keep raising to prolong
According to Senate committee testimony last the building craze. Politicians take care of the in-
month by Keith Collins, chief economist of the dustries they create. In response to potential prob-
Department of Agriculture, if many of the ethanol lems with ethanol profitability, they’ll simply make
plants now planned come into being, capacity the industry bigger. And they’ll claim success—re-
might reach 8.5 billion gal/year by 2008-09 and duced oil imports, environmental improvements,
exceed 10 billion gal/year by 2010. and all the other hokum that led to this mistake.
The tendency of manufacturing capacity to
overshoot demand typifies any profitable industry Program will expand
with low barriers to entry. Lately, the produc- Ethanol won’t deliver on the hype. Its manufac-
tion of ethanol has been very profitable. And tax ture and distribution, coupled with the increased
breaks for blenders and small producers of ethanol fertilization required to boost crop yields to meet
encourage plant construction. With a government- growing needs for grain, will require as much en-
sponsored boom under way, ethanol production ergy—most of it from fossil sources—as ethanol
capacity could be 33% overbuilt relative to the supplies. And rising use of gasoline-ethanol blends
2012 mandate within 3 years. will, in many areas, aggravate ozone smog.
What then? According to Collins, if crude The program, however, will expand. Congress
prices remain above $50/bbl, keeping gasoline has made a political investment. There’s no turning
and therefore ethanol prices high, and if corn back. The ethanol mandate will grow. And the oil
prices don’t rise “considerably,” ethanol will stay and gas industry should not let anyone forget that
competitive with gasoline and allow consumption the expansion will occur to prop up the price of
an already costly component of vehicle fuel. ✦

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GE N E R A L I N T E R E S T
To guarantee its oil supply during nies. In peacetime, they will operate for
times of crisis, China is building a na- profit. Yet, in an oil crisis, state-owned
tional tanker fleet with which it aims to vessels would stand ready to be pressed
haul nearly three fourths of its oil im- into service.
ports within the next 15 years.1 China’s
tanker-building program appears to be Beijing’s tanker fleet
driven by a complex mix of commercial By 2010, China intends to transport
and national security factors as it seeks 40-50% of its oil imports in govern-
control over its entire oil supply chain. ment-owned tankers. By 2020, it hopes
The impact of this fleet-building to carry 60-70%.2 Chinese analysts
program on world tanker predict that by 2010 the country will
rates and shipbuilding costs need as many as 40 very large crude
China seeks oil security merits the attention of
tanker operators worldwide.
carriers (VLCCs) and a fleet capable of
transporting more than 700 million

with new tanker fleet Paradoxically, however, the

buildup of a state-con-
trolled, Chinese-flagged
bbl/year.
China currently owns 21 VLCCs that
cumulatively account for about 30% of
tanker fleet may actually its tanker tonnage. Most of the remain-
increase that country’s vulnerability to ing vessels are small or old tankers bet-
energy supply interdiction. ter suited for the coastal trade than for
Gabe Collins international oil carriage. Meng Qing-
US Naval War College US, Chinese oil demand lin, a senior manager at Dalian Ocean
Newport, RI Maritime oil transport will be in- Shipping Co., estimates that Chinese
creasingly important for both the US tankers are on average 30% older than
and China in coming decades. As oil their international counterparts and
demand grows in each country, most much smaller, averaging only 20,000
of the increase in supply will be met dwt (compared with a typical 300,000
via seaborne imports. As Fig. 1 shows, dwt VLCC).3 Fig. 3 shows China’s cur-
“...once oil imports exceed China’s percentage of world oil con- rent oil carriers and their VLCC fleets.
[1.5 million b/d], it be- sumption is set to more than double As it upgrades its fleet, China’s ag-
comes necessary to use in the next 15 years, and combined gressive tanker-building campaign has
economic, diplomatic, and US and Chinese oil requirements will made it one of the world’s leading
represent 35% of total global demand tanker builders. It also builds smaller
military means to secure by 2020. tankers, but this article focuses primar-
the safety of one’s oil sup- The two countries have very dif- ily on VLCCs because most Chinese
ply.” ferent oil security strategies. The US oil imports come from distant areas
and most Organization for Economic that require VLCC transport to remain
Cooperation and Development nations economically competitive. As shown in
emphasize the role of the private sector, Fig. 4, Chinese shipyards’ share of new
whereas China global tanker contracts has grown at an
S INO-US SHARE OF TOTAL GLOBAL OIL DEMAND Fig. 1
favors a state-led
energy policy. Fig.
average annual rate of roughly 30% over
the past 6 years.
75
70 2 illustrates this Two primary national security factors
65 Rest of world divergence, which drive Beijing’s tanker fleet construction:
60
55 is a key driver of insufficient overland oil supplies and
50 US
Demand, %

45 China’s effort to the fear that terrorists, pirates, or the US

40 create a large na- Navy could bottleneck its sea lanes.
35 China
30 tional tanker fleet.
25 On the whole,
20
15 Chinese state oil
10
5 carriers appear to Editor’s note: The views set forth in this article
0 be following the are the author’s own and in no way reflect the
2003 2020
path of its state oil official views and policies of the US Navy or any
and gas compa- other US government entity.

20 Oil & Gas Journal / Oct. 9, 2006

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Overland supplies O IL SECURITY VISIONS: OECD1 VS. CHINA Fig. 2

Oceanic oil transportation has
become one of Beijing’s chief strategic OECD vision China’s vision
US Navy protects freedom of Each oil importer protects its
concerns. Despite a highly touted new navigation for all oil importers own supply lines
pipeline from Kazakhstan and planned
lines from Russia, China for the foresee-
able future will receive most of its oil Field control not critical. Chinese NECs2 sell equity oil China strives to control
Oil bought on world market production somewhere other than
by sea. Indeed, many Russian observ- China. Interest of security-minded
overseas oil fields
ers believe that without immediately PRC3 government and more-profit-
launching a full-scale exploration and minded oil companies diverge.
production program in Eastern Siberia,
Private tanker companies
Russia likely will be unable to fulfill its State-controlled tanker
transport crude
oil and gas commitments to China.4 companies transport crude
Moreover, although private Russian
companies such as TNK-BP are ready to
supply China, assertive Russian state- Government maintains
Government maintains
controlled companies hold projects up a strategic petroleum China increasinly
SPR. State-controlled
reserve (SPR). Private focused on downstream
until they can gain complete control. firms operate refineries.
firms operate bulk of
energy security
Russia also fears a repeat of its experi- refining capacity
ence with the Blue Stream gas pipeline,
1Organization for Economic Cooperation & Development.
which ran under the Black Sea to Turkey 2 National energy companies. 3Peoples Republic of China.
in 2003. Once gas began flowing,
Turkey promptly refused to take further
deliveries until Gazprom slashed its
price, causing the Russian side serious L ICENSED CHINESE OIL SHIPPERS Fig. 3

financial losses. State-owned1 Private

Thus, while overland oil imports
from Russia and Kazakhstan likely will
• Cosco (Dalian) Shipyard Co. Ltd. (3 VLCCs2) • Dalian Haichang Group (1 VLCC, 3 on order)
continue to grow, they will not solve
China’s dependence on seaborne oil. • China Shipping (Group) Co. (2 VLCCs) • China Merchants Group (7 VLCCs)
Fig. 5 offers an estimate of trends in
• China Changjiang National Shipping Group
China’s pipeline imports that assumes
(1 VLCC, 10 on order3)
Russia will be able to build and fill a
pipeline from Eastern Siberia by 2008. • Sinotrans Ltd. (4 ULCCs)
Chinese leaders find it unsettling that
• Hebei Ocean Shipping Co. (3 VLCCs)
only 10-12% of the country’s imports
are carried by Chinese flagged vessels,
compared with Japan, which can haul
80% of its oil, and South Korea, which 1
State-owned shippers control almost two thirds of Chinese VLCCs, and this share is expected to grow by 2010.
carries 30% of its crude imports.5 Japa- 2
Very large crude carriers. 3Most VLCCs on order are due to be delivered by 2010.
nese oil transport companies are among
the world’s largest, while South Korean
and Japanese shipyards have for the last analysts believe that Chinese-operated energy security experts have dubbed
few decades been the world’s premier tankers can better secure oil shipments this the “Malacca Dilemma.”8 They fear
tanker builders. from unstable areas such as Africa and that terrorists or pirates could easily
Chinese officials are especially con- the Middle East. cork these bottlenecks, as could the
cerned that Chinese tankers haul almost US Navy in the event of conflict over
none of the cargoes that come from Choke-point worries Taiwan or some other serious Sino-
the Middle East and West Africa, which China worries about its present in- American crisis.9
between them supply roughly 70% of ability to militarily protect the sea lines Chinese officials believe that who-
Chinese imports.6 In 2002, Chinese of communication (SLOCs) and choke ever controls the Malacca Strait between
tankers carried less than 4% of China- points through which much of its oil Malaysia and Singapore also controls
bound cargoes from the Middle East imports flow, especially the Hormuz China’s oil and economic security (see
and none at all from West Africa. Some and Malacca straits (Table 1).7 Chinese map, OGJ, Oct. 18, 1999, p. 23). They

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GE N E R A L I N T E R E S T
of “long range rapid responses and
C HINESE SHIPYARDS’ PROPORTION OF GLOBAL TANKER ORDERS Fig. 4
interventions in trouble spots” such as
35
Malacca.9 Indeed, Wu Lei, a prominent
Chinese energy expert, said, “The fear
30
that the US might cut [energy ship-
Global newbuild orders, %

25 ments] off as a result of the deterio-

ration of Sino-US relations over the
20 Taiwan issue drives much of Beijing’s
modernization of its navy and air
15
forces.”13
10
Commercial motivations
5 Beijing has powerful economic
incentives to bolster its shipbuilding
0 sector as well. A large-scale shipbuilding
2000 2001 2002 2003 2004 2005 2006
June
program aids domestic shipyards and
Source: International Association of Independent Tanker Owners (Intertanko) the steel industry. It also boosts China’s
metallurgical and machine tool sectors.
Some Chinese analysts estimate that
and because the JMSDF cooperates with every 10,000 dwt of tanker capacity
GLOBAL CRUDE OIL Table 1
both the US and Indian navies. Japan is built in a Chinese shipyard will create
SHIPMENT CHOKE POINTS
Volume shipped,
interested in the Indian Ocean because 100,000-200,000 man-hr worth of
Potential choke point million b/d most of its oil imports must also transit employment.6 This means that building
Bab al-Mandab 3.3 the Malacca Strait. Japan and Korea both a single 300,000 dwt VLCC could create
Bosporus 2.0
Hormuz Straits 17.0 appear comfortable relying on the US up to 6 million man-hr of work. On
Malacca Straits *11.7 Navy to secure their sea lanes, however. this basis alone, China’s leadership has
Panama (pipeline + canal) 0.6
Suez (pipeline + canal) 3.8 The “Malacca Dilemma,” on the a strong argument for supporting its
––––
Total choke-point volumes 38.4 other hand, reportedly is receiving sig- shipbuilders.
Percentage of total
nificant high-level attention in Beijing. A clear indicator that China’s
seaborne oil flow 75% President Hu Jintao himself advocates tanker fleet expansion is at least partially
*At least 2.2 million b/d to China, or two thirds of revising China’s oil import strategy driven by commercial interests and
Chinese oil imports.
Source: Energy Information Administration because “some big countries attempted concerns is that a significant number
to control the transportation channel of VLCCs are being built in China for
at Malacca.” This strategy could mean a foreign operators. These countries thus
concede that in the event of a security pipeline through Myanmar to China’s far include Norway, Iran, Germany,
disturbance, such as a conflict over Yunnan Province or a “Malacca bypass” Japan, Venezuela, and Algeria (Table 2).
Taiwan, China’s inability to secure pipeline across southern Thailand’s Kra The fact that foreign operators are hur-
the strait could be “disastrous” for its Isthmus.12 rying to buy Chinese-made tankers also
10
security. Chinese analysts also advocate appears to be a vote of confidence in
Moreover, the US Navy is not the strengthening the People’s Liberation China’s shipbuilding abilities.
only threat to China’s maritime energy Army (PLA) Navy so that it is capable Yet, while Chinese shipyards are
supply lines. Chinese plan- poised to churn out large
ners worry that the rapidly numbers of VLCCs and small-
modernizing Indian navy
CHINESE FOREIGN TANKER CONSTRUCTION DEALS* Table 2
er tankers, many Chinese
No. of Deal value,
could use its naval supe- Company Customer tankers million $ worry that an overly aggres-
riority vis-à-vis China in China State Shipbuilding
sive tanker-building program
the Indian Ocean to gain Corp. (CSSC) and China could raise shipbuilding costs
Shipbuilding Industry
strategic leverage.11 Beijing Corp. (CSIC) PDVSA (Venezuela) 18 1,300 and depress tanker rates.
also casts a suspicious eye CSIC (Bohai Shipbuilding Although China’s oil shippers
Heavy Industry) BW Group (Norway) 2 VLCCs 240 (est.)
on the Japanese Maritime CSSC Frontline (Norway) 4 VLCCs 440 are state-owned, they appear
Cosco (Dalian) Shipyard
Self Defense Force (JMSDF) Co. Ltd. Frontline 2 VLCCs 220 (est.) to operate much like the Chi-
Cosco, Kawasaki Heavy
because Japan competes with Industries Sonatrach (Algeria) 1 VLCC 120 nese national energy produc-
China for energy resources in *Selected deals. Total value of non-Chinese deals = $2.4 billion.
ers, many of whom show a
Russia and the East China Sea strong inclination to empha-

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GE N E R A L I N T E R E S T
cally make long-distance crude hauls
C HINA’S OVERLAND VS. MARITIME IMPORTS Fig. 5
that are beyond the reach of the small
100
98
coastal and shuttle tankers that com-
96 prise the bulk of mainland China’s
94 Pipeline imports tanker fleet.
Total China imports, %

92
90 How much security?
88
86
It appears that, without a substan-
84 tial blue-water naval capability (likely
82 decades away), China may be painting
80 Maritime imports a bull’s-eye on itself by constructing a
78 state-controlled Chinese-flagged tanker
76
74
fleet.
72 China is strengthening its oil trans-
70 portation capacity to ensure “smooth
2003
2004 2005 2006 2007 2008 2009 2010
Estimated and uninterrupted” oil deliveries in
Sources: People’s Daily Energy Intelligence, Asia Pulse, Prime-Tass times of crisis. Yet national tanker fleets
do not protect oil importers from the
internal security risks endemic to many
size profits over political interests. Chinese analysts even suggest that a lack oil exporting countries. Such instability
Accordingly, a number of analysts of coordination among the state energy generally does not affect oil shipments
propose buying or renting existing producers and the state energy shippers once they get offshore. Rather, many
tankers in order to save money and is partially to blame for the low propor- Chinese analysts fear that in a show-
reduce the possibility of creating over- tion of crude imports carried on Chi- down over Taiwan or other crisis, the
capacity in the maritime oil transport nese ships.6 In response, they suggest US Navy and its allies might blockade
market.14 Assuming that China hopes to some potential structures for a national energy shipments to China.21 However,
profit from tanker operations, second- tanker fleet, which are shown in Table 3. blockading oil shipments to China
hand ships are indeed a better bet than The Chinese government will prob- would likely only occur if a shooting
newbuilds. For example, a second-hand ably have to give economic incentives war had already broken out. A blockade
280,000 dwt VLCC operating on the such as low-interest loans to Chinese of China would adversely affect the
Saudi Arabia-China route pays out in tanker owners to entice them to work global economy and trigger economic,
9.8 years at World Scale 65 charter rates, more closely with China’s national political, and military alienation of the
while a newbuild tanker would require energy companies. At present, an esti- blockading power.
14 years to pay out.15 The second- mated 90% of China’s oil shipping ca- One way a national tanker fleet
hand ship option seems to be gaining pacity, or more than 10.8 million dwt, might increase oil supply security
strength, as state-owned Sinotrans Ltd. is being used to serve foreign clients.18 would be for the PLA Navy (PLAN) to
and other Chinese tanker operators are This number is significant in absolute escort Chinese tankers through contest-
said to be actively scouring the VLCC terms but would not help China’s long- ed areas. Chinese “hawks” believe that
market for second-hand ships.16 distance oil transport situation because the PLAN must modernize because its
few of these ships are the VLCCs needed ability to secure vital SLOCs and ensure
Fleet structures to bring crude from the Middle East, the safety of China-bound oil shipments
As shown in Fig. 3, seven Chinese Africa, and other distant locales. “seriously lags” behind China’s growing
companies now possess government- Political obstacles hinder efforts to import demand.22 The idea of sending
5
issued crude oil shipping licenses. All build a Chinese tanker pool. Bringing naval forces to escort tankers is hardly
but two of these license holders are Hong Kong shippers into any mainland unprecedented. When the Iran-Iraq
state-controlled.17 The tanker compa- consortium would help China expand “tanker war” heated up in 1987, the US
nies may be likened to China’s state oil its crude shipping capacity. Yet China’s Navy guarded tankers bringing oil out
producers because they compete among three main oil producers have so far of the Persian Gulf.
themselves yet are collectively expected refused to sign deals with Hong Kong However, without complete PLA
to act in the Chinese national interest. ship owners, claiming that their fleets naval and air superiority in a given sea
Like the state oil companies, it is un- are “too small.”19 In reality, of Hong zone, carrying oil on Chinese flag ships
likely that the shippers will be entirely Kong’s 72 registered tankers, at least actually makes the People’s Republic
driven by a comprehensive state policy 7 can carry a million bbl or more of of China (PRC) more vulnerable to
that orchestrates their every move. Some crude oil.20 Such ships could economi- energy supply interdiction in the event

24 Oil & Gas Journal / Oct. 9, 2006

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of a conflict because foreign to tanker fleet operation.

navies would know precisely
POSSIBLE CHINESE TANKER FLEET STRUCTURES Table 3
Although China has spent
Solution Advantages to China Disadvantages
which tankers are headed to billions of dollars on over-
China. The PRC’s best option Chinese oil importers Keeps entire oil International tanker seas equity oil acquisitions,
and tanker operators supply chain under companies may offer
might be to rely on private reach exclusive long- Chinese control. more professional and state firm China National
term lease agree- Reduces net reliable tanker services
third party tanker operators, ments 1
capital outflow Petroleum Corp. sells the
whose deliveries could be from China. majority of its equity oil on
effectively stopped only by Create a tanker ship- A shipping pool Establishing a national the international market.26
ping pool and reach would increase shipping cartel could
a close blockade of Chinese a long-term agreement shippers’ negotiating raise World Trade Further supporting this
with oil importers power and reduce Organization compli-
ports. Such action would financial and operat- ance issues case, oil from China National
expose the blockading state’s 2
ing risks Offshore Oil Co. Ltd.’s new
naval forces to a wide range “Why1
Doesn’t China have a National Oil Tanker Fleet?” Water Transportation Digest:
2
Akpo field in Nigeria likely
Shipping Survey, September 2005, pp. 24-25. Xiguang, Luo, and Zoujun, Liu, “The
of military threats and would Step of Creating a United Chinese Oil Shipping Enterprise,” Water Shipping Manage- will be sold in Atlantic Basin
ment (Shuiyun Guanli), Vol. 27, No. 10, October 2005, pp. 9-11.
almost certainly spark a larger markets rather than shipped
conflict. back to China. In sum, China
An attacker theoretically could try world fleet and increased demand for appears to be pursuing a strategy of
to close Indonesia’s Lombok and Sunda both shipyard berths and necessary raw profiting from shipbuilding and tanker
Straits as well, but after a temporary materials such as high-grade steel. operation during peacetime but hedg-
disruption energy shippers would likely The shipbuilding industry will be ing its bets against future threats to oil
find bypass routes to key East Asian affected in other ways as well. Chinese shipments.
markets. By interdicting key choke shipyards are rapidly gaining opera-
points, the attacking party might be tional experience and will be able to tap Security implications
sacrificing its Asian allies’ well-being into China’s vast labor pool and employ So long as energy supplies flow
and by straining global tanker capacity thousands of engineering graduates uninterrupted, the Chinese tanker fleet
would also drive up tanker rates for oil that Chinese universities produce each will likely operate in a normal com-
consumers around the world. Japan and year.24 China also appears interested mercial fashion. Yet if a terrorist attack
South Korea have strategic oil stock- in recruiting and training ship crews. or other event disrupts oil production
piles that, depending on the blockade’s Dalian’s Qinglin advocates training a and the Chinese tanker fleet goes out
duration, could help them avoid supply cadre of Chinese mariners to man its to secure supplies for China accompa-
shocks. Japan has 92 days’ oil supply in tanker fleet.25 nied by PLAN escorts, the possibility of
its Strategic Petroleum Reserve, but the Beijing may have to decide whether naval conflict between China and other
Asian and global diplomatic, economic, rapid oil tanker construction is worth countries such as India, Japan, or the US
and political fallout of closing Malacca the opportunity cost in military ship- would rise dramatically. Not all Chi-
would be very serious. building. If all the state shipyard spaces nese oil security contingencies would
Interdicting private tankers at sea are filled with container ships, tankers, involve a Taiwan conflict. An attack on
also would be tough because it is and other commercial orders, construc- a Saudi export terminal that suddenly
difficult to determine the true end tion of warships may have to be put on tightens world oil markets might be
destination of an oil cargo. In normal hold. enough to trigger a government “call”
commerce, cargoes may be bought and It is unlikely that China will try to on state-run tankers, which would then
sold several times while still on the high work outside the world oil shipping be given PLAN escorts.
seas. Finally, unless it risked environ- market because the opportunity costs of Nonetheless, Chinese worries are
mental disaster by firing on uncoopera- doing so are very high. Tanker opera- substantially misplaced. Unless the US
tive tankers, a blockader would lack tions driven by economic opportunity completely closed the Malacca Strait to
the military assets to board and assume are more profitable than those driven by oil shipments, affecting all East Asian
control of such ships, as 210 oil tank- state directives, and they leave tankers oil consumers and possibly triggering
ers/day pass through the Malacca Strait accessible to Beijing in the event of a a global oil price spike, there would
alone.23 supply crisis. Similarly, Chinese ship- be virtually no way to interdict private
yards’ commercial deals with foreign China-bound tankers at a distance from
Commercial implications tanker operators are likely to drive fur- China. The global oil market is highly
If China builds new VLCCs rather ther Chinese integration into the global fungible, ship destinations are unclear
than leasing them, its tanker fleet oil-shipping sector. because cargoes are often resold at sea,
growth likely will depress global tanker The precedent set by China’s national and oil can be transshipped to China
rates and raise shipbuilding costs. This energy companies also favors the adop- through third ports in the region.
would occur through expansion of the tion of a largely commercial approach The same logic applies to the Strait of

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GE N E R A L I N T E R E S T
Hormuz and other oil shipment choke Problem,” China Energy, Vol. 26, No. 7, 19. Grinter, Mike, “Liu Slams
points. July 2004, pp. 4-7. Beijing’s Reluctance to Open Up Oil
In addition, the number of tank- 7. Xixing, Lin, “Examining China’s Import Trade: Hong Kong Vessels
ers transiting key choke points would Energy Transport Strategy,” Southeast Kept Out of Domestic Oil Carriage,”
most likely far exceed any potential Asian Studies, No. 2, 2005, pp. 46-50. Lloyd’s List, Feb. 23, 2006, Lexis-Nexis,
blockader’s physical ability to control 8. Deqin, Su, Zhang Yongxin, and (http://web.lexis-nexis.com).
uncooperative ships with means short Huang Lei, “The World Oil Shipping 20. Hong Kong Ming Wah Shipping
of disabling fire. Market and China’s Energy Security,” Co., July 5, 2006, (http://www.hkmw.
It is hoped that these realities willWorld Shipping, Vol. 28, No. 1, Febru- com.hk/webappen/index.asp).
come to inform energy security poli- ary 2005, pp.11-14. 21. Daojiong, Zha, “Three Ques-
cymaking in Beijing and Washington. 9. Jie, Li, “China’s Oil Demands and tions about China’s Future Oil Security,”
Global energy security can improve Sea Lane Security,” Jianquan Zhishi, China Petroleum Enterprise.
if China overcomes its mercantilist September 2004, pp. 10-13. 22. Wenmu, Zhang, “China’s Energy
inclinations and relies on the world oil 10. Shaojun, Li, “Mahan’s Sea Power Security and Policy Choices,” World
market to fulfill its oil and oil trans- and Its Influence on China’s Oil Security Economics and International Politics,
portation needs. A minority of Chinese Strategy,” International Forum, Vol. 6, 2003, No. 5, pp. 11-16.
analysts, such as Zha Daojiong, now No. 4, July 2004, pp. 16-20. 23. Laiqun, Yue, “Unavoided Malac-
advocates a greater reliance on global 11. Angang, Chen, “Malacca: Ameri- ca Strait,” China Petroleum Enterprise,
energy markets and a turn away from ca’s Coveted Strategic Outpost,” Modern September 2005, p. 6.
mercantilism.27 Washington would gain Ship, December 2004, pp. 11-14. 24. Clayton, Mark, “Does the
by giving China a place at the table 12. “China Gives Green Light to US Face an Engineering Gap?” The
through International Energy Agency Myanmar Oil Pipeline,” Agence France Christian Science Monitor, Dec. 20,
membership, advising China as it cre- Presse, Apr. 18, 2006, (http://www.uo-
___________ 2005, (http://www.csmonitor.
ates a full-fledged energy ministry and faweb.ualberta.ca/chinainstitute/nav03.
___________________________ com/2005/1220/p01s01-ussc.htm).
strives for a sustainable energy future. cfm?nav03=45306&nav02=43617&nav
___________________________ 25. Qinlin, Meng, “Reduce Risk by
In the meantime, China’s growing oil 01=43092).
________ Rapidly Developing a Safely Built and
tanker fleet stands to substantially affect 13. Lei, Wu, Shen Qinyu, “Will Completely Mastered Oil Tanker Fleet,”
the global oil transportation sector. ✦ China Go to War Over Oil?” Far Eastern Maritime China, October 2004, pp.
Economic Review, April 2006, Vol. 169, 24-25.
References Issue 3, p. 38. 26. Dirks, Gary, “Energy Secu-
1. Enyan, Qiao, “Petroleum Enter- 14. “Why Doesn’t China have a Na- rity: China and the World,” Speech at
prises and Their Use in National Oil tional Oil Tanker Fleet?” Water Transpor- International Symposium on Energy
Security Strategy,” Modern Chemical tation Digest: Shipping Survey, Septem- Security: China and the World,” Beijing,
Industry, July 2005, pp. 9-12. ber 2005, pp. 24-25. China, May 24, 2006.
2. Ping, Luo, “National Oil, Nation- 15. Zuobin, Shang, “A Study of Oil 27. Daojiong, Zha, “Sino-American
ally Hauled: China’s Energy Security Tanker Construction Project Manage- Energy Cooperation’s Effect on East
Insurance Line,” Maritime China, Feb- ment,” Master’s degree thesis, Dalian Asian Cooperation,” Foreign Policy
ruary 2005, pp. 38-40. Maritime Affairs University, Mar. 1, Comment, No. 6., 2005, pp. 34-35.
3. “Major Chinese Operator Calls for 2003.
Maritime Oil Transport Development,” 16. “Chinese Tanker Fleet Expand-
BBC, Mar. 10, 2006, Lexis-Nexis, ing,” Lloyd’s List, July 8, 2006, Inter-
(http://web.lexis-nexis.com). tanko, (http://www.intertanko.com).
4. “Understandable Expendi- 17. “China Shipbuilding Corpora- The author
Gabe Collins (gabe.collins
tures, Non-Existent Profits,” Neft- tions CSSC, CSIC, and CSTC,” Business @gmail.com) is a research
egazovaya Vertikal, No. 7, 2006, Network Switzerland, (http://www. fellow in the Strategic Research
(http://www.ngv.ru/magazin/view. osec.ch/~0xc1878d1b_0x0001b994/
__________________________ Department at the US Naval
hsql?id=3091&mid=119).
_________________ wirtschaftsdaten/branchenverbaende/
__________________________
War College in Newport, RI.
5. “China taking a firmer grip on website_china_state_shipbuilding_cor He is proficient in Russian and
__________________________
Mandarin Chinese, and his
energy transport,” Lloyd’s List Inter- poration;internal&action=buildframes.
__________________________ main focus areas are Chinese
national, Mar. 3, 2006, (http://web. action).
____ and Russian energy policies,
lexis-nexis.com).
___________ 18. “China Urged to Beef up Ocean shipbuilding, and Chinese naval modernization.
6. Xiao, Qin, “China’s Energy Secu- Oil Shipping,” Asia Pulse, Mar. 15, A native West Texan, Collins is a 2005 honors
rity Strategy and the Energy Transport 2006, Lexis-Nexis, (http://web.lexis- graduate of Princeton University with a BA in
____________
politics.
nexis.com).
_______

26 Oil & Gas Journal / Oct. 9, 2006

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OCS compromise eludes

US Congress energy leaders
Nick Snow
Washington Correspondent

US Senate and House energy leaders headed into the

preelection recess pledging to reach a compromise before
yearend, but were still divided over Outer Continental Shelf
oil and gas leasing reforms.
Senate Energy and Natural Resources Committee Chair-
man Pete V. Domenici (R-NM) said he was disappointed that
an agreement was not reached before recess. “I hope the
House will take the necessary time in October to step back
and reflect on the number of compromises the Senate has
offered to break the current impasse,” he said.
“I hope the House recognizes what is politically possible Next time
in the Senate,” Domenici added, possibly referring to the call TURCK
promise by Sen. Bill Nelson (D-Fla.) that he would filibuster
any compromise that did not establish a 16-year leasing ban
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House Resources Committee Chairman Richard Pombo challenge you face doesn’t require a
(R-Calif.) and five other House members—John E. Peterson complex new system. Instead, we offer a
(R-Pa.), Neil Abercrombie (D-Hi.), Bobby Jindal (R-La.), broad selection of the very best, very open
Charlie Melancon (D-La.) and Adam H. Putnam (R-Fla.)—is- automation products, along with over 3,000
sued a joint statement that they “have gotten very close to local specialists who can help you apply
working out the differences between our bill and that passed them. Simply the best automation products
by the Senate.” and all the help you need.
They said remaining issues include questions over bound-
ary lines in S. 3711, which the Senate approved Aug. 1, and
how the map lines will affect division of future federal OCS
revenues among Louisiana, Alabama, and Mississippi.
Louisiana’s two US senators apparently are divided over
negotiating tactics. “While I was working with others to
break the logjam between the House and the Senate, others
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promise,” adding, “Until the House moves off this position,
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chamber, or to take extreme measures like placing holds
on dozens of unrelated bills. This will kill our chances, not www.turck.com/process
improve them.”
©2006 TURCK, Inc.

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GE N E R A L I N T E R E S T
Landrieu did not respond directly, tors to move away from their Atlantic members said Senate negotiators have
but her communications director Adam drilling strategy and toward the Gulf agreed that a bill must contain a provi-
Sharp said Vitter was entitled to his Coast approach already embraced by the sion to recover Gulf of Mexico deepwa-
opinion “but the people of Louisiana Senate and the president.” ter royalties which were not collected
know that Sen. Landrieu’s voice has She said she would continue to because price thresholds were not in-
been strong and effective in fighting for work with Domenici, Majority Leader cluded in leases issued during 1998 and
Louisiana’s coast.” William H. Frist (R-Tenn.), Minority 1999, and to use part of those revenues
In a separate statement on Sept. Leader Harry Reid (D-Nev.) and Sens. to help Gulf Coast states recover from
29, Landrieu said she hoped S. 3711’s Trent Lott (R-Miss.) and Mel Martinez 2005 hurricane damage.
focused approach on OCS Lease Sale (R-Fla.) to achieve a compromise with “Finally, the Senate has acknowl-
181 acreage, which President George the House when Congress returns on edged the need to expand and diversify
W. Bush withdrew during his first term, Nov. 13. America’s energy infrastructure beyond
and adjacent deepwater tracts farther But Pombo and the five other House the Gulf of Mexico,” the six House
south “will motivate House negotia- members said. ✦

NGSA forecasts higher gas production this winter

Nick Snow 2 bcfd from 1.5 bcfd. consultants which NGSA used to de-
Washington Correspondent “Most of the increased activity in velop its winter gas demand outlook,
recent years has been onshore, concen- expects upward price pressure from
A dramatic natural gas market recov- trated in noncommercial gas produc- economic expansion to be relatively flat
ery following last year’s two major Gulf tion: tight gas, coalbed methane, and as growth in gross domestic product
Coast hurricanes points to higher pro- shale gas. Offshore activity, meanwhile, falls to 2.7% from 3.4%, manufacturing
duction and lower prices in the 2006- has been fairly constant during the past declines to 3.5% from 4.7%, and the
07 winter heating season, the Natural few years,” said Conway, who also is Department of Labor’s Consumer Price
Gas Supply Association said on Sept. 28. president of ConocoPhillips’s gas and Index slows to 3.3% from 3.7%.
Onshore production, which was al- power division. The forecast suggests that unemploy-
ready growing moderately from expan- Going into winter, gas storage will ment will average 4.8% nationwide this
sions in the Rocky Mountains and Texas reach 3,500 bcf, with 65 bcf of addi- winter, unchanged from a year earlier.
before Hurricanes Katrina and Rita hit, tional capacity, up from 3,264 bcf and Consumers and policymakers should
also contributed to the rebound, NGSA 20 bcf more capacity a year earlier, the not become complacent, NGSA warned.
Pres. Chris Conway told reporters in forecast said. “The country continues to appreciate
Washington, DC. NGSA warned that weather, which is the comfort and convenience of natural
“Going forward in 2007, the key expected to be colder this winter than gas, which is 83% domestically pro-
market drivers point to a continued during the 2005-06 heating season, duced. The industry has made tremen-
steady increase in production, reflecting could partially offset downward price dous strides in hurricane recovery, yet
high rig counts and the startup of major pressure from increased supplies and continues to seek additional sources of
new deepwater developments,” he said. higher production. cost-effective supply for consumers,”
An average of 1,417 gas rigs were It said Global Insight, one of the Conway said. ✦
at work in the US during August, up
from 1,230 a year earlier, according to
NGSA’s forecast, which was prepared by US estimates Iraq lost $16 billion in oil revenues
Energy & Environmental Analysis Inc.,
Arlington, Va. It said this suggests gas Nick Snow inspector general for Iraq reconstruc-
well completions will climb to 30,100/ Washington Correspondent tion said.
year in 2006 from 27,000/year in “In addition to lost export revenues,
2005. Iraq lost an estimated $16 billion Iraq is paying billions of dollars to
US gas production could climb to of potential oil export revenues from import refined petroleum products to
an average 50.7 bcfd from 40.9 bcfd, January 2004 to March 2006 because of support the consumption needs of its
while imports from Canada decline to insurgent attacks, criminal activity, and citizens,” Stuart W. Bowen Jr. said in the
8.4 bcfd from 9.2 bcfd, NGSA said. It aging and poorly maintained infrastruc- Sept. 27 report.
forecast an increase in LNG imports to ture, an audit report by the US special Attacks against Iraq’s oil and electric

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power systems ebbed and flowed dur- take these tasks, Bowen said. Congress by the departments of State
ing that time period, Bowen said. Iraq’s One way for the US government to and Defense contain only general
oil, electricity, and defense ministries do this is to focus congressional atten- descriptions of progress in Iraq instead
combine to protect the systems and tion on what Iraq’s new government of specific information on actions
have varying capabilities, he said. needs to do to protect and improve the that Iraq’s government should take to
Security, however, is only one factor country’s energy infrastructure, he sug- enhance energy infrastructure integrity
in Iraq’s protection of its energy infra- gested. and progress it is making in those ac-
structure, Bowen maintained. Bowen said that current reports to tions. ✦
“While much attention has been
focused on insurgent attacks, it must be
recognized that even if attacks ceased,
other factors, such as criminal activ-
ity and the effect of aging and poorly
maintained infrastructure on operating
capability, would continue to affect oil
exports and the availability of electric-
ity,” he said.
He noted that Iraq’s oil exports
remained below established targets and
electric power generation was far below
demand when there were few insurgent
attacks from late April to early June of
this year.
“Further, once damage or disrup-
tions occur, it is critical that it be
repaired quickly, but more needs to be
done to enhance rapid repair capabil-
ity,” Bowen said.

Progress made
Bowen said the US government has
done much over the past year to help
make the Iraqi infrastructure security
forces more capable, as well as devel-
oping initiatives both to protect the
country’s energy infrastructure and to
facilitate transition of that responsibility
to Iraq’s government.
“The Iraqi government has much
to do if it is to implement US propos-
als as well as proposals put forth by its
ministries. Progress in acting on them
has been slow, in part due to the lack
of a permanent government and in part
[due] to the limited initiative of some
Iraqi ministries. Now that there is a
permanent government in place, it must
take bold action,” Bowen said.
He said Iraq’s new government is
pursuing energy improvement initia-
tives, including steps to increase the
country’s oil exports. “The challenge
for the United States is to help the Iraqi ____________
government move forward” to under-

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WA T CH I N G T H E WORLD
Eric Watkins, Senior Correspondent

Lawmakers urge
Nigerian oil
MMS to aggressively
in jeopardy
recover royalties
Nick Snow
Washington Correspondent

T he news from Nigeria’s oil and

gas industry is not encouraging.
It’s that recurring problem of mili-
“In good time we will redeem
our pledge to the people of the Niger
Delta to halt altogether the rape of
Two US House Government Reform
Committee leaders have demanded that
tants besieging the place again, but our land by the Nigerian government the Department of the Interior develop
this time they seem to be ganging up and conniving oil companies,” it said. a new plan to recover an estimated $2
on the industry. billion of lost royalties from deepwater
Up to now, Nigeria—a member Aimed at destruction Gulf of Mexico leases issued in 1998
of the Organization of Petroleum Ex- “As long as the injustice persists and 1999.
porting Countries—has been Africa’s in the delta, there will be no peace Committee Chairman Thomas M.
leading oil producer and the world’s for those who loot the wealth of our Davis (R-Va.) and Energy and Resources
sixth biggest crude exporter with a oppressed people,” it warned. Leav- Subcommittee Chairman Darrell E. Issa
normal output of 2.6 million b/d. ing little room for guesswork, MEND (R-Calif.) made their demand follow-
But militants are threatening that said: “Our goal remains the destruc- ing US Minerals Management Service
production. tion of the Nigerian oil industry and Director Johnnie Burton’s recent state-
Indeed, attacks on oil installations all who stand on the pathway to our ment that MMS did not have the power
in the Niger Delta have cut about a objective.” to recover royalties, which have already
quarter of oil production since the The statement came on the heels been lost. “This is absurd. That money
start of this year, and at least five Ni- of the Oct. 2 attack on a site be- belongs to the federal government and
gerian oil workers have been killed. longing to Royal Dutch Shell PLC must be collected just as any other un-
in neighboring Rivers State, and it duly conferred on a private citizen,” the
MEND speaks shows that the militants are linking two lawmakers said in a Sept. 26 letter
Last week, the Movement for the up. to Interior Sec. Dirk A. Kempthorne.
Emancipation of the Niger Delta The Oct. 2 attack was by a group While deepwater Gulf of Mexico
(MEND) announced a mobiliza- called the Joint Revolutionary Coun- leases issued before and after 1998 and
tion of its fighters to counter a new cil, which said its attack was aimed 1999 contain price thresholds when
military offensive by the Nigerian at obtaining the release of Alhaji Mu- holders would begin to pay royalties,
government, a siege on ethnic Ijaw jahid Dokubo Asari, the imprisoned leases during those two years did not.
communities following the killing leader of the Niger Delta People’s Burton has said this apparently was the
of 14 soldiers and kidnapping of Volunteer Force. result of a communications breakdown
25 oil workers in Rivers State on Hardly had that attack occurred within MMS, adding that an investiga-
Oct. 2. than another one took place on Oct. tion now under way by DOI Inspector
“In response to the buildup of 4, when five foreigners working for General Earl E. Devaney should provide
Nigerian military forces...we decided ExxonMobil Corp. were abducted a more definitive answer.
to send a number of our fighters into and two Nigerians killed by armed Burton also has said that some hold-
Rivers State to assist communities militants operating in the Niger Delta ers of the 1998 and 1999 leases may
which we perceive will shortly be region. be reluctant to renegotiate because
under siege by the Nigerian military,” This time, the militants were not they based their operating budgets on
MEND said. immediately identified, and there the absence of royalties. Davis and Issa
“These fighters will remain in was no immediate claim of respon- disagreed. “The intent of all parties
the vicinity of Rivers State until the sibility. But the handwriting is on was clear at the outset. Oil companies
perceived threat to Ijaw communities the wall: Militants by whatever name testified that they bid on the leases as
in Rivers State ceases to exist,” it said. are joining up to threaten the oil if price thresholds were included, and
That could be a long time, especially industry of a major OPEC producer. with the understanding that it was the
given MEND’s declared aim. That’s worrying for everyone, Nige- department’s policy to include them,”
rian or not. ✦ they said in their letter. ✦

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EX P L O R A T I O N & DEVE L O P M E N T
Newfield Exploration Co., Hous- Woodford play in 2006 and up to 155
ton, signed a 15-year agreement with horizontal wells in 2007.
MarkWest Energy Partners LP, Denver, “By the end of 2009, we expect our
to construct and operate gas gather- gross Woodford shale production to
ing pipelines and related facilities for increase from a current rate of about
development of Newfield’s Devonian 65 MMcfd to more than 350 MMcfd,”
Woodford shale play in the Arkoma said Lee K. Boothby, president of the
basin of southeastern Oklahoma. subsidiary Newfield Mid-Continent Inc.
MarkWest plans to invest $175 mil- in Tulsa.
lion by yearend 2007 and $350 million The wells Newfield has drilled so far
over the next 4 years to build a gather- were located
ing infrastructure, including compres- to define the
sion, dehydration, and treating, over
200 sq miles in a four-county region.
Woodford
shale re- Oklahoma Woodford gathering
The system will include more than 400 source. The
miles of large diameter pipeline and
100,000 hp of compression for a take- gathering
low-pressure designed at 500+ MMcfd
away capacity exceeding 500 MMcfd. system will
The agreement includes a renewal fully support Newfield’s drilling efforts
option at the end
of the agreement
period. N EWFIELD’S ARKOMA WOODFORD ACREAGE Fig. 1
Newfield has
drilled more than Newfield
Oklahoma
100 vertical wells acreage
Area
and 30 horizon- Horizontal shown
tal wells in the well to date
Woodford shale. in 2006 Hughes sin
ba
Late last year, Pittsburg
a
Newfield shifted kom
Ar
its drilling pro-
McAlester
gram to horizon-
tal wells, which
increased initial
Coal
production rates
and the expected
estimated ulti- Atoka
mate recovery. Its
five most recent
wells averaged 0 Miles 20
initial production
0 Km 32
of 3.7 MMcfd/ Source: Modified after Newfield Exploration Co.
well. Company
officials expect
the average Woodford horizontal well to over its entire operating position in the
gross 2.9 bcf of gas. Woodford shale.
Still acquiring acreage, the company The company’s western Arkoma ex-
has an interest in more than 350,000 ploration program is also aimed at gas
gross lease acres (more than 125,000 in the Pennsylvanian Wapanucka and
net acres). Newfield expects to increase Cromwell, Mississippian Caney shale,
its drilling program to 13 rigs by year- and Siluro-Devonian Hunton forma-
end from 6 in late September and to as tions. ✦
many as 20 rigs by the end of 2007. It
plans to spud 60 horizontal wells in the

Oil & Gas Journal / Oct. 9, 2006 31

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EX P L O R A T I O N & DEVE L O P M E N T
The company gave back the south-
Gas focus in Brazilian licensing draws fire western 30% of the block at the end
of 2004 and must relinquish all other
Peter Howard Wertheim Those basins are among seven in parts of the block on which it has made
OGJ correspondent which the eighth round on Nov. 28 no discoveries at the end of 2006.
will offer a total of 284 blocks covering Further appraisal starting in 2007
A new emphasis on natural gas in 101,000 sq km. Reports about the area will aim to secure the next commercial-
Brazilian exploration and production to be offered have varied (OGJ, Aug. 7, ization stage following MLE.
licensing drew criticism during a Rio 2006, Newsletter). Meanwhile, the company drilled,
Oil & Gas panel discussion in Rio de Brazil imports about half the gas it cased, and tested the Zemlet er Rakeb-1
Janeiro. uses from Bolivia, where President Evo exploration well in the northwest part
Paulo Manuel Mendes de Mendonca, Morales on May 1 announced plans to of the block earlier this year. It gauged
executive manager of exploration for take over his country’s oil and gas fields. hydrocarbons at rates sufficient to sup-
Petroleo Brasileiro SA (Petrobras), com- Petrobras has been Bolivia’s most active port drilling ZER-2 at 4.3 km south-
plained that Brazil’s eighth licensing foreign producer (OGJ, Aug. 28, 2006, west.
round focuses on gas-prone areas and p. 25). GSM-1 near the south end of the
excludes the Campos basin, which ac- Oil industry officials attending the block also tested hydrocarbons and is to
counts for 84% of Brazilian oil produc- panel discussion expressed surprise that be followed by GSME-1. ✦
tion. He also mentioned limits on the the independent ANP, in the words of
number of bids individual companies one executive, “now dances to the tune
can make. of the federal government.”
He directed his comments to Har- On a separate issue, Joao Carlos de
oldo Lima, general manager of the Luca, president of the Brazilian Petro- China
National Oil, Natural Gas, and Biofuel leum and Gas Institute (IBP), called for
Agency (ANP). quickened environmental licensing of Verona Development Corp., Vancou-
“We are following governmental Brazilian oil and gas projects and more ver, BC, is drilling two wells to assess
guidelines,” Lima responded. “After the resources for the ANP. coalbed methane potential south of
nationalization of Bolivia’s oil and gas Alvaro Teixeira, IBP executive-secre- Liulin on the 1,015 sq km Shilou North
reserves, the [Brazilian] government tary, predicted that oil and gas invest- Block in the eastern Ordos basin in
decided to give priority to E&P in gas- ments in Brazil during the next 5 years Shanxi Province.
prone provinces like Santos and Espirito will total $100 billion and sustain oil The two wells, to be cored through
Santo basins.” self-sufficiency, achieved in May. ✦ the entire gas-bearing coal sequence,
target coal seams of the Late Carbonifer-
ous Taiyuan and Early Permian Shanxi
Algeria’s Berkine basin gets new area of promise formations.
Verona also holds the 2,650 sq km
A new core area for future appraisal years. Current mapping indicates it cov- Zhengzhou Block, which includes
and potential development is emerging ers more than 85 sq km. the 600 sq km Yinggong coal field, in
in the central part of Menzel Ledjmet The deepest Devonian reservoir Henan Province. The company plans to
Block 405b in eastern Algeria’s Berkine (Siegenian) is at 4,500 m, and reserve earn 60% interest in each block.
basin, said operator First Calgary Petro- potential exists in the deeper Gedinnian
leums Ltd., Calgary. (lowermost Devonian) formation. Colombia
On the block’s east side, First Calgary Since shooting 600 sq km of 3D
looks for Sonatrach to issue an exploita- seismic west of MLE field in 2003, The government awarded Emerald
tion license in late 2006 for giant MLE First Calgary has drilled five explora- Energy PLC, London, the 365 sq km
gas-condensate field. MLE, with gross tion wells and an appraisal well: LEC-1, Maranta exploration and production
probable and possible reserves of 6.6 tcf MZLN-1, MZLS-1, LES-1, LES-2, and contract northeast of producing oil
and 903 million bbl in Lower Devonian LEW-1. All were successful in multiple fields in the Putumayo basin.
to Triassic pays at the end of 2005, is to geological horizons in what the compa- The 18-month first exploration
start producing in 2009. ny calls its Central Area Field Complex. period calls for gathering 30 km of 2D
MLE, which First Calgary has ap- LES-6 and LEC-2 are to be drilled seismic data and reprocessing 40 km
praised since obtaining the 1,104-sq- by the end of 2006, completing the of existing 2D data. A second period, at
km block in 2001, is one of the largest drilling of all of the block’s attractive Emerald’s option, calls for drilling one
gas discoveries in the country in recent exploration targets, First Calgary said. well to 11,000 ft.

32 Oil & Gas Journal / Oct. 9, 2006

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R E C E N T LY O N
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EX P L O R A T I O N & DEVE L O P M E N T
France block. Fewer than 25 wells have been from EnCana Oil & Gas (USA) in the
drilled in the entire Sandakan basin (see Piceance basin, target the Cameo coal
Europa Oil & Gas (Holdings) PLC, map, OGJ, May 10, 1993, p. 43). and Williams Fork sandstones of the
London, expects to be awarded the Cretaceous Mesaverde Group at 8,100
Bearn des Gaves exploration permit in Poland ft.
the Aquitaine basin in early 2007 fol- White River Dome field has 100
lowing government approval. FX Energy Inc., Salt Lake City, started active wells averaging a combined 11
The permit covers 928 sq km west gas production from the Wilga-2 well MMcfd and has recovered 65 bcf from
of Lacq and Meillon gas fields. Europa 25 miles southeast of Warsaw. 157 wells.
plans to probe a possible western exten- For several weeks the company plans Eden and Starlight may elect to drill
sion of the Lacq play and also sees oil to vary the producing zones and flow as many as 68 other locations, earning
potential on the northern part of the rates. The well has three pay zones of interests as they go, extending unit life.
permit. Carboniferous age at 7,732-8,550 ft. FX The typical well starts at 710 Mcfd, 25%
Energy is operator with 82% interest in carbon dioxide, and recovers 1.07 bcf
Peru the well and 250,000-acre concession. in 17 years.
A unit of Polish Oil & Gas Co. owns the
BPZ Energy Inc., Houston, spudded other 18%. Montana
the first well from the Corvina platform Wilga-2 is FX Energy’s second well
on Block Z-1 in the Pacific Ocean off to go on production in Poland, the Native American Energy Group.,
northwestern Peru. Kleka-11 well having started flowing Forest Hills, NY, is attempting to restore
The well is projected to TD of gas in early 2001. production at idle oil wells in Richey
10,114 ft in 30-40 days. The company plans to start gas out- field in the Williston basin.
Previously penetrated by several put from the Zaniemysl-3 well within Shell Oil Co. discovered Richey field
wells but never produced, Corvina field weeks and to spud the Winna Gora ex- in 1951 and drilled 10 producing wells
is estimated to have 4 tcf of gas in place. ploratory well on a 2D seismic prospect in Dawson and McCone counties. Suc-
The company secured all environ- in the Sroda area west of Warsaw within cessor independent operators struggled
mental permits required to develop the 2 weeks. with paraffin accumulation problems
Corvina gas-to-power project. The per- and eventually abandoned the field in
mits cover the 10-mile gas pipeline to Yemen 1995.
shore, onshore gas processing facilities, NAEG acquired the Beery oil lease
and a 160-Mw thermal power plant to Yemen Mayfair Petroleum Corp. and will rework the wells using the
be built at the coastal village of Nueva plans to spud the Fatima-1 exploration company’s proprietary chemical called
Esperanza. well on Block 22 in western Yemen in Petro-Flo, which it said was success-
mid-October, said participant Oracle ful in revitalizing the Tribal 7-A and
Philippines Energy Corp., Vancouver, BC. Cox 7-1 wells on the Fort Peck Indian
Projected TD is 2,250 m to target the Reservation.
Tap Oil Ltd., Perth, has taken 85% Middle Miocene that tested 42° grav-
equity in the SC-41 exploration block ity paraffinic crude oil and dry gas in Washington
in Philippines waters off northeastern Jaizan basin wells to the north in south-
Borneo. western Saudi Arabia in the early 1990s. Exxel Energy Corp., Vancouver, BC,
The 2006-07 work program calls for Oracle Energy holds 15% participat- said its US subsidiary boosted its min-
gathering of more than 300 sq km of ing interest in Block 22 covering 8,151 eral rights in the Columbia River basin
3D seismic data on the block, in 800- sq km in the Tihama basin. to 325,000 net acres.
1,200 m of water in the Sulu Sea. The interests are undeveloped, and
Unocal Corp. identified a deepwater Colorado Exxel Energy (USA) Inc.’s working in-
petroleum system in 2000 when it re- terest is 100%.
covered oil from Wildebeest-1, the only Eden Energy Corp., Vancouver, BC, The subsidiary is acquiring more
well drilled in the deepwater fold belt. and Starlight Oil & Gas LLC, private acreage and reviewing its options
The fold belt is strewn with structural Colorado independent, are drilling the for development. The area appears to
and structural/stratigraphic leads. first of two development wells on the contain an emerging basin-centered gas
Tap Oil has three Philippine partners 20,000-acre Ant Hill Unit in White play, and several operators have ob-
and plans to reduce its interest in the River Dome field in 2n-96w and 97w tained drilling permits for new wells.
in north-central Rio Blanco County.
The wells, on a farmout to Starlight

34 Oil & Gas Journal / Oct. 9, 2006

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DR I L L I N G & PR O D U C T I O N
Three projects pro- the reservoir management strategy by
gressively modified gas reducing the reservoir pressure to 70
compression on the bara from 380 bara, liberating an incre-
UK Brent field to lower mental 58 million cu m of oil equiva-
suction pressures in-line lent production.
with late life reservoir Production The LTFD project involved the instal-
and production require- lation of an integrated two-stage separa-
ments for depressurizing tion, gas compression, and dehydration
the field. process module on three platforms
The long-term field development (Bravo, Charlie, and Delta) to enable
(LTFD) project laid the foundations for reservoir depres-
depressurizing Brent field, while the surization.1
two-step low-pressure operation (LPO)
and low-pressure operation plus (LPOP) Compressor Optimum compressor choice
compressor upgrade minimized risk
and lifecycle cost.
Each new compressor design lever-
selection
The need for a
large gas com-
boosts Brent gas production
aged proved technology of its time so pression capac-
as not to jeopardize machine reliabil- ity within limited weight and space
ity and gas availability. The technical constraints drove the equipment selec-
innovations incorporated in the LPOP tion. The LTFD project involved fitting Thomas N. Schneider
compressor extended the operational each platform with a single gas-export Shell Exploration & Production
envelope beyond that thought possible compression train, which required an Aberdeen
at LTFD. aero-derivative gas-turbine driver to al- Riccardo Brogelli
Advances in modeling techniques low rapid turbine replacements during GE Oil & Gas
and design verification provided the maintenance. Florence, Italy
confidence to install the LPO and LPOP The project selected Cooper-Rolls’
machines without an onshore string RB-211/6562 gas turbines as the prime
test. mover with GE Oil & Gas gas compres-
sors.
Brent field A single-helical gearbox coupled the
Brent field has been a cornerstone two stage, back-to-back compressor to
of the UK offshore oil and gas industry the driver. The gas turbine and gearbox
since its discovery in 1971, about 500 shared the compressor lube oil system
km northeast of Aberdeen. The coven- while the compressor was fitted with
turers, Shell UK Ltd. and Esso Explora- tandem dry gas seals.
tion and Production UK Ltd., installed Gas export availability was a key val-
four platforms (Alpha, Bravo, Charlie, ue driver for the project. This required
and Delta) to develop the field with an a proven, reliable, and readily maintain-
estimated 600
million cu m of
oil equivalent BRENT GAS EXPORT COMPRESSOR COMPARISON Table 1

and 290 million Project LTFD LPO LPOP

cu m of wet gas Model 2BCL506/A 2BCL506/A 2BCL506-8/A

Maximum continuous speed (MCS), rpm 8,086 9,083 9,508
initially in place. Number of impellers/stage 3/3 3/3 4/4
The compa- Impeller diameter, mm 600 630 630
Bearing span, mm 1,953 1,953 2,166
nies originally Bearing diameter, mm 130 130 150
Suction/discharge pressure, bara 35/140 20/140 8/140
configured the Polytropic head 1st/2nd stage, m 8,500/8,100 13,000/11,800 21,000/18,500
Flow, million standard cu m/day at
platforms for oil maximum 17 Mw 11.76 8.02 3.86
production with Log decrement at MCS 0.169 0.226
Wachel log decrement at MCS 0.021 0.056
water injec- Balance drum seal Stepped Stepped Tapered
labyrinth labyrinth honeycomb
tion. In the early Shunt holes No Yes Yes
1990s, they de- Swirl breaks on impeller eye labyrinths No No Yes
Impeller material A182 Gr F22 A705 Gr 630 Virgo 38
cided to change

Oil & Gas Journal / Oct. 9, 2006 35

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DR I L L I N G & PR O D U C T I O N
able high-flow compressor. GE designed C OMPRESSOR COMPARISON Fig. 1
seal design techniques that enabled
a compressor rotor with a 600-mm 20 detailed evaluation of the behavior of
diameter, two-dimensional impellers in such a compressor.
a three wheels and stage configuration The upgrade required significant

Compression ratio
15
(Table 1 and Fig. 1). LPOP
brownfield work and an extended shut-
The vertically split barrel-type casing down to remove the original machine
allows the replacement of the bundle 10 and install and align the new one. The
without removal of the process pipe project also replaced piping spools,
work. LPO valves, and gear internals.
5
Several factors made the LTFD com- LTFD It also included a review of the com-
pressor design difficult, considering the Molecular weight: 21.1 kg/1,000 mol plete topsides process for flow, pressure,
Suction temperature: 30° C.
Limited to maximum 27 Mw power
experience and methods available in the 0 and temperature changes resulting from
5 10 15 20 25
early 1990s. The compressor was speci- First-stage suction flow, million actual cu m/day the new operating conditions.
fied in accordance with NACE,2 because Increased compressor discharge tem-
of the risk for the reservoir to sour in peratures affected pipe class and valve
later field life. The need to deliver high enhances well performance and reduces specifications as well as piping and
flow and polytropic head in a single the ultimate reservoir pressure, which equipment stress levels. Although the
casing resulted in the impeller tip veloc- in turn increases gas recovery. heat load on the gas coolers remained
ity being relatively high. Options evaluated to reduce back- essentially unchanged (given no change
As a consequence, the impeller had pressure while maintaining export to compressor driver power), these
high stresses and, therefore, the materi- pipeline pressure included multiphase required re-rating for the increased
als selected needed sufficient strength to pumps and various suction and dis- temperatures.
sustain the stresses but also to have low charge booster compressor configura- Lower pressure affected fuel gas, gas
enough hardness to satisfy the NACE tions. All these concepts were unat- dehydration, and off-gas compression
requirement. The presence of carbon tractive economically due to space, systems, which were then either modi-
dioxide and water further complicated weight, power, and flow assurance. The fied or operated differently.
material selection. most cost-effective approach was the
The design used rotor-dynamic modification of the existing gas export Rewheeled compressor
analysis that accounted for the destabi- compression train on each platform for Optimizing the impeller geom-
lizing flow effects in the labyrinth seals. a lower suction pressure by upgrad- etry and increasing rotational speed
This was important particularly in the ing the compressor, retaining the gas increased the polytropic head of the
area of the center balance drum that turbine driver, and reusing the base skid LPO compressor when compared with
separates the discharge volutes of the and auxiliaries. the LTFD design (Table 1). The rotor
two compression stages. The compressor upgrade reduced line-up was again composed of two-di-
All three units underwent full-load suction pressure and reduced mass flow mensional impellers in three plus three
testing in the factory using the con- in two phases to match the produc- configuration (Table 1).
tract drivers. The testing and in service tion decline of each platform. The work The length constraint of the existing
encountered no stability problems. staggered the shutdowns and aligned it casing prevented the accommodation
Rolls-Royce and GE staff maintained the with other in-field activities to mini- of additional impellers within the unit.
compression trains for optimal perfor- mize avoidable production deferment. The selected impellers had the high-
mance under a healthcare contract that Phase 1 included upgrading the est head geometry available within the
supported an enhanced maintenance compressor as far as possible within the GE range of impeller families and an
program. existing casing design. The LPO project increased 630-mm diameter, the largest
None of the three compressors re- replaced the compressor bundle and for the casing size.
quired a major unplanned intervention gear internals. This well-proven upgrade The impeller tip speed together with
in more than 20 years of cumulative method only required a short platform the NACE requirement resulted in the
run life. shutdown. LPO bundle being the limit state design
Phase 2 included the LPOP project of the time.
Development options that replaced the existing compressor In the absence of a gas-turbine skid,
As the gas reservoirs depleted, well with a new longer casing to accommo- compressor, or gearbox casing, it was
productivity declined below the design date additional impellers. This option not possible to factory test the new
flow rate of the compressor. Optimiz- only became feasible in recent years be- compressor or gearbox internals. The
ing production required lowering well cause of advances in rotor and labyrinth project mitigated start-up risk through
back-pressure. Lower back-pressure design verification, use of proven im-

36 Oil & Gas Journal / Oct. 9, 2006

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©2006 Tenaris. All rights reserved.

Tenaris and Maverick together:
a perfect combination to serve the energy industry.
The combined enterprise will add Maverick’s strengths in welded OCTG and line pipe to those of Tenaris in
seamless pipes and premium connections. The integrated company also brings to North America the full range
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Tubular technologies. Innovative services.

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DR I L L I N G & PR O D U C T I O N
ferential pressure
K IRK-DONALD PLOT Fig. 2
across the inter-
stage diaphragm.
3.0 2BCL508/A
LPOP 2005
Diaphragm
deformation in the
Warning 2BCL506/A
LPO 2002
area of the balance
2.5
drum seal had
MCS/NC1

2BCL506/A to be minimized
LTFD 1993
because excessive
2.0
movement would
be detrimental for
rotor stability.
1.5
The design
minimized the
Stable axial length of the
1.0
10 102 103 MCS/NC1 104 105 10 new compressor
6

Note: MCS - Maximum continuous speed, NC1 - First critical speed, Pd - Pressure discharge, Ps - Pressure suction to prevent rotor
stability prob-
lems. The use of
peller designs, GE quality control (high- requirements while ensuring a safe and computational fluid dynamics models
speed verification and balancing of the reliable compressor with a high level of optimized within the space constraints
rotor), and commissioning procedures. performance. Initial efforts focused on the aerodynamic design of the two inlet
Offshore testing showed a good meeting the constraints. volutes.
match with the predicted performance. A reduction in the wall thickness of
The modification activities were com- the second-stage suction was the main LPOP compressor rotor
pleted within the planned shutdown change that reduced the weight, and The design had to resolve rotor-
durations and all three rewheeled finite element analysis, verified in a dynamic stability concerns because of
compressors were as reliable in service hydraulic test, validated the various load the bearing span, rotational speed, and
as the LTFD units. conditions on the casing. polytropic head capacity of the LPOP
The addition of impeller stages machine. A comparison of the com-
LPOP compressor (four plus four vs. three plus three) pressor design against GE’s historical
The key objectives of the LPOP com- and increased shaft speed (Table 1) was database shows the importance of these
pressor design were: the only way to increase the polytropic concerns (Fig. 2). All Brent machines
1. Maximizing the polytropic head head. are within GE’s warning zone in the
(minimize suction pressure). The increased gear ratio pushed the Kirk-Donald plot,3 however, the LPOP
2. Having a wide operating range pitch-line velocity and loading of the compressor is close to the stability limit.
(high start-up pressure required for fuel gear teeth to the maximum allowed A design optimization and verifica-
gas). by Shell. GE selected a special material tion was required to avoid an unstable
3. Using materials suitable for sour known as Virgo 38 for the impellers design. The analysis was conducted in
service. to maximize resistance to sulfide stress parallel with a third party, the South
Constraints included: corrosion cracking while achieving West Research Institute.
1. Maintaining casing diameter and the required strength. The use of finite
reusing the existing compressor base element analysis optimized the impeller Undamped critical speed
plate. interference fit geometry. The starting point for the rotor-dy-
2. Having a casing weight of less The compressor’s wide operating namic verification was an undamped
than 18 tonnes (vs. 21.5 tonnes stan- range caused the residual axial thrust critical speed analysis (UCSA) per API
dard weight). due to the pressure distribution over 617 during the compressor feasibility
3. Sustaining nozzle loads up to 5- the rotor to have much greater variation design study.4 The first equivalent shaft
times NEMA. and higher peak values than in standard was the result of a simple evolution of
4. Maintaining the size and location GE applications. the previous (LPO) machine. Modifi-
of the discharge nozzles. Numerous evaluations optimized the cations of the scheme followed as the
GE studied all aspects of the com- balance drum design. Constraint 4 lim- design proceeded to determine the final
pressor design to find the best com- its the interstage wall thickness while optimized shaft.
promise between the conflicting Objectives 1 and 2 increase the dif- UCSA considers bearing character-

38 Oil & Gas Journal / Oct. 9, 2006

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istics purely in
terms of stiffness
B RENT LPOP LOG DECREMENT Fig. 3
1
coefficients cal- Divergent Convergent
culated with two
different tools: an 0
internal GE tool
–0.120 –0.080 –0.040 0.000 0.040 0.080 0.120 0.160 0.200
that has correlated

tolerance = –0.02 mm
well over many

Maximum taper
years with GE

Log decrement
–1
standard bearings,

= –0.02 mm
Hot taper
and XLTRC2 from
Texas A&M Uni-
versity.5 The two –2

sets of calculations
provided a good
match. The UCSA
led to three deci-
B RENT LPOP INTERSTAGE DIAPHRAGM Fig. 4
Second-stage discharge
First-stage discharge
Honeycomb seal

Balance drum

Balance drum
sions: Honeycomb
1. Increasing
Radial displacement, mm

journal bearing di-

ameter to increase
the shaft stiffness
and the damping
effect from the
bearings.
2. Increasing
bearing journal
clearances to Note: At MCS/MPR (hot condition) A Axial distance A-B B
increase the damp-
ing of the first
mode. a simplified synchronous stability analy- in the worst scenario to be manage-
3. Reducing coupling weight to sis. able with slight changes to bearing
increase the second critical speed. The results for the LPOP compressor clearances in case of problems during
This also resolved the concerns of low confirmed the preliminary informa- the machine run test. Selection of the
damping ratios and low separation mar- tion obtained from the UCSA: the first bearing clearance that offered the best
gins on the gearbox pinions at low load. critical speed (3,550 rpm) was well response over the wide operating range
below the operational range and lightly of the machine completed the design
Rotor response damped; the second critical speed work with respect to synchronous rotor
The rotor response to unbalance (8,700 rpm) was inside the operational response aspects.
analysis adds the damping effect of the range but highly damped. After selection of the internal seal for
bearings to the system. Bearing char- The log decrement of the rotor and optimum rotor stability, a seal clear-
acteristics calculations used the same bearings system at MCS was 0.226 and ance study checked the potential for
tools as for the UCSA and again a found hence close to Shell design and engi- rubbing at the interstage balance drum.
a good match between the two calcula- neering practice requirements (mini- The analysis considered gravity sag and
tions. mum acceptable value is 0.2).7 Further rotor bearing eccentricity and predicted
The selected design included tilting stability analysis included the effect of no rubbing even for the most onerous
pad journal bearings with five pads, the seals and clearances. condition, which occurs when operat-
load on pad, 0.6 offset pivot, and high Tests with different oil temperatures ing at the alarm limit (MPR).
preload. These journal bearings with and bearing clearances showed that the
a noncentered pivot have stiffness and second critical speed could sometimes Stability analysis
damping coefficients that are frequency be lower and more highly damped and A numerical model of the LPOP
independent. This is in accordance with sometimes higher and with less damp- compressor was developed in XLTRC2
GE’s experience and technical litera- ing than in the nominal condition. to include all sources of direct and cross
ture,6 and allows the designer to follow Synchronous vibrations seemed coupling, stiffness, and damping.5 The

Oil & Gas Journal / Oct. 9, 2006 39

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DR I L L I N G & PR O D U C T I O N
LPOP construction
B RENT LPOP INTERSTAGE DIAPHRAGM SEAL Fig. 5
The design constraints imposed
on GE limited changes to and maxi-
Impeller eye mized the reuse of existing equipment.
labyrinths with
swirl breaks
Detailed design checks of the installed
equipment for the new process condi-
tions confirmed that no major equip-
Second-stage ment modifications were required
discharge
external to the compressor. The brown-
field implementation, however, posed
its own challenges.
Interstage The platform cranes had to do all
honeycomb with the lifts to avoid reliance on a lift
shunt holes
vessel. Considering crane radii and dy-
namic factors, this limited the weight
First-stage of a ship-to-platform lift to 18 tonnes
discharge
and of a platform inboard lift to 35
tonnes.
The compressors were therefore dis-
primary analysis at MCS/MPR (maxi- predicts the appropriate behavior and mantled after shop testing and packaged
mum continuous speed/maximum has been validated experimentally in the into custom containers for transport.
pressure ratio) provided a check analy- turbomachinery laboratory test rig.9 A frame with an integral gantry crane
sis at the MCS-choke condition. The The tapered honeycomb seal is provided a self-contained environment
manufacturer, client, and third party sensitive to the difference in clearance for offshore compressor reassembly
agreed to the following seal configura- between the seal inlet and outlet. The prior to the shutdown. The assembly
tion: design used a seal taper of 0.1 mm be- frame replicated the compressor base-
• Impeller eye seals—toothed laby- cause this value is well centered in the plate supports, thereby allowing the use
rinths with nominal clearance. stable region of the log decrement vs. of the contracted special tooling.
• Final balance drum seal—abrad- seal-taper plot (Fig. 3). Because no offshore hot-work
able seal with teeth on rotor. A finite element analysis that consid- (welding) was allowed, the installation
• Interstage balance drum seal—ta- ered thermal, centrifugal, and pres- required prefabricating all piping spools
pered honeycomb. sure effects determined the interstage to exact dimensions. A 3D model of the
The interstage balance drum seal diaphragm deformation, including the new compressor within the module was
near the center of the rotor is criti- honeycomb seal and the balance drum developed based on an offshore laser
cal for rotor stability and generally the (Fig. 4). The definitive honeycomb seal scan survey of the existing configura-
most important source of damping in machining (cold) ensured that the hon- tion as well as a survey of the connec-
this type of back-to-back compressor.8 eycomb seal assumes the correct taper tion points on the new compressor. The
A tapered honeycomb design for under working (hot) conditions. work paid particular attention to the
the LPOP machine guaranteed rotor The analysis at this point showed relative location of the spool termina-
stability. The LTFD and LPO machines that the compressor was stable theoreti- tion flanges, flange angles, and bolt hole
had a stepped toothed labyrinth (Table cally across the full operating range. The orientations.
1). Moreover, to reduce the pre-swirl of design, however, further incorporated Mechanical handling aids facilitated
gas entering the honeycomb, the design a stability margin in the form of swirl a safe installation (Fig. 6). The point-
incorporated shunt holes in the inter- brakes on the inlet of each impeller eye cloud data from the offshore laser scan
stage diaphragm. labyrinth (Fig. 5). A third party (SWRI) survey provided a way to clash check
The tapered honeycomb design calculated that the swirl brakes increase and optimize the compressor installa-
needs correct modeling to avoid in- the log decrement by 0.13 at MCS/ tion path and temporary fixtures. The
stability. Given particular conditions, a MPR. lift of the compressor went above the
divergent honeycomb seal can exhibit PTC 10 Type 2 testing of the final existing skid supports before the unit
strong negative stiffness, especially at compressor with and without swirl was moved off the skid and lowered
low frequency. breaks showed that the swirl brakes also onto the adjoining walkway.
Effective damping also can turn had a positive effect on thermodynamic After removal of the compressor
negative at low frequency. The ISOT- performance.10 piping spools, the work included con-
SEAL code used for the analysis closely struction of a temporary gantry within

40 Oil & Gas Journal / Oct. 9, 2006

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the module.
Fail-safe pneu- B RENT LPOP COMPRESSOR MECHANICAL HANDLING Fig. 6

matic hoists and

trolleys operated
from a remote Temporary gantry frame with
pneumatic hoists and trolleys
console ensured a
controlled lifting New high-pressure gas compressor
operation. The
New low-pressure gas compressor
gantry was load
tested onshore,
match marked,
and inspected on Old high-pressure
gas compressor
re-assembly to
dispense with an Temporary rail system
offshore load test. for load distribution
A temporary
rail system, in- Empty compressor cradle
stalled before the
platform shut-
down to minimize delay, provided the national Ltd. for permission to publish a High Pressure Compressor Equipped
means to transport the compressors and this article. ✦ with Honeycomb Seals,” 32nd Tur-
the large tie-in spools, placed in cradles, bomachinery Symposium, Houston,
through the module. The rail system References Sept. 8-11, 2003.
distributed the compressor weight over 1. Gallagher, J.J., et al., “Brent Field 9. Kleynahns, G., and Childs, D.,
the module structural members. Depressurization Management,” Paper “The Acoustic Influence of Cell Depth
The cradles had built-in jacks to help No. SPE 56973, Offshore Europe Oil on the Rotordynamic Characteristics
realignment on the rails for direction and Gas Exhibition and Conference, of Smooth-Rotor/Honeycomb-Stator
changes and were pulled on skates Aberdeen, Sept. 7-10, 1999. Annular Gas Seals,” ASME J. Eng. Gas
using a chain hoist attached to the rail 2. Standard Material Requirements - Turbines and Power, No. 4, 1997, pp.
cross-beams. Onshore trials proved out Methods for Sulfide Stress Cracking and 949-57.
all equipment and handling procedures, Stress Corrosion Cracking Resistance in 10. Performance Test Code on Com-
thereby minimizing the risk of prob- Sour Oilfield Environments, MR0175- pressors and Exhausters, PTC 10, ASME,
lems offshore. 2003, NACE. 1997.
An onshore string test of the LPOP 3. Kirk, R.G., and Donald, G.H., “De-
compressors was not possible. Design sign Criteria for Improved Stability of
verification, API 617 mechanical run Centrifugal Compressors,” AMD, Vol. 55, The authors
Thomas N. Schneider works in
tests of each machine4 as well as a suc- ASME, June 1983, pp. 59-71. front-end and project engineer-
cessful PTC 10 Type 210 test mitigated 4. Axial and Centrifugal Compres- ing for Shell Exploration &
the technical risk. sors and Expander Compressors for Production. He currently is
An offshore stability trial proce- Petroleum, Chemical and Gas Industry based in Aberdeen and works
dure was developed based on dynamic Service, API 617, 7th edition, July 2002. on platform topsides upgrades.
Schneider has a mechanical en-
process simulations to explore the 5. XLTRC2, Rotordynamics Software gineering degree from Imperial
compressor operating envelope in a Suite, Turbomachinery Research Con- College, London, and a joint
controlled manner and safely identify sortium, Texas A&M University. degree from the Ecole Centrale de Lyon.
any potential limitations. 6. Parsell, J.K., et al., “Frequency
Offshore commissioning of the first Effects In Tilting Pad Journal Bearing Riccardo Brogelli (riccardo.
[email protected]) is a senior
of the three LPOP compressors on Brent Dynamic Coefficients,” ASLE Transac- design engineer in the GE Oil
Delta provided final confirmation that tions, Vol. 26, No. 2, pp. 222-27. & Gas Centrifugal Compressor
the design is stable for the complete 7. Centrifugal and Axial Compres- Engineering Department, Flor-
operating range. sors (Amendments/Supplements to ence, Italy. For several years he
API 617), Shell Design and Engineering has worked on centrifugal com-
pressor revamping projects for
Acknowledgments Practice, DEP 31.29.40.30-Gen, Decem- pipelines, CO2 reinjection, and
The authors recognize GE Oil & Gas, ber 1998. ammonia refrigeration. Brogelli holds an MS in
Shell UK Ltd., and ExxonMobil Inter- 8. Camatti, M., et al., “Instability of mechanical engineering from Florence University.

Oil & Gas Journal / Oct. 9, 2006 41

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DR I L L I N G & PR O D U C T I O N

The new automated and self-elevating Rocket Rig (photo above) was unveiled
in Oklahoma in September (Fig. 1; Ann Sherman Photography, provided by
Cactus Drilling Co. LLC).The bull line attached to the hydraulic raising
system (photo on right) is used to erect the Rocket Rig (Fig. 2; Ann Sherman
Photography, provided by Cactus Drilling Co. LLC).

$10 million Rocket land rig takes off from Oklahoma

A newly designed, fast moving, contracts for XTO Energy Inc.(Fig. 1) Dreco slingshot system, which raises
self-elevating land rig de- XTO will use them to drill the Barnett both mast and drawworks.
buted in El Reno, Okla., shale in Tarrant and Johnson coun- The Rocket Rig system uses hydrau-
in September 2006. The ties, Tex. The third and fourth rigs, lic winches to raise the mast and the
triple rig can be erected both 1,500 hp, will drill for Newfield entire drill floor assembly with equip-
in about 20 min and drill Exploration Co. under 2-year contracts. ment, all in one single shot. The drill
to 18,000 ft. It features Drilling Newfield will use the rigs near Coal- floor stays horizontal throughout the
fully integrated electronic gate, Coal County, Okla., to drill the procedure, following an arc-path from
controls and instrumen- Woodford shale with a contained mud near the V-door (mast-down position)
tation in a driller’s cabin from National system. to the hole (mast-up).
Oilwell Varco. The fully erect mast is hoisted hy-
Oklahoma’s Cactus Drilling Co. LLC Mast erection draulically by two spooled cables (Fig.
has finished Rig. 136,the first of four The mast and substructure were 2).
Rocket rigs currently under construc- designed by Ted Vora, at Houston- Cactus Drilling has set up the first
tion, and plans to complete and deliver based Veristic Technologies Inc (www.
____ Rocket Rig to skid for pad drilling.
the remaining three by January 2007. veristictech.com).
___________ The raising system XTO will pad-drill on 10-ft centers,
The first and second 1,000-hp rigs will is unique, differentiated from both the and the substructure of the Rocket Rig
go to work by yearend under 3-year typical self-elevating system and the

42 Oil & Gas Journal / Oct. 9, 2006

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For your access …

ROCKET RIG SPECIFICATIONS Table 1
the OGJ Custom
Mast, substructure
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Rotary table Hacker-Pyramid A 27.5-in. independent hydraulic drive
Traveling block Veristic Technologies VT400-652 (400 ton)
Top drive Varco TDS-11SA (500 ton) rated at 800 hp, powered by
OmronIDM variable frequency drive (VFD)
Pipe-handling Varco ST-80 iron roughneck, powered by Aberdeen
Dynamics 18114-3 150-hp hydraulic power unit
Drilling control system
Driller’s cabin NOV, climate controlled and pressurized
Controls NOV fully-integrated electronic controls and
instrumentation
Drilling system NOV’s EDS—electronic drilling system
BOP
Annular Hydril 11-in., 5,000 psi, type GK
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Transport Comprehensive
Estimated loads 29, without tubulars
and Efficient
• Extensive history for all
can move forward while leaving other Cactus Drilling had 34 rigs in the fleet, statistical series – annual,
equipment in place. operating in the Midcontinent, the quarterly, monthly and
weekly data.
Barnett shale, the Permian Basin, South
• Easy to use menu driven
Features Louisiana, North Louisiana (Ark-La- system that reduces
The new rig can build triple stands Tex), and the Texas Gulf Coast. The search time.
offline using a rotating, 90-ft mouse- fleet’s depth capacity ranges 13,000- • Cost effective price system
hole. It features hydraulic slips, a Varco 30,000 ft, 650-2,500 hp. – Minimum search time and
ST-80 iron roughneck, and a Varco TDS- Cactus Drilling has about 900 em- fixed price per series.
11SA top drive (Table 1). ployees and is closely held by Kaiser • Volume data users can set
The mud system features two, triplex Francis Oil Co. up an advanced payment
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Ideco pumps, rated 1,300-hp, and NOV The rigs cost about $10 million each
degasser, desander, and desilter. to build, and lease at a premium— • Data downloads to an Excel
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Cactus chose to incorporate a North about $3,000/day more than typical
• See complete Information at
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This holds proper tension on the pit Ron Tyson, manager at Cactus Drill-
liners, instead of having use a nut and ing, told OGJ that the company has
sledgehammer. components or order for four more
The Rocket Rig can move in about rigs, and would be willing to build
29 loads, not including tubulars. more Rockets under contract if there
is operator demand. “Everyone wants www.ogjresearch.com
Cactus rigs that are automated and can move
Before adding the new Rocket Rigs, quickly.” ✦

Oil & Gas Journal / Oct. 9, 2006 43

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PR O C E S S I N G
Recent industry workshops have gas asset owners, PCS and security ven-
identified the issues of cyber and dors, PCS researchers, and government
physical security risks to process control officials—to explore the underlying
systems (PCS). There are many cyber security issues and discuss mitigation
and physical security risks to the oil strategies.
and gas infrastructure, and it is gener- These events occurred in June
ally recognized that even a small process 2005 in Houston, and in June 2006
disruption could produce many serious in La Jolla, Calif. Research and analysis
consequences that result in safety, envi- performed by I3P were presented and
ronmental, and economic impacts. interaction facilitated with industry
This article focusesthrough discussions about PCS security
on the characteriza- concerns, cyber risks for automation
Workshops identify threats tion of the cyber
risks associated with
systems, emerging threats, and new
technologies.

to process control systems PCS and describes

components of risk
that can assist in
This article summarizes major con-
cerns voiced at the I3P workshops and
discusses a broader understanding of
understanding an PCS security risks and solutions based
organization’s security posture and on research and professional experi-
implementing effective mitigations and ence in this area. Risk is characterized
Annie McIntyre protection. in terms of threats, vulnerabilities, and
Jason Stamp The increased connectivity between consequences. Protective measures and
Ben Cook PCS and business networks and the business impacts are also addressed.
Andrew Lanzone widespread migration to off-the-shelf Industry can use this characterization
Sandia National Laboratories
Albuquerque hardware and software has increased as a starting point to assess major areas
the exposure to outside threats and of concern in their own operations,
broadened known vulnerabilities. This possible consequences of an attack, and
return on investment
(ROI) of implementing
SPECIAL

Report
defenses. Understand-
ing and characterizing
this risk will enable the
development of strategies
for preventing, detecting,
Process Control mitigating, and recover-
Technology ing from cyber-security
incidents with focused
and defined objectives.
Input from industry
collectively provides a
strong basis for both
decision-making and im-
provements with realiz-
has led to the increased awareness of able, specific outcomes.
PCS security and protection.
To address PCS risks, the Institute for Critical industry observations
Information Infrastructure Protection Input for the risk-characterization
(I3P) has funded a multi-year research process was obtained primarily from
program to improve PCS security in industry stakeholders through work-
the oil and gas industry (see www.
____ shops and interaction, gap analyses per-
thei3p.org/research/scada for more formed under I3P activities, and related
information on this project). Under this PCS research. The first I3P workshop
program, I3P hosted two PCS security gathered a wealth of industry perspec-
workshops—which included oil and tive. The second I3P workshop validated

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the approaches towards technology, ap- R ISK EQUATION Fig. 1

plication, and emerging ideas on secure
operations.

Industry concerns
Members of industry segments
voiced their concerns at panels dur-
ing the workshops. These concerns can
be grouped into different technical
domains: DISCUSSION PANEL CONCERNS Table 1

• Wireless security. Security is lack- Operator panel highlights Vendor panel highlights Shared, common concerns
ing in wireless connectivity and remote Comprehensive security across Management must be en- Securing wireless capabilities
access to enterprise systems. Wireless spectrum of control systems gaged early in decisions about as part of the network’s overall
is needed, not just patches or obtaining and implementing security plan is necessary.
security must be addressed as part of rudimentary security controls security controls.
on systems.
the enterprise architecture. There is the
802.11 protocol in production fields, Interdependencies exist on Awareness and training A set of widely accepted
other critical infrastructures, amongst operators and integra- standards, guidelines, and best
but a more secure, capable solution is such as telecommunications. tors on security controls is practices would be very useful
needed. to industry in planning and
needed across the infrastructure and in implementing security across
architectures.
remote areas.
• Intrusion detection. Basic intru- There is a need for overall An industrial plant network An understanding of how
intrusion detection and preven- should be considered a multi- interoperability affects security
sion detection is often lacking in an tion. layered enterprise rather than a within the enterprise by vari-
collection of individual nodes. ous levels within an organiza-
architecture, which includes monitor- tion is necessary.
ing, event correlation, and alarms. This Facilitating an understanding of Clearly defined roles and Security should be addressed
security control is essential to detecting security needs and implement- relationships between IT by including it in the overall
ing a solution requires engag- personnel and control system control system and network
and preventing attacks. ing stakeholders at all levels of engineers are needed. lifecycle.
an organization, including asset
• Understanding and implementa- owners and managers.
tion of security. A comprehensive view Industry stakeholders in any Legacy systems will continue
and implementation of security is position must be aware that to operate in the oil and gas
the oil and gas, and na- infrastructure and must be
often missing; a piece-meal approach tional critical infrastructure as a considered when securing
whole, is considered a “target architectures.
to security is common. Currently, there of opportunity” to threats.
is sporadic or little implementation of Realization of economic
controls across the system. One layer, justification for implement-
ing security throughout the
such as a firewall or physical security, enterprise is critical.
is not enough to prevent an attack. A
layered, comprehensive approach is
necessary. approach is needed with guidelines for operations.
• Legacy systems. Many legacy sys- an enterprise approach to security. • Network structure. Many PCS are
tems that have interoperability issues or • Training and awareness. Train- connected to business networks within
hardware and software constraints are ing and awareness of security con- the enterprise. Without separation or
still in use. These systems have minimal figurations is necessary to prevent the controls placed between the archi-
security controls and are difficult to incorrect implementation of security tectures, attackers have a potentially
patch or upgrade, resulting in vulner- controls, such as firewalls. exploitable access path to gain control
abilities without clear mitigation strate- • Design. Basic security, such as au- over operations. There is greater risk,
gies and a weakening of the overall thentication, access control, and encryp- therefore, to core functions and opera-
architecture. Addressing these legacy tion, is not designed into many control tions.
systems and developing a solution for systems. The need for add-on security • Policies and plans. In addition to
protection is needed. can create implementation difficulties. guidelines and standards in the ap-
• Standards. No widely accepted Upgrades and added functionality to proach to and implementation of se-
standard for security implementation aging control systems can result in the curity, enterprise level security policies
in control systems exists. Non-standard introduction of commercial technol- and plans are needed to ensure secu-
security controls are therefore applied ogy that can add new vulnerabilities. rity is implemented at the necessary
over a variety of domains, including Considering security at the beginning levels of protection. The organizational
business systems, PCS, and physical and throughout the control system divide that exists in many organizations
(site) security. A comprehensive, layered lifecycle is critical for continual, secure between IT and PCS groups can thwart

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PR O C E S S I N G Process Control Technology

S CADA ATTACK MODEL Fig. 2

terms of threat,
vulnerabilities,
Knowledge of Technical consequences,
Funding
SCADA systems knowledge
and impact on
business (Fig. 1).
Distributed
Objective computing Organizations that
power
identify and fully
Corporate
define these com-
Billing Purchasing
partners ponents find them
Organized
attacker to be the first step
HR data
in securing opera-
tions.
Outsider threat

Threat
assessment
Creating an
understanding
Industry
Exploits a vulnerability business of threat and an
network awareness that
Insider/outsider
critical infrastruc-
ture can be an
attractive target is
generally the first
step in protecting
Open access

Indirect
critical operations.
Employee Control
threats
centers
The goal of a
threat assessment
Remote is to determine
Insider threat terminal the likelihood of
units
an attack against
a given target.
SCADA Plants
operational
Threats to control
network systems in the oil
Geographic and gas sectors can
Insider/outsider information
system be derived based
on access, intent,
and system vulner-
effective policy and procedure imple- increased communication across the abilities. A typical
mentation. stakeholder community in a multi-front threat assessment includes:
• Incident handling. Part of robust approach to security. • Identification of known and poten-
security includes data backups as well as Table 1 outlines highlights from both tial adversaries.
the preservation and analysis of forensic panel discussions. • Analysis of each adversary’s moti-
data. Developing a plan for maintaining vations, goals, and capabilities.
this data is important to understand and Risk characterization • Assessment of the threat posed by
mitigate future attacks. Characterizing risk for control sys- each adversary to critical system assets.
Interestingly, concerns from indus- tems is different than identifying risks When applied to a specific control
try members often reflect the body of purely associated with finances, safety, system or set of systems, a threat as-
industry they represent. For example, or IT. It is a blend of all those risks with sessment is normally quite detailed and
panel members at the first I3P work- their effect on operations and the ability specific.
shop were divided into operator and to perform the critical functions neces- Threats can be characterized by
vendor groups and it was interesting to sary to continuously provide a product both their level of access, motiva-
note the differences and commonalities or service, e.g., refine crude or transport tions, and their capabilities. A threat
in their responses. refined products in a pipeline. implies that an individual or group
This emphasizes the need for In this case, risk is characterized in has the ability and access to carry out a

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DryTree & Riser Forum

Innovation for Changing Demand

Formerly known as Deepwater DryTree Alternatives Forum

October 24-26, 2006 • C o l l e ge S t a t i o n , Te x a s

w ww. dr ytreef or um . c om
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Hilton College Station & Conference Center

The DryTree & Riser Forum was created to facilitate the open exchange of ideas, best practices, and lessons
For Event Information Contact:
learned that affect the selection and execution of deepwater drytree systems and drilling or production
Event Manager:
riser systems from floating facilities. Gail Killough
Phone: + 713 963 6251
This year’s theme, “Innovation for Changing Demand,” will present practical experiences relating to choices Fax: + 713 963 6201
when choosing drytree production systems and deepwater riser systems. During this two-day event, speakers Email: [email protected]
and delegates will explore the technology, tools, decision-making processes, and functional requirements of Exhibit and Sponsorship Sales:
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PR O C E S S I N G
targeted toward an organization or one
CHARACTERIZED VULNERABILITIES Table 2
specific goal. For example, widespread
Vulnerability category Description, examples worms and viruses can create an overall
System data Lack of understanding of what data is consid- slowdown and damage, but are gen-
ered sensitive, how it should be separated and erally not used to produce a specific
protected.
Security administration Lacking policies, standard procedures, training,
effect on one organization. Likewise,
and corporate/industry security plans. untrained employees or accidents by
Formal configuration management needed for
upgrades, legacy plans, and patching. employees can pose a threat to the
Architecture, design No integrated security in SCADA designs. organization by inadvertently creating
Security must be an add-on.
Centralized storage or control mechanisms are
security holes.
single points of failure. These indirect threats should be
Platforms Patching, backups, passwords, offsite security, considered when addressing security
application security, and security policies for
access control and file sharing are needed. in control system operations in addi-
Physical access control is lacking. tion to threats with targeted, malicious
Networks, communications Wireless security, monitoring, encryption, ac- intent.
cess control, boundary security, and standards
for implementation are all needed. Quantification of threat and under-
Incident response, handling Response plans are lacking, as well as backup standing how that threat relates to their
and disaster recovery plans. own assets can help industry members
Forensic data collection and analysis needed.
Redundant operational capability is beneficial. take the initial steps in building a se-
cure operating environment.

process that creates damage to, or ex- nesses, and protective measures, are Vulnerability analysis
ploits, a system for a specific gain. The often available on the Internet. Likewise, A vulnerability is a weakness that ex-
result can have physical, economic, en- industry and corporate-specific data ists in a system, network, application, or
vironmental, and human consequences. can easily be gathered from basic Web process that can be exploited by a threat
Threats to control systems can come investigative techniques. to create an adverse effect. Examples of
from both insiders and outsiders and In combination, this information can vulnerabilities can include open ports,
can vary in capability. Capability is a be very useful to a threat planning a unpatched software, dated virus protec-
function of resources such as time, coordinated attack and, because this in- tion, or exploitable system services.
money, computing power, technical formation is readily available, increased Vulnerabilities can be identified
knowledge, and intelligence resources. protections implemented on networks through a frequent assessment process
Threats and their capabilities are become the primary line of defense. or review, and can be reduced using dif-
often divided into several specific This defense can ensure operations are ferent mechanisms. These mechanisms
categories such as nation-state, inter- not disrupted or compromised. can include patches, access controls,
national terrorists, domestic terrorists, Because these threats exist today and network protocols, monitoring, and
or hackers. Although individual hackers organized cyber-terrorists continue to physical controls.
may have malicious intent and technical gain resources and capabilities, indus- Vulnerabilities discussed at the I3P
knowledge, organized cyber-terror- try must address this as a present and workshops include descriptions of
ist groups often possess the resources future issue. broad categories as well as specific
necessary to carry out an effective, Fig. 2 illustrates an attack and lists examples. Table 2 outlines these catego-
distributed attack that produces severe its potential effects, which include ries.
consequences. downtime, exploited information for Understanding vulnerabilities and
Characteristics that can affect a financial gain, strained strategic part- how they exist and evolve within an
threat’s success in an attack include nerships, safety hazards, and damage to architecture is necessary when select-
funding, goal intensity, stealth capabil- infrastructure. ing and applying security protective
ity, access, cyber skills, implementation For example, once a threat ac- measures. As a whole, the oil and gas
time, and cyber-organization size. cesses a control system, often through industry is becoming more aware of
A targeted organization has no a business system, it is possible for the vulnerabilities and how they arise, and
capability of controlling these charac- attacker to assume privileges as though are now looking for ways to mitigate
teristics, with the exception of access. he or she were a trusted insider. This them.
An organization’s physical and cyber control could potentially result in ac- Vulnerabilities can be identified and
defenses are therefore critical. cess of control systems that manage the reduced, but continual maintenance is
Access to information about control lifeblood of an organization. required to safeguard elements of the
systems, including design details, weak- In some instances, threats are not architecture and operations as a whole.

48 Oil & Gas Journal / Oct. 9, 2006

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Process Control Technology

Vulnerability assessments are particu- in repercussions to system operations, insurance, although the financial benefit
larly useful in determining the current which in turn inflict a greater economic to stopping attacks on a daily basis
state and robustness of an organization’s loss on a plant or company. On a larger is rarely quantifiable. An asset owner
architecture. Identified technical vulner- scale, these effects could negatively must therefore consider the potential
abilities, however, are often not mean- affect the local, regional, national, or cost of not employing these controls.
ingful to management when making possibly global economy. Downtime and the halted production or
choices to invest in security. • Social impacts or public image. A transport of oil and gas can be directly
Vulnerabilities must be viewed as side effect that is often overlooked is translated to profit losses.
only one part of a whole when consid- the consequence of losing national or To some extent, safety can also be
ering risk to control systems and the public confidence in an organization quantified in the number and cost of
organization. Different members of the or industry. It is, however, a very real accidents and injury. The social impacts,
organization, and of the industry, may objective and one that can be accom- however, such as quality of life and the
have different priorities. Awareness and plished via a cyber attack. effect on critical infrastructure at a na-
communication is required to create a • Impact on national critical infra- tional level are not easily measured.
comprehensive security plan that pri- structure. Industry sectors are a part of For example, an organization must
oritizes assets and provides guidelines the whole national infrastructure. Loss consider how customers and the market
for applying protective measures. or adjustment of capacity and delayed will view it if it suffers a publicized
purchasing and transportation create attack. Likewise, if a corporation’s
Consequences secondary effects on the national in- unsecured control system network is
A consequence is the resulting loss, frastructure. Likewise, attacks on other used as an entry point or active node
damage, or impact resulting from a industries in the national infrastructure in a coordinated attack on the national
threat successfully exploiting a vulner- can affect the oil and gas sectors. An infrastructure, it can have devastating
ability. Consequences can include access example reiterated at the workshops is business consequences in addition to
and alteration of data, disruption of the reliance on the telecommunications the infrastructure damage.
service, destruction of the system, and industry. This scenario is not unlike that of
severe environmental and public health Table 3 breaks down example conse- airline companies who have suffered a
results of an attack. quences, effects, and overall impacts. If business loss or faced near bankruptcy
Based on the threats and vulnerabili- a threat exists that can exploit an exist- due to eroding public confidence
ties discussed, consequences to control ing vulnerability, any number of these caused by a hijacking or safety-related
systems could potentially be severe consequences can occur. crash. The price of inaction can be far
due to physical and operational effects. Although Table 3 does not con- costlier than implementation of security
Some consequences can have serious tain every potential consequence, it is to the architecture.
effects on business operations, to the important to understand how a threat
industry as a whole, and to the national with an opportunity can create negative Protective measures
critical infrastructure. consequences. Understanding compo- Defenses against cyber attacks are
Understanding consequences of a nents such as the network, platforms, most effective when applied in mul-
successful attack can help an asset own- system data, and operational policies tiple layers of security through what is
er identify areas of the architecture that can help in creating a layered approach sometimes referred to as a “defense-in-
need higher levels of protection and to protecting the infrastructure. depth strategy.” Often specific controls
prioritize the deployment of protection are implemented that only partially
mechanisms. The consequences of an Business effects, ROI address protection, such as firewalls, but
attack have direct effects on the organi- Determining the consequences of an protection and defense must be viewed
zation or industry as a whole. attack based on an analysis of threats as a comprehensive task.
These effects include: and vulnerabilities is useful to under- Vulnerabilities can be mitigated and
• Physical effects that encompass standing exactly what to protect on threats deterred by using a layered ap-
direct consequences of control system control system networks. Workshop proach that groups areas of concern.
misoperations. The most devastating participants recognized, however, that These logical areas that require defense
potential effects include personal injury implementation of security controls is can include data, applications, plat-
or loss of life. Other effects include the often an expensive task. There must be a forms, networks and communications
loss of property (including data) or visible ROI to justify the expense of de- systems, and perimeter systems. Break-
damage to the environment. ploying additional security technology ing apart these layers, organizations
• Economic effects are secondary re- such as hardware, software, or physical can map their processes and determine
sults of physical impacts ensuing from controls. exactly what needs to be protected and
an attack. Physical impacts could result It is probably most analogous to how to defend it.

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PR O C E S S I N G
oil and gas industry can lead to effective
TECHNICAL EFFECTS, RESULTS Table 3 implementation of security technology
Technical consequence Effect Result
and methodologies. These implementa-
Access, read, alter data • Theft or alteration of corpo- • Economic (i.e., loss of trad-
tions will produce inherently secure
rate, industry data. ing partner, market instability, operations, ensuring reliability, continu-
• Theft or alteration of critical downtime).
operations data used for future • National critical infrastructure ity, safety, and important steps toward a
attack. (i.e., weaknesses in operations secure national infrastructure.
• Theft of personnel data. may be exploited, downtime,
• Divulge corporate trading unavailability). Implementing robust security mea-
partner information. • Quality of life (i.e., identify
• Billing and purchasing data theft, negative publicity for sures across facets of an organization
changed. corporate and industry).
• Safety issues. takes communication across all levels
Gain control of SCADA • Full operation of control • Physical effects on equip- of the organization, established objec-
systems systems. ment.
• Can alter, stop, or destroy tives, and a committed effort to ongo-
equipment and operations.
ing maintenance. Because all threats
Denial of service Halt operations on process
control, business systems, or cannot be eliminated and vulnerabilities
telecommunications. continue to evolve, a layered approach
Access systems as jump Use systems as part of a large to security and a comprehensive imple-
points scale, coordinated attack.
mentation plan is necessary.
Physical access to SCADA • Can physically damage
systems systems. Continued collaboration between
• Access as a trusted insider if
electronic access controls are industry and researchers will yield
not in place. new technologies and approaches that
Introduction of a virus, worm Can slow or halt operations. mitigate risk and foster a secure operat-
ing environment. A third I3P workshop
is planned for February 2007 that will
These defenses and protective mea- in security controls, a comprehensive include demonstrations of common
sures could include: and well-understood security plan is re- vulnerabilities and associated mitigation
• Access control. quired. This plan should address physi- tools and techniques.
• Authentication. cal, personnel, and information security, This I3P effort is coordinating with
• Applied operating system and plat- and should mandate as many controls other PCS security research programs
form security. as required to secure operations. In this and industries to develop ideas for
• Data separation. plan, it is also necessary to address the comprehensive security. These activi-
• Functional separation. technology lifecycle. ties will yield an accurate picture of the
• Network design. As operations and equipment evolve, most important issues.
• Encryption. security must be fluid and provide the
• Patches, upgrades. functionality required by the current Acknowledgments
• Monitoring and event correlation. situation. In addition to lifecycle plan- The authors thank the June 2005
• Backups and disaster recovery ning, legacy systems must be assessed I3P workshop participants for the open
plans. and a methodology developed for either discussion of security issues, which
• Alerting mechanisms to discover upgrading or replacing these systems. formed the basis of this article. The au-
coordinated attacks. In developing a plan and applying thors also recognize Martin Stoddard of
• Redundancy in connectivity. controls, forging a common under- CVO Electrical Systems, LLC, Erin Pratt
• Firewalls and perimeter security. standing among different industry and of Pacific Northwest National Labora-
• Secure remote access. organizational groups is essential. This tory, and Yacov Haimes, Matthew Henry,
• Trusted computing platforms. means creating awareness and discus- Joost Santos, and Kenneth Crowther of
• Accepted measures for risk charac- sion among all stakeholders to include the University of Virginia. ✦
terization elements. asset owners, vendors, IT personnel,
In combination, and with an opera- operators, and management. Involving Bibliography
tional focus, these measures can provide and obtaining feedback from members “Generic Threat Profiles,” Report
the best defense against attack. Under- across the enterprise can result in a se- SAND2005-5411, Sandia National
standing the critical functions and data curity plan that is most effective while Laboratories, Albuquerque.
types in the system and applying ap- ensuring continuity of operations. “A Reference Model for Control and
propriate security controls to segregated Automation Systems in Electric Power,”
architectural enclaves is essential for a Further work Report SAND2005-1000C, Sandia Na-
comprehensive defense. A growing understanding of threat, tional Laboratories, Albuquerque.
In addition to the use of technology vulnerabilities, and consequences in the “A Scalable Approach for Criti-

50 Oil & Gas Journal / Oct. 9, 2006

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Process Control Technology

cal Infrastructure Security” Report Stamp, J., et al., “Sustainable Secu- security and the integration of network technol-
SAND2002-0877, Sandia National rity for Infrastructure SCADA,” Report ogy into security architectures for infrastructure,
Laboratories, Albuquerque. SAND2003-4670C, Sandia National homeland security, and the military. Stamp holds
a BS (1995) in electrical engineering from the
“Common Vulnerabilities in Criti- Laboratories, Albuquerque. Rose-Hulman Institute of Technology,Terre Haute,
cal Infrastructure Control Systems” Ind., and a PhD (1998) in electrical engineering
SAND2003-1772C, Sandia National from Clemson University. Jason is a member of the
Laboratories, Albuquerque. The authors Power Engineering Society of IEEE.
Annie McIntyre is a senior
Kilman, D., and Stamp, J., “Frame- member of the technical staff Ben Cook is a principal
work for SCADA Security Policy,” Report at Sandia National Laborato- member of the technical staff
SAND2005-1002C, Sandia National ries, Albuquerque. In the Net- at Sandia National Laborato-
Laboratories, Albuquerque. worked Systems Survivability ries. He currently leads research
“I3P National Cyber Infrastructure organization, her primary areas efforts on robust critical
of research include threats, infrastructure systems and
Bulletin,” Vol. 1, No.1, Sandia National vulnerabilities, and protection supports the management of
Laboratories, Albuquerque. of critical infrastructure under Sandia’s process control research
“I3P SCADA Security Workshop Raw the I3P program and leading security metrics ef- and development. Cook is the
Data Report,” Sandia National Laborato- forts under the National SCADA Test Bed. Previous technical project leader for the I3P’s process control
ries, Albuquerque. to this, McIntyre worked extensively in the defense security research program, and Sandia’s project
sector on information warfare and survivability, lead on the DHS LOGIIC project. His technical
“Industry Security Needs/Concerns,” serving as IO Laboratory Chief and Informa- background is in modeling and simulation with an
Powerpoint presentation. tion Warfare Lead for Future Combat Systems emphasis on large-scale natural and engineered sys-
“Penetration Testing of Industrial Assessments at the Army Research Laboratory. She tems. Cook holds a ScD in information technology
Control Systems,” SAND2005-2846P, previously served as New Mexico Regional Manager from the Massachusetts Institute of Technology.
Sandia National Laboratories, Albuquer- for Concurrent Technologies Corp. and performed
systems analysis and engineering under the Human Andrew Lanzone is a senior member of the
que. Genome Project. She holds a BS from New Mexico technical staff at Sandia National Laboratories.
“Security Guidelines for the Petro- Tech, an MS from Troy State University, and is a He has several years experience in both crypto-
leum Industry,” American Petroleum member of AAPG. graphic research and applied cryptography with an
Institute, April 2005, http://api-ec.api. emphasis on algorithm development and software
org/fi lelibrary/Security.pdf. Jason Stamp is a principal programming. Lanzone spent several years design-
___________________
member of the technical staff ing and analyzing cryptographic protocols and
“Security Vulnerability Assessment at Sandia National Laborato- digital security systems. He holds a BS in electrical
Methodology for the Petroleum and ries, where he has more than 7 engineering from Grove City College, Pa., and a
Petrochemical Industries,” 2nd Edition, years’ experience in the field of Masters of computer science and engineering from
American Petroleum Institute and Na- information systems and na- the University of Michigan.
tional Petrochemical & Refiners Associa- tional security. His research ar-
eas include the development of
tion, October 2004, http://api-ec.api. improved tools for information
org/fi lelibrary/SVA_E2.pdf.
___________________

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PR O C E S S I N G

Best practices improve control system performance

David Shook control that they reside upon.
SPECIAL

Report
Matrikon Inc. This article explores a best-
Edmonton practices methodology to
ease the support and mainte-
A holistic, best-practices Process Control
nance challenges associated
approach will help refiners Technology with these types of control-
and petrochemical plant op- lers given new economic re-
erators sustain and improve alities for process companies
the performance of control worldwide.
system assets.
In many plants, there is a Background
significant gap between the long-term MPC is distinct from other control
benefits promised and those actually
delivered in the long term by multivari-
PROCESS technologies in two fundamental ways.
First, all MPC controllers use dynamic
able predictive control (MPC) assets. CONTROL—1 models that link the controlled variables
The difficulty of diagnosing and resolv- (CVs) and the manipulated variables
ing issues with MPC controllers results (MVs) in a process. These models allow
in the eventual failure of many systems. the controller to effectively predict the
Performance can be sustained when are a key element for corporations in future behavior of the process.
the application is monitored and achieving pacesetter status within their Second, a mathematical algorithm
maintained. Effective MPC application respective industries. (usually a linear program—LP) calcu-
maintenance requires the plant owner Despite the industrial success of lates the most efficient method of mov-
to monitor many interacting systems, implementing these technologies, real- ing the process to and keeping it at the
including the MPC itself, regulatory izing the benefits they can deliver over desired constraints.
controls, and instrumentation. It also the long term has proven to be a sig- The deployment and use of MPC is
requires effective work processes and nificant difficulty. It is not uncommon now commonplace in the refining and
documentation of the benefits of the to see controllers disabled altogether, or petrochemical industries. In a recent
application being maintained. controller limits pinched in by opera- survey paper, Qin and Badgwell de-
This first of two articles, discusses tors, leaving engineering or operations scribe how over the past two decades
MPC systems, causes of poor perfor- management to explain why this asset is thousands of applications have been
mance, and the best-practices approach. not delivering expected benefits. developed and deployed worldwide.1
The conclusion, next week, will Model-plant mismatch, constraint MPC benefits are generated directly
discuss a case study that describes how problems, misbehaving analyzers from its ability to control and maintain
a particular software solution facilitates and on-line estimators, poorly tuned a process at constraints that represent
the maintenance of an MPC control- regulatory controllers and sticky valves the most profitable operating point at
ler, quickly identifying problems in the are common faults with these types of a particular instant in time. Payback in
MPC itself and in the regulatory control controllers. Complicating matters is that most implementations has been report-
and instrumentation layers. maintenance and support organizations ed in months and in some cases weeks.
have been downsized, leaving fewer The practical result of operating any of
Process control resources to maintain both existing and these processes near their constraints
Constrained MPC has been widely future applications. have typically been reported as:
adopted in the refining and petro- One solution to the problem of • Higher plant throughputs.
chemical industries worldwide. In most maintaining benefits of MPC applica- • Higher yields of more valuable
cases, these controllers are designed to tions with constrained resources is to products.
push and maintain a plant at its most use systems to monitor and diagnose • Reduction in product quality
profitable operating point over extend- problems with MPC controllers, and variations.
ed periods. These types of technology with the foundation of regulatory • Lower energy consumption.

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• Improved unit operability and • 25% continue to deliver reduced declines. Control element and sensor
stability. benefits albeit reduced with good sup- performance, controller tuning, and
Although the relative cost of imple- port and no monitoring. controller design are the top causes of
menting these applications is small, • 10% will deliver increased ben- poor regulatory control.
maintaining these assets and ensuring efits with adequate support and online Several studies have been done across
they continue to accrue benefits over monitoring. industries and have documented that
the long term has proven to be a much anywhere from 40-80% of the regula-
greater challenge. It is now common to Poor MPC performance tory controls in a process plant can be
see MPC controllers shut off, or con- There are two groups of factors that significantly improved.2 4 5
straints pinched in such that they are affect control performance, technol- The effect of regulatory controller
delivering little benefit. Users regularlyogy and organizational factors. In any performance on MPC performance can
report that without the proper main- solution to this problem, both must be be significant because poorly perform-
tenance and attention, the benefits are addressed to sustain long-term benefits ing regulatory controllers affect the ac-
difficult to sustain. from improving the performance of curacy of the MPC models as well as the
these assets. effectiveness of the MPC control action.
Controller assessment, Online analyzers such as gas chro-
monitoring Technology factors matographs and inferential property
Throughout the process industries, Several factors inherently related to measurements are commonly used as
“operational excellence,” “continuous the technology used during the deploy- CVs in the design and deployment of
improvement,” “six sigma,” and simi- ment of MPC are known contributors to an MPC controller. Online analyzers are
larly named programs target improving the decline in performance of any MPC installed to measure important plant
the corporate bottom line by improv- application. These include: quality variables and are usually expen-
ing operating efficiencies. MPC, often • Poorly performing regulatory con- sive, complex, and difficult to maintain.
implemented under one of these pro- trols or faulty instrumentation. To compensate for this, as well as for
grams, has helped significantly improve • Faulty or poorly performing the sample delay induced by most plant
plant performance. process analyzers (gas chromatographs, analyzers, online property estimators
Unfortunately, during the life of an etc.) and online property estimators. are used.
application, controllers may go through • MPC model error. These estimators or inferential mod-
several cycles in which the controller • Disturbance problems. els use auxiliary measurements to infer
is shut off and recommissioned. Worse, • Constraint issues. the property measure of interest. Gas
the controller may be abandoned alto- • MPC tuning. chromatographs may take more than 15
gether if it is troublesome to maintain. All MPC applications are built on a min to analyze a sample so estimated
It is common to find MPC and real-time foundation of regulatory and advanced values are used in the control applica-
optimization (RTO) applications deliv- regulatory controls. Ironically, this tion between analyzer samples, permit-
ering only 50% of their original value hierarchy is often depicted as a pyramid ting control action to take place often
within 3 years. Within 5 years, there synonymous with enduring strength than once a sample. Estimators also
is often a project initiated that closely (Fig. 2). In reality, it can be as fragile as provide a useful means to cross-check
resembles the original.2 a house of cards with each layer depen- analyzer results; a large discrepancy
Shell recently noted that advanced dant on all of the layers below function- between the estimator and the analyzer
process control (APC) uptime averaged ing well. often indicate the analyzer result is
86% in a survey and a Solomon study Each element in the regulatory suspect.
on ethylene plants showed average con- control loop from the primary sensor to
troller up-times of 77%.3 the final control element must perform MPC-specific issues
MPC applications typically take one well in order for the advanced con- Specific problems with the MPC
of four paths depending on the level of troller to also perform well. This is of controller itself of course prevent an ap-
support and monitoring they receive. course why one of the first steps in any plication from generating benefits.
The path chosen, conscious or oth- MPC project involves a regulatory and The simple fact that MPC controllers
erwise, affects the application perfor- instrumentation layer tune-up. Valves optimize the process in the presence
mance tremendously (Fig. 1): are fixed, transmitters calibrated and of physical constraints allows them to
• 25% fail within just months of controllers are tuned accordingly prior generate the significant financial ben-
commissioning. to the implementation of any advanced efits that justify their implementation.
• 40% fail within about 3 years of controller. Constraint handling ensures the MPC
commissioning with inadequate sup- Unfortunately, over time the regu- controller is keeping the plant at or near
port and no monitoring. latory controller performance also an economic optimum. The effect of

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PR O C E S S I N G Process Control Technology

Business goals
P OSSIBLE MPC PERFORMANCE Fig. 1
On the business
side, changing
market condi-
Commissioning 2-3 years Good support,
online monitoring (10%)
tions can dramati-
cally influence the
performance of an
MPC application
Benefits

Support,
no monitoring (25%) that was commis-
sioned under a
particular set of
No monitoring, Poor support,
operating condi-
no support (25%) no monitoring (40%) tions. Changes in
product demand,
feedstocks, plant
Time
rates, product mix,
or energy prices
will all affect
performance of an
active constraints, however, is to change optimum control action to take based MPC controller. If business conditions
the effective process matrix and the ef- on current conditions. Model errors change significantly or often, the goals
fective controller gain. cause controllers to over or under-react, that were critical in justifying the con-
The controller can therefore change react too soon or too late, and worst troller implementation initially, typically
behavior significantly as the active set of all, decrease a controller’s ability to no longer apply.
of constraints changes. Bakker3 provides anticipate. Consider an MPC application in a
an excellent discussion of the need for Model degradation can occur with plant where the business conditions
monitoring active constraints; this can something as simple as heat exchanger have changed. Instead of the plant being
assist in determining the value of plant fouling. Changes in production rate, sold out of product where the pri-
debottlenecking projects that would pressure profile across the plant, utility mary business objective is to maximize
mean relaxing that constraint. allocations can all result in models that throughput, the plant is now running
MPC controllers are uniquely able to are no longer adequate. at lower rates and the business objective
make use of feedforward information. Troubleshooting model problems is has changed to minimizing operating
The models provide an excellent means not always a simple task because a large costs.
of predicting the result of an anticipated MPC controller with will have hundreds The new operating objectives create
disturbance, allowing the controller to of models. On a large controller, deter- three potential problems with the exist-
respond in a coordinated way, which mining if in fact model performance ing controller:
prevents undesired effects. Unfortunate- is the problem can be challenging, let • Tuning. The effective tuning at any
ly, it is impossible to anticipate every alone isolating the specific model set given instant depends on the initial
significant disturbance at each operat- that is responsible. tuning, process dynamics, and current
ing point that will affect the controller’s constraint set. The effective controller
performance. Organizational factors tuning depends not only on the original
Over time, it is necessary to re-as- Organizational factors that affect tuning, but which manipulated vari-
sess the significant disturbances that MPC performance are more critical than ables are available to move the CVs and
affect the MPC controller to deter- the technology issues. In the absence which are saturated. Those MVs that are
mine whether they should be added of technology, a good organization will saturated are effectively removed from
as feedforward variables or if existing always succeed; whereas technology the control calculation. This can change
feedforward models are adequate. The alone without organizational support the effective gain of the controller when
relatively slow scan rates and detuned cannot achieve results. the more effective MVs are saturated. A
nature of most MPC control applications Organizational factors considered are controller that is tuned when the plant
imply that the controller is ill-equipped the organization’s business goals, man- is operating at maximum rates may not
to deal with fast disturbances. agement support for advanced process work effectively when the plant is oper-
MPC controllers use models to cal- control, human resources, and work ating at a different operating point.
culate both the response of the process processes in place at the operating site. • Constraints. The optimum operat-
if no control is taken as well as the ing point will be at different constraints

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Assessing the Financial

Opportunities and Operational Challenges

4 - 6 December 2006 • London, UK

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PR O C E S S I N G
when minimizing cost as opposed to Human resources insight, but also to gain acceptance for
maximizing rates. New constraints MPC controllers are typically com- the new technology and provide criti-
mean that new MVs are saturated and missioned and maintained by well- cal operator training on the use and
new MVs are available to control the trained and skilled process control troubleshooting of the application.
process. Because it is likely that the con- engineers. At the beginning of an MPC With adequate training, insight, and
troller was not commissioned with this project, these resources are typically skill to identify performance degrada-
set of active constraints, it may perform employed either on a contract basis tion early, operations personnel are
poorly. Mitigation may require control- from a control vendor’s organization, or invaluable at spotting trouble and
ler recommissioning or even a redesign. from within the organization itself. providing the process control engineer
• Models. Because the plant is now An assumption often made by man- with valuable diagnostic information.
running at a different operating point, agement is that when implementation is Conversely, if the operators do not
process dynamics may be significantly complete, the project team will main- understand the application, its purpose,
different. MPC controllers rely on tain the applications over the long term. and limitations, or if it causes too much
models to predict the effects of control Often, however, the control engineers extra work, it will likely be unused.
moves and disturbances. If the models that commissioned the controllers move Despite advances in the ease of use
do not reflect the current dynamics, the on to new projects often with little or and tools to more effectively deploy and
predictions will be poor resulting in no overlap between implementation support these applications, knowledge-
poor control. and support personnel; documentation able well-trained human resources still
from the commissioning team is often remain a prerequisite in maintaining
Management support inadequate to effectively maintain these the long-term performance of these
Management personnel are typically systems. applications.
sold on the benefits of an APC project Additionally, many skilled control
before implementation. Because MPC engineers leave these organizations, of- Maintenance work processes
technology is mature, vendors are ten leaving a large number of legacy ap- Another cause of the decline in MPC
able to quote typical results in similar plications to be maintained by a smaller, performance is the lack of effective
facilities and the project is given the less-skilled workforce. work processes and methods to support
go-ahead. Similarly, maintenance groups have these applications and underlying regu-
An average crude unit MPC con- been asked to do more with less. Fewer latory controllers. Work processes are
troller implementation, for example, instrumentation and electrical (I/E) re- the methods and procedures by which
will exceed several hundred thousand sources are monitoring more regulatory the organization addresses the technical
dollars in cost, but will return this controllers. A ratio of several hundred issues described previously.
investment many times during the life regulatory control loops per mainte- Most companies we have encoun-
of the application, with payback within nance person is not uncommon. tered working with MPC applications
the first year of operation. On a typical Because good regulatory control do not use rigorous work processes to
project, at completion of the job, results performance is a necessary requirement address both the technical and organi-
are typically delivered as promised and for good MPC performance, the lack of zational factors that affect MPC perfor-
everyone is satisfied with the results routine regulatory controller mainte- mance. Maintenance on the MPC layer
generated. nance is a significant contributor to the is typically done by control engineering
For many reasons, several months inadequate performance of an advanced personnel. A single engineer may have
after the project team has moved on, controller. several control applications that he is
the application may no longer be in Operations staff, of course, interact responsible for as well as other respon-
service. Management is faced with the on a day-to-day basis with the control sibilities in the plant.
dilemma of why a significant invest- applications implemented in their area. The most commonly used criteria
ment in technology, time, and resources As a general rule, as long as these ap- to determine if maintenance is applied
has not continued to accrue benefits to plications make for a smoother opera- to an application is the “service fac-
the business. Although management has tion and do not make the operators’ tor” and operator feedback. Both are
bought and paid for the initial applica- job functions more difficult, they will good measures of MPC performance,
tion, they typically have little day-to-day remain in service. Controllers that are but should not be the only criteria by
insight into the long-term performance pushing constraints that are illogical or which decisions are made to spend
of these applications. They are there- not understood by the operator will be money maintaining an application.
fore challenged in attempting to make adjusted or shut off quickly. Diagnosing MPC problems is another
sound financial decisions regarding the A well-executed advanced control matter. It can take days or even weeks to
ongoing support and maintenance. project includes key operations person- diagnose problems with large MPC ap-
nel not only to provide valuable process plications. Without the proper tools and

56 Oil & Gas Journal / Oct. 9, 2006

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Process Control Technology

work processes, the control engineer

typically looks at tens or even hundreds T YPICAL PROCESS CONTROL HIERARCHY Fig. 2

of trends to isolate the cause. Obviously

this is a time-consuming, laborious
Planning, Days
process. scheduling
Because there are hundreds or even
thousands of regulatory control loops
Optimization Hours
in a plant, maintenance is typically
done on an ad-hoc basis in the absence
of a control performance monitoring
Advanced process control Minutes
system. At best, valves and sensors may
receive maintenance on a scheduled
basis; but in general, loops causing sig-
Analyzers, online inferentials Minutes
nificant operational issues are addressed
in order of priority once they have
caused enough trouble to be noticed.
Regulatory layer—PIDs, cascades, etc. Seconds
Maintenance planners and I/E staff do
their best to get to the high-priority
problems, leaving most others waiting
Instrumentation layer—valves, I/Ps, sensors, etc.
until they become a higher priority
themselves.
Currently, the work process to con-
trol maintenance at both the regulatory
and MPC layer in most organizations
is reactive. Problems occur and control • Control monitoring and reporting. crue from an MPC project.
engineers or maintenance personnel re- • Effective diagnostic and trouble- Rigorous technical documentation of
spond applying corrective maintenance shooting and maintenance tools. the application is also necessary. Docu-
where it’s believed necessary. menting design and implementation
In most organizations, maintenance Documentation, details, maintenance records, and ongo-
is done based on priorities set by a management of change ing operating details help ensure the
combination of operations, mainte- Successful control applications application is kept running smoothly.
nance, or engineering personnel. In require rigorous ongoing support of Understanding the performance history
the absence of objective data of which management. Critical to management of an application as well as the previous
applications are misbehaving and why, support, however, is understanding maintenance and upgrades help ensure
decisions where to apply maintenance what benefits the applications have that experienced and new staff are able
is done subjectively rather than based delivered to date, and what ongoing to effectively maintain it.
on any evidence of economic payback. benefits are currently generated. A management of change process
In most instances, the “squeaky wheel” Applications in which ongoing ensures that upgrades are documented
receives the most attention. benefits are clearly documented are and that they are not made without the
likely to receive the necessary mainte- knowledge and approval of appropriate
Best-practices approach nance funding required to keep them individuals in the organization.
Corporations that are successful in performing optimally. Ongoing moni-
implementing and maintaining MPC toring of the benefits accruing from Control monitoring, reporting
applications long term have adopted the application, either directly (via an In our experience, if the perfor-
a best-practices approach to the prob- online benefits estimator) or indirectly, mance of these applications is not
lem that involves implementing work by statistically measuring changes to the regularly measured and made visible to
processes that target both the techni- CVs with the controller in and out of those who own the applications in the
cal an organizational factors that limit service, is a necessary requirement for plant, the application cannot be sus-
sustained performance of these applica- ongoing management support. tained for the long term.
tions. Brown described perhaps the most Because MPC is at, or close to, the
In general, the work process will rigorous method of documenting MPC top of the control hierarchy (Fig. 2), the
include: benefits.6 Not every application must be lower layers must function properly for
• Documentation and management audited as rigorously, but it is important the MPC to deliver benefits. Monitor-
of change procedures. to document the actual benefits that ac- ing and maintaining these assets is as

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PR O C E S S I N G Process Control Technology

important as monitoring the Mar. 30-Apr. 3, 2003.

application itself. REQUIRED INFORMATION FROM MPC SYSTEM Table 1 3. den Bakker, K., Sep-
Because any one of these Appli- –––––––– Controller performance factors –––––––– pala, C., and Snoeren, R.,
cation
layers can be responsible owners Utilization Performance Diagnosis Benefits “Maintaining the Optimum
for problems with the MPC Board Advanced Process Con-
application, an effective operator √ √ trol,” Petroleum Technology
Instrumentation,
monitoring application will electrical Quarterly, Spring 2002, pp.
technicians √ √ √
link MPC performance with Control 107-15.
engineering √ √ √ √
performance of the other Plant 4. Bialkowski, W.L., and
layers including the estima- operations √ √ √ Elliot, R., “Competency in
Plant
tors, regulatory controls, and management √ √ Process Control – Industry
instrumentation. Ideally, the Guidelines,” Pulp and Paper
application should support Canada, 1996, pp. 155-60.
an investigative workflow that flows across an organization. 5. Shook, D., Khalili, R., Grenier, M.,
from symptom to cause wherever it A monitoring solution should be and Lariviere, L., “Achieving business
happens to be. scalable so that it can support many results through IT: Insuring controller
MPC applications on a single site such performance benefits with web-enabled
Targeted information as a refinery, or physically distributed at monitoring at Noranda,” CIM Bulletin,
Key to addressing many of the or- small sites with a central server. January 2003, pp. 57-59.
ganizational issues is providing timely, 6. Brown, R.S., “The Development
targeted information to the correct Multiple controller technologies of a Rigorous Statistical Test to Audit
individuals in an organization. Clearly, As organizations have grown larger, the Advanced Control Benefits on an
the requirements of the control room often through mergers and acquisitions, FCCU,” presented to the NPRA comput-
operator for control application health multiple controller technologies can be er conference, Kansas City, Nov. 14-17,
information are different from those of found in plants throughout the organi- 1999.
either the control engineer or the plant zation. Some organizations must now
manager. support two or more technologies, in
Plant management for example, typi- some cases on the same site.
cally would like to know if the applica- It is most effective if a single tool can
tion is being used and business benefits be used to monitor all control assets
being generated by the application are and applications within an organization.
reported in dollars. Conversely, if the Otherwise, a patchwork of monitor- The author
David Shook is chief technical
controller is off, the cost to the business ing systems will result in an inability to officer for Matrikon Inc.,
unit is valuable information. compare performance of one applica- Edmonton. He has extensive
With this type of management vis- tion to another, and it becomes difficult process industry experience
ibility, management obtains a clearer to track problems in the MPC controller and has provided leader-
picture of the value of the MPC applica- through the lower levels of the control ship to Matrikon’s product
development teams and its
tion. Table 1 highlights the type of in- hierarchy. research partnerships with
formation that each owner of a typical Moreover, from a management the University of Alberta.
MPC application will require. reporting point of view, it is much Shook also works closely with
A monitoring application should simpler to have a single monitoring ap- professional services groups and industry boards.
address all of the needs of these vari- plication report on all of the assets in a He holds a PhD in chemical engineering (process
control) from the University of Alberta.
ous stakeholders, not just the control business, rather than having to combine
engineer. reports from several sources. ✦

Remote or central monitoring References

Many organizations have downsized 1. Qin, S.J., and Badgwell, T.A., “A
both control engineering and main- Survey of industrial model predictive
tenance teams. Corporations are now control technology,” Control Engineer-
interested in using control expertise ing Practice,” July 2003.
wherever it exists in an organization. 2. Treiber, S., Sattelmaier, R., and
Control engineers located centrally in Starling, M., “Sustaining Benefits of Au-
some organizations now support many tomation,” presented to the AIChE 2003
applications in several remote locations Spring National Meeting, New Orleans,

58 Oil & Gas Journal / Oct. 9, 2006

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TR A N S P O R T A T I O N
External corrosion erally referred to as blind digs, and
direct assessment (ECDA) may be used to assess the confidence
can serve as a power- in the probability of detection of the DIRECT ASSESSMENT—
ful tool in determining
not only the current but
survey technique(s).
Information found at the excava-
Conclusion
also the future health of Pipelines tions updates the information used
a given pipeline sys- in the preassessment and indirect
tem. Gasunie has developed software inspection steps. This updating includes
(PIMSlider) to aggregate ECDA data and updating survey characteristics, number
allow increasingly accurate projections of defects, defect depth, corrosion rate,
of line-failure probability. time of initiation, defect length,
Part 1 of this article, presented last and the critical defect depth. These
week, provided the overall integrity
management (IM) context in which
updates provide the basis for calcu-
lating new values for the probabil- ECDA tunes Gasunie
PIMSlider is being applied. This con- ity of failure both of the defect and
cluding part examines the direct exami- per km of the ECDA region.
nation and postassessment steps of the The bell-hole excavations must
corrosion predictions
IM process in greater detail and
provides an ECDA example from
Gasunie’s own system. E CDA FLOWCHART Fig. 1

Preassessment Menno van Os

Direct examination Pipe data, defect data,
soil data N.V. Nederlandse
The direct examination step Gasunie
evaluates all inspected ECDA Construct prior Construct prior Calculate prior
Groningen,
regions sequentially, starting distribution, distribution, distribution, The Netherlands
with the highest-risk ECDA defect dimensions number of defects critical defect depth

region found in preassessment.

Construct prior
The outcome of each determines probability of failure
whether additional excavations
need to be carried out, after
which pipeline integrity is evalu- Indirect inspections Aboveground
ated again. surveys
The priority list generated by
the two aboveground surveys Survey Number of defect
allows selection of bell-hole exca- characteristics indications

vation sites.
Updated distribution,
Excavations generally take number of defects
place at locations:
• Where both surveys (coat-
ing and corrosion) have given an Direct examination, postassessment
indication; usually to determine
Examination(s) Examination(s) results
the size of corrosion defects and
repair any critical defects.
Update survey
• Where only one of the characteristics Update distribution defect,
surveys has given an indication; critical-defect depth
usually to check the survey char- Update distribution,
acteristics and determine the size number of defects

of any found corrosion defects.

• Where no indications were Calculate probability of failure

given; these excavations are gen- no

Probability of failure low enough?
yes
Calculate future probability of
Based on presentation to the World Gas failure and reassessment interval.
Conference, Amsterdam, June 5-9, 2006.

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TR A N S P O R T A T I O N
lations, but assumes for consistency that
all coating defects found are repaired.
The updated probability of failure of
a defect at the time of excavation de-
pends on the updated value of distribu-
tion of the defect depth, distribution of
the critical defect depth, and expected
number of corrosion defects. The updat-
ed probability of failure/km at the time
of excavations depends on the updated
distribution of failure of a defect and
the length of the ECDA region.
The probability of failure for a single
defect will change with each excavation
as the distribution of the corrosion rate
and time of initiation also change. A
confidence interval is calculated for the
probability of failure. As the number of
excavations increases, the probability of
failure/km normally decreases, until the
criterion for the probability of failure is
PIMSlider identifies ECDA regions by retrieving and graphically displaying data necessary for preassess- met, showing that sufficient excavations
ment (Fig. 2). for the specific ECDA region have been
carried out.
gather information on: location of As mentioned earlier, excavation of
coating and (active) corrosion defects,
PIPELINE INFORMATION, Table 1
ECDA regions occurs sequentially, start-
ECDA SEGMENT
dimensions of corrosion defects (defect Total length 13.7 km
ing with the region with the highest
depth, defect length in axial direction), OD, nominal 165 mm initial risk.
WT, nominal 4.8 mm
and clock position of the corrosion Grade B Results of the calculations for an
defects (not relevant to the current External coating type Bituminous ECDA region can provide the starting
CP type Impressed current
model). Information should be used Commissioning date 1953 point for the next ECDA region. The
Maximum operating
from every excavation, including those pressure 40 bar user can replace the initial values for
where no or only small defects were corrosion rate, time of initiation, and
found. defect density for that ECDA region
All ECDA regions must perform be deduced from previous surveys on with the values calculated for the ECDA
model calculations. The direct-examina- other similar pipelines. New infor- region with the higher initial risk.
tion step makes the following groups mation from the indirect inspections Inspectors repeat this process until all
of calculations (updates) for each ECDA uses Bayesian statistics to immediately ECDA regions have been covered.
region: update the prior distribution. The ex-
• Survey characteristics. cavations allow an update of the survey Postassessment
• Number of defects (coating and characteristics, after which the number According to the NACE, the ob-
corrosion) as a function of time. of coating defects can be updated again. jectives of the postassessment are to
• Defect depth, corrosion rate, and The probability of failure increases define reassessment intervals and assess
time of initiation. with the growth of corrosion defects the overall effectiveness of the ECDA
• Defect length and critical defect and an increasing number of defects, process. For the developed structural
depth. but generally decreases as a result of the reliability analysis (SRA) model, this
• Probability of failure (of a defect indirect inspections and direct examina- step consists of:
and per km of the ECDA region). tions. The probability of failure, how- • Calculating the future probability
The updating process for the number ever, will increase again due to ongoing of failure/km due to external corrosion
of coating defects is represented by a corrosion processes. for each ECDA region, based on indirect
normal distribution. The prior estimate ECDA assumes that all found corro- inspections and direct examinations.
uses information collected during the sion defects are repaired (or recoated). • Calculating the future probability
preassessment step (e.g., coating condi- The repair of coating defects will not of failure/km for each ECDA region for
tion, age of the pipeline), but may also have a significant effect on ECDA calcu- all other considered failure modes.

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ECDA RESULTS USING SRA MODEL Table 2

Step 1: Preassessment Step 4: Postassessment

Maximum Initial (normal) distribution Mean 713

operating pressure Constant 40 bar Expected Number of DCVG indications 842
OD, nominal Constant 165 mm number of Probability of detection 75%
WT, nominal Normal distribution Mean 4.8 mm coating Probability of false indication 10%
Updated defects Prior Updated
Standard deviation 0.26 mm
incident
Material yield strength Normal distribution Mean 269 MPa Number of coating defects 713 957
frequency
Standard deviation 15 MPa Initial (normal) distribution Mean 6.2
after indirect
Defect depth Weibull distribution Shape parameter, β 2.33 inspection Expected Number of DCVG indications with possible corrosion 35
Scale parameter, η 0.81 number of Probability of detection 60%
Defect length Weibull distribution Shape parameter, β 0.88
corrosion Probability of false indication 20%
defects Prior Updated
Scale parameter, η 130
Number of Normal distribution Mean 713 Number of corrosion defects 6.2 58.9
coating defects Standard deviation 142 Number of excavations at a DCVG
Number of Normal distribution Mean 6.2 coating defect indication 21
corrosion defects Standard deviation 1.2 Number of coating defects found 21
Expected
per defect 0.36 Prior Updated
Failure number
per pipeline 0.93 Probability of false indication 10% 4%
probability, 2005 of coating
per km 0.18 defects Since no excavations were performed at sites without coating
defect indications the probability of detection cannot be updated
Step 2: Indirect inspection
Prior Updated
Severe, %IR > 35 23 Number of coating defects 713 1,076
100% of Updated
Survey 1, DCVG Moderate, 15 < %IR ≤ 35 132
pipeline incident Number of excavations at a CIPS corrosion
Minor, %IR ≤ 15 687
frequency defect indication 8
100% of Number of coating defect after direct
Survey 2, CIPS Number of corrosion defects found 4
pipeline indications at which the
examinations Prior Updated
IR-free potential does not 35
meet the CP protection Expected Probability of false indication 20% 38%
criterion
number of Number of excavations not at a CIPS
Survey 3, Every Slightly corrosive, corrosion corrosion defect indication 13
soil resistivity 50 m (50 Ω × m) < ρ < (1,000 Ω × m) defects Number of corrosion defects found 2
Step 3: Direct examinations Prior Updated
• 21 coating defect indications were excavated Probability of detection 60% 27%
• 8 of these indications were not sufficiently protected by CP Prior Updated
• No blind digs were performed Number of corrosion defects 6.2 181.0
Prior Updated
Defect depth Scale parameter η, 2005 4.04 0.87
Updated Defect length Scale parameter η, 2005 130 91
uncertainty Corrosion Mean 0.054 mm/year 0.015 mm/yr
analysis
growth rate Standard deviation 0.025 mm/year 0.007 mm/yr
after direct
Failure per defect 0.36 3.0 × 10-10
examinations
probability, per pipeline 0.93 5.5 × 10-8
2005 per km 0.18 4.0 × 10-9

• Depending on the calculated Case study PIMSLider can be used to assist a pipe-
probability of failure/km, calculating Table 1 contains the details of a pipe- line operator in performing a preas-
the time interval until the next direct line subjected to ECDA in 2005. Assess- sessment, displaying the geographic
assessment is required. ing all relevant input parameters related position of the pipeline under consider-
When new aboveground surveys to pipeline geometry, material proper- ation, allowing the user to zoom in on
are carried out on an already inspected ties, defect dimensions, and incident any segment of interest, and showing
pipeline the pipeline becomes subject frequencies, including their respective corresponding pipeline, environmen-
to a new direct assessment. The results uncertainties, yields a first estimate of tal, incident, or operational data. If the
of a previous direct assessment are avail- the current integrity of the pipeline. required data are missing for a specific
able for use in the preassessment step of The first section of Table 2 shows pipeline, the DA module can retrieve
the next direct assessment. this estimate: a prior failure probability data from similar pipelines to estimate
Fig. 1 gives a summary of the most per km of pipeline in the year 2005 the prior condition of the pipeline. The
important routines that the operator (52 years after commissioning) of PF = DA module also identifies and calculates
will go through when using the DA 0.18/km; unacceptably high according the ECDA regions, following user defi-
module for PIMSlider. to ASME B31.8. nition of the relevant parameters and
Fig. 2 gives an example of how criteria to be considered.

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TR A N S P O R T A T I O N
DCVG RESULTS Fig. 3
In the indirect inspection step, the
DA module allows the user to store and
DCVG results
60 analyze data from aboveground surveys,
assess the severity of defects, and iden-
50 tify areas where corrosion may occur
(Fig. 3).
40
The last section of Table 2 shows the
% IR

30 postassessment effect of the direct-cur-

rent voltage gradient (DCVG) survey on
20 the expected number of coating defects.
The DCVG survey found 842 coating
10
defect indications. Bayesian updating of
0 the number of coating defects results
in an increase of the expected number
-10 of coating defects from 713 (52/km)
1,500 1,550 1,600 1,650 1,700 1,750 1,800 1,850 1,900 1,950 2,000
Log distance, m
to 957 (70/km), taking into account
DCVG, % IR Corrected % IR at DCVG indications DCVG’s initially estimated probability
CIPS results
of detection and probability of false
0 indication.
-200 Applying Bayesian statistics also up-
-400
dates the number of corrosion defects.
The results of the cathodic protec-
-600
tion survey showed that both the on
Potential, mv

-800 and off-potential of the pipeline meet

-1,000 the applicable protection criterion
-1,200 described in European standard EN
-1,400
12954:2001. Calculation of the IR-free
potential, however, revealed 35 coating
-1,600
defect indications without sufficient CP
-1,800
protection and therefore possibly cor-
-2,000 roding, increasing the expected number
1,500 1,550 1,600 1,650 1,700 1,750 1,800 1,850 1,900 1,950 2,000
Log distance, m
of corrosion defects from 6.2 to 58.9.
Off-potential
The direct examinations step per-
On-potential
IR-free potential Protection potential formed 21 excavations, all at DCVG
IR-free potential at DCVG indications indications. Each excavation found
actual coating defects, allowing the
probability of false indication of DCVG
to be decreased to 4% from an initial
M ULTISTATE DCVG SURVEY RESULTS Fig. 4
value of 10%.
0.09
The absence of excavations at sites
0.08 Initial without DCVG indications (e.g., blind
0.07
After coating survey digs) prevented any update of the prob-
After excavations ability of detection.
0.06 The combination of these adjust-
Probability

0.05 ments updated the expected number

of coating defects after excavations to
0.04
1,076 (e.g., 79/km).
0.03 Fig. 4 shows the effect of the DCVG
0.02
survey and the direct examinations on
the probability density function of the
0.01 number of coating defects.
0.00 The 21 excavations included eight
0 10 20 30 40 50 60 70 80 90 100 110 120 130 excavations at sites where CIPS data in-
Coating defects/km
dicated insufficient protection by the CP

62 Oil & Gas Journal / Oct. 9, 2006

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P RE, POSTEXAMINATION DEPTH DISTRIBUTION Fig. 5

0.12

0.10 Initial
After excavations
0.09
Probability

0.08

0.06

0.04

0.02

0.00
0 1 2 3 4 5 6 7 8
Defect depth, mm

ECDA EFFECT Fig. 6

1 Updated after
aboveground surveys
–2
Failure probability, km-1

1 × 10

1 × 10–4

1 × 10–6

1 × 10–8
Updated after
1 × 10–10 excavations

1 × 10–12 ECDA
applied
1 × 10–14
1950 1960 1970 1980 1990 2000 2010 2020 2030

system. Actual corrosion anomalies were Table 2 shows that the corrosion
found at four of these sites. This infor- growth rate decreases significantly to
mation updated the probability of false 0.015 mm/year, as compared to its
indication of CIPS to 38% from 20%. prior value of 0.054 mm/year, resulting
The other 13 excavations, where no in a much lower probability of failure
corrosion was suspected based on the as compared to the preassessment.
CIPS data, resulted in two additional ECDA, in combination with SRA,
corrosion defects, leading to a decrease effectively demonstrated the integrity of
in the probability of detection of CIPS the pipeline. Even though the expected
to 27% from its initially estimated number of corrosion defects is much
value of 60%. The updated performance higher than estimated initially, the cor-
indicators (probability of detection rosion anomalies found were all minor
and probability of false indication) of in nature, resulting in a significantly
both indirect inspection tools led the lower average defect depth than initially
expected number of corrosion defects estimated.
to increase to 181 from a prior value Fig. 6 shows the overall effect of
of six. the ECDA process on the probability of
Accurate measurements of corrosion failure. The adjusted probability density
defect depths and lengths during the function of the number of corrosion
excavations allow an updating of their defects, together with the updated de-
respective distributions. Updating the fect depth distribution and the updated
defect depth distribution allows calcula- critical defect depth distribution, result
tion of the corresponding corrosion in a decrease of the probability of fail-
growth rate (Fig. 5). ure to PF = 4.0 × 10–9/km. ✦

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E q u i p m e n t / S o f t w a r e / L i t e r a t u r e

New frequency converter for oil field operations It features:

The new SSG Series 500VA frequency • Accuracy: greater of ±3% of reading
converter is suited for use in process con- or ±1 ppb.
trol and drilling operations. • Speed of response (typically) 10 min.
The new 500VA unit is a high perfor- • Upset recovery time of <5 min.
mance single-phase on-line frequency • Range 0-20 ppm.
converter, voltage regulator, and line con- The analyzer is suited for rack mount
ditioner that provides flexible and reliable configuration or use on a mobile cart. Also
AC power. Utilizing field-proved double- it is suited for applications that include
conversion design, the new 14 lb converter New unit delivers moisture analysis to 2 ppb checking gas distribution system integrity,
offers power quality including galvanic Here’s the new DF-745 nano trace process troubleshooting, monitoring bulk
isolation without sacrificing efficiency, moisture analyzer. It offers a low detection gas supplies to LCD plants or fabs, gas
size, or weight, the firm says. limit of 2 ppb for applications that don’t plant control, and QA.
Accepting a 45-440 hz input and yield- require the most demanding detection The DF-745 is covered by assistance
ing a fixed crystal controlled 50 or 60 hz limits. It provides an economic alterna- for a broad array of application problems
output, the compact converter promises tive to higher detection analyzers like the including measurement of semiconduc-
precise voltage regulation and line condi- firm’s flagship DF-750 product that has a tor high purity gases. The unit can be
tioning, the firm notes. lower detection limit of 200 ppt. configured for a range of outputs for data
The unit operates in temperatures of The DF-745 uses tunable diode laser collection and process control systems.
0-40º C., which helps suit it for oil field absorption spectroscopy technology to An optional safety system is available for
environments. achieve high sensitivity, drift free opera- hydrogen use.
Source: Falcon Electric Inc., 5106 tion, high accuracy, performance, and low Source: Delta F Corp., 4 Constitution
Azusa Vanyon Rd., Irwindale, CA 91706. maintenance with no recalibration. Way, Woburn, MA 01801-1087.

S e r v i c e s / S u p p l i e r s

Implicit Monitoring Solutions LP (IMS) provider of operations and maintenance with more than 970 lawyers in 14 loca-
and services to the Gulf of Mexico inland, tions around the world.
Wilson shelf, and deepwater operations, and inter-
Dallas, have announced a partnership nationally. Pride International Inc.
agreement whereby Wilson will market John Wood Group PLC is an interna- Houston, has
IMS’ Intellisite remote asset data capture tional energy services company provid- announced the ap-
and reporting service to customers in the ing a range of engineering, production pointment of Rodney
major producing areas of the US. support, maintenance management, and W. Eads as executive
Implicit Monitoring Solutions LP pro- industrial gas turbine overhaul and repair vice-president and
vides technologies and resources to help services to the oil and gas, and power gen- chief operating officer.
companies effectively manage remote oil eration industries. His responsibilities
and gas producing assets. The Intellisite cover the company’s
service delivers secure field production Fulbright & Jaworski LLP worldwide offshore
data to the client via the Internet. Houston, has announced that Brian operations and Eastern Eads
Bradshaw has joined the firm as an energy Hemisphere land assets.
Wood Group Production Services (WGPS) partner. Bradshaw’s practice is focused on Eads, who holds a
Houston, has promoted Louis Gueniot cross-border and international projects, BS degree in chemical engineering from
to senior vice-president, and Jim Justice to with emphasis on development and fi- West Virginia Institute of Technology, and
Louisiana business unit manager, succeed- nancing of LNG liquefaction and regasifi- an MBA from Rice University, joins Pride
ing Gueniot. cation terminals, and other large-scale from Diamond Offshore Drilling Inc. He
Gueniot joined WGPS in 1990 as man- energy infrastructure projects. He earned previously was employed by Exxon Corp.,
ager of its Houma business unit. his JD and MBA from the University of where he held primarily international as-
Justice, who has 28 years of experience Houston, and his AB from Washington signments from 1980 to 1997.
in offshore operations and human resourc- University. Pride International Inc. is one of the
es, has been with WGPS since 1994. Founded in 1919, Fulbright & Jawor- world’s largest drilling contractors, provid-
Wood Group Production Services, a ski LLP is a leading international law firm ing onshore and offshore drilling and
part of John Wood Group PLC, is a leading related services in more than 25 countries.

64 Oil & Gas Journal / Oct. 9, 2006

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Statistics
API IMPORTS OF CRUDE AND PRODUCTS Additional analysis of market trends is available
through OGJ Online, Oil & Gas Journal’s electronic
— Districts 1-4 — — District 5 — ———— Total US ———— information source, at http://www.ogjonline.com.
1 1 1
9-29 9-22 9-29 9-22 9-29 9-22 9-30
2006 2006 2006 2006 2006 2006 2005
—–––––––––––––––––––––––– 1,000 b/d ––––––––––––––––––––––––—

Total motor gasoline ....................... 413 466 55 64 468 530 340

Mo. gas. blending comp. ................ 638 723 143 39 781 762 482
Distillate2 ......................................... 328 399 23 79 351 478 319
Residual ...........................................
Jet fuel-kerosine .............................
237
113
258
130
25
54
20
76
262
167
278
206
562
117 OGJ CRACK SPREAD
LPG................................................... 377 350 0 1 377 351 293
Unfinished oils ................................ 319 579 21 17 340 596 532 *9-29-06 *9-30-05 Change Change,
Other ................................................ 395 494 5 11 400 505 400 ————$/bbl ———— %
——— ——— —–– —–– ——— ——— ———
Total products .......................... 2,820 3,399 326 307 3,146 3,706 3,045 SPOT PRICES
Product value 66.35 90.14 –23.79 –26.4
Canadian crude ............................... 1,295 1,513 87 157 1,382 1,670 1,907 Brent crude 58.82 62.44 –3.62 –5.8
Other foreign ................................... 6,999 8,261 1,650 940 8,649 9,201 6,816 Crack spread 7.53 27.70 –20.17 –72.8
——— ——— —––– ––—– ——— ——— ———
Total crude ................................ 8,294 9,774 1,737 1,097 10,031 10,871 8,723 FUTURES MARKET PRICES
One month
Total imports ............................ 11,114 13,173 2,063 1,404 13,177 14,577 11,768 Product value 67.19 90.71 –23.52 –25.9
Light
sweet crude 62.22 66.05 –3.83 –5.8
1
Revised. 2Includes No. 4 fuel oil. Crack spread 4.97 24.66 –19.68 –79.8
Source: American Petroleum Institute. Six month
Product value 74.00 84.49 –10.48 –12.4
Data available in Oil & Gas Journal Energy Database. Light sweet
crude 65.87 67.06 –1.19 –1.8
Crack spread 8.14 17.43 –9.29 –53.3

*Average for week ending

Source: Oil & Gas Journal.
Data available in Oil & Gas Journal Energy Database.

API CRUDE AND PRODUCT STOCKS

—–– Motor gasoline —––
Blending Jet fuel ————— Fuel oils ————— Unfinished
Crude oil Total comp.2 Kerosine Distillate Residual oils
———————————————————————————— 1,000 bbl ——————————————————————————
PAD I ....................................................... 14,926 59,472 29,635 11,666 67,121 17,933 8,666
PAD II ...................................................... 68,021 54,983 17,371 7,322 29,132 2,343 14,923
PAD III ..................................................... 175,204 67,207 28,361 11,761 33,866 16,925 45,753
PAD IV..................................................... 13,403 6,031 1,787 478 3,089 522 2,723
1
PAD V...................................................... 53,701 30,117 21,171 10,149 13,350 5,851 20,347
———– ———– ———– ———– ———– ———– ———–
1
Sept. 29, 2006 ....................................... 325,255 217,810 98,325 41,376 146,558 43,574 92,412
Sept. 22, 20063 ...................................... 322,542 220,606 96,899 41,005 149,535 45,424 93,811
Sept. 30, 2005 ....................................... 300,150 197,970 69,750 36,301 128,017 32,960 87,842
1
Includes 3.135 million bbl of Alaskan crude in transit by water. 2Included in total motor gasoline. 3Revised.
Source: American Petroleum Institute.
Data available in Oil & Gas Journal Energy Database.

API REFINERY REPORT—SEPT. 29, 2006

——————————REFINERY OPERATIONS —————————— —————— REFINERY OUTPUT ——————
Total Input Total
refinery Crude to crude Operable Percent motor Jet fuel, ——— Fuel oils ———
input runs stills capacity operated gasoline kerosine Distillate Residual
District ————————————— 1,000 b/d ————————————— –———————— 1,000 b/d –———————

East Coast .......................................................... 2,925 1,428 1,453 1,618 89.8 1,824 92 458 116
App. Dist. 1 ........................................................ 104 95 95 95 100.0 15 0 30 1
Dist. 1 total .................................................. 2,658 1,669 1,681 1,713 98.1 1,872 95 452 152
Ind., Ill., Ky. ......................................................... 2,229 2,117 2,132 2,355 90.5 1,096 156 638 46
Minn., Wis., Dak. ............................................... 381 343 343 442 77.6 226 26 101 68
Okla., Kan., Mo. ................................................. 912 778 783 786 99.6 449 34 272 7
Dist. 2 total .................................................. 3,522 3,238 3,258 3,583 90.9 1,771 216 1,011 59
Inland Texas ....................................................... 887 621 636 647 98.3 487 42 197 6
Texas Gulf Coast ................................................ 3,364 3,095 3,173 3,264 97.2 1,346 355 867 77
La. Gulf Coast ..................................................... 3,309 3,214 3,227 3,264 98.9 1,329 398 879 84
N. La. and Ark. ................................................... 217 191 198 215 92.1 92 9 46 3
New Mexico ....................................................... 170 109 112 113 99.1 94 3 35 0
Dist. 3 total .................................................. 8,677 7,366 7,599 8,270 91.9 3,471 742 2,077 244
Dist. 4 total .................................................. 662 541 561 596 94.1 252 28 172 18
Dist. 5 total .................................................. 2,777 2,574 2,777 3,173 87.5 1,781 414 604 142
——— ——— ——— ——— —— ——— —– ——– ——–
Sept. 29, 2006 ................................................... 18,667 15,242 15,743 17,335 90.8 9,114 1,492 4,352 580
Sept. 22, 2006* ................................................. 19,165 15,624 16,197 17,335 93.4 9,215 1,507 4,265 675
Sept. 30, 2005 ................................................... 13,228 11,337 11,777 17,115 68.8 7,481 1,101 2,999 4866

*Revised.
Source: American Petroleum Institute.
Data available in Oil & Gas Journal Energy Database.

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Statistics
OGJ GASOLINE PRICES BAKER HUGHES RIG COUNT OGJ PRODUCTION REPORT
1 2
Price Pump Pump 9-29-06 9-30-05 9-29-06 9-30-05
ex tax price* price –—— 1,000 b/d —–—
9-27-06 9-27-06 9-28-05 Alabama ............................................ 5 5
————— ¢/gal ————— Alaska ................................................ 6 8 (Crude oil and lease condensate)
Arkansas ............................................ 26 12 Alabama ........................................ 18 21
(Approx. prices for self-service unleaded gasoline) California ........................................... 34 32 Alaska ............................................ 755 815
Atlanta .......................... 194.9 238.4 260.2 Land ................................................. 30 27 California ....................................... 679 696
Baltimore ...................... 204.5 246.4 266.4 Offshore .......................................... 4 5 Colorado ........................................ 7 50
Boston .......................... 205.5 247.4 296.7 Colorado ............................................ 96 81 Florida ............................................ 29 6
Buffalo .......................... 190.8 258.7 286.8 Florida ................................................ 0 2 Illinois ............................................ 91 31
Miami ........................... 203.7 254.0 287.1 Illinois ................................................ 0 0 Kansas ........................................... 1,337 91
Newark ......................... 215.5 248.4 287.1 Indiana ............................................... 0 0 Louisiana ....................................... 14 488
New York ...................... 194.8 262.7 290.8 Kansas ............................................... 9 7 Michigan ....................................... 50 17
Norfolk .......................... 187.4 225.4 277.6 Kentucky ............................................ 10 7 Mississippi .................................... 92 39
Philadelphia .................. 203.2 253.9 296.5 Louisiana ........................................... 199 176 Montana ........................................ 161 95
Pittsburgh ..................... 197.7 248.4 274.0 N. Land ............................................ 58 51 New Mexico .................................. 104 158
Wash., DC .................... 220.4 258.8 294.7 S. Inland waters .............................. 20 19 North Dakota ................................. 172 99
PAD I avg.................. 201.7 249.3 282.9 S. Land ............................................ 45 34 Oklahoma ...................................... 1,351 169
Offshore .......................................... 76 72 Texas ............................................. 44 1,144
Chicago ......................... 209.3 264.4 303.7 Maryland ........................................... 1 0 Utah ............................................... 141 45
Cleveland ...................... 169.1 215.5 278.6 Michigan ........................................... 1 2 Wyoming ....................................... 69 143
Des Moines .................. 164.5 204.6 252.7 Mississippi ........................................ 12 9 All others ....................................... ——– 69 —— 77
Detroit .......................... 173.7 226.6 264.8 Montana ............................................ 15 25 Total ......................................... 5,183 4,184
Indianapolis .................. 167.5 216.5 271.8 Nebraska ........................................... 0 0 1
Kansas City ................... 176.7 212.7 259.8 New Mexico ...................................... 89 94 OGJ estimate. 2Revised.
Louisville ...................... 172.7 209.6 268.7 New York ........................................... 8 6 Source: Oil & Gas Journal.
Memphis ...................... 188.7 228.5 276.8 North Dakota ..................................... 35 24 Data available in Oil & Gas Journal Energy Database.
Milwaukee ................... 195.2 246.5 285.7 Ohio ................................................... 9 9
Minn.-St. Paul ..............
Oklahoma City ..............
182.3
175.2
222.7
210.6
259.6
258.9
Oklahoma ..........................................
Pennsylvania .....................................
191
14
155
14
US CRUDE PRICES
Omaha .......................... 176.0 221.4 277.6 South Dakota ..................................... 3 5 $/bbl* 9-29-06
St. Louis ........................ 186.9 222.9 276.8 Texas ................................................. 790 671
Tulsa ............................. 173.2 208.6 258.8 Offshore .......................................... 8 9 Alaska-North Slope 27° ....................................... 66.71
Wichita ......................... 172.2 215.6 268.7 Inland waters .................................. 2 1 South Louisiana Sweet ........................................ 58.95
PAD II avg................. 178.9 221.8 270.9 Dist. 1 .............................................. 25 13 California-Kern River 13° ..................................... 51.15
Dist. 2 .............................................. 25 38 Lost Hills 30° ........................................................ 58.60
Albuquerque ................. 201.4 237.8 271.7 Dist. 3 .............................................. 56 104 Wyoming Sweet ................................................... 63.16
Birmingham .................. 175.4 214.1 275.2 Dist. 4 .............................................. 93 68 East Texas Sweet ................................................. 61.01
Dallas-Fort Worth ......... 170.9 209.3 271.2 Dist. 5 .............................................. 138 74 West Texas Sour 34° ........................................... 50.75
Houston ........................ 174.8 213.2 279.2 Dist. 6 .............................................. 118 106 West Texas Intermediate ..................................... 59.50
Little Rock ..................... 176.9 217.1 269.6 Dist. 7B ............................................ 46 17 Oklahoma Sweet .................................................. 59.50
New Orleans ................ 200.7 239.1 NA Dist. 7C ............................................ 38 41 Texas Upper Gulf Coast ........................................ 56.25
San Antonio .................. 194.0 232.4 266.4 Dist. 8 .............................................. 95 76 Michigan Sour ...................................................... 52.50
PAD III avg................ 184.9 223.3 272.2 Dist. 8A ........................................... 29 24 Kansas Common ................................................... 58.50
Dist. 9 .............................................. 41 35 North Dakota Sweet ............................................ 52.25
Cheyenne ...................... 218.9 251.3 280.9 Dist. 10 ............................................ 76 65 *Current major refiner’s posted prices except North Slope lags
Denver .......................... 222.4 262.8 292.6 Utah ................................................... 46 25 2 months. 40° gravity crude unless differing gravity is shown.
Salt Lake City ............... 229.3 272.2 282.6 West Virginia .................................... 26 25
PAD IV avg. .............. 223.5 262.1 285.4 Wyoming ........................................... 112 83 Source: Oil & Gas Journal.
Others—HI-1; ID-1; NV-1; OR-1; Data available in Oil & Gas Journal Energy Database.
Los Angeles .................. 203.4 264.0 297.9 TN-1; VA-1; WA-1 ......................... ——–7 ——–6
Phoenix .........................
Portland ........................
199.0
220.4
236.4
263.7
299.0
275.7
Total US
Total Canada ..............................
1,744
353
1,483
537
WORLD CRUDE PRICES
San Diego ..................... 207.3 267.9 309.6 ——– ——–
San Francisco ............... 218.6 279.2 300.7 Grand total .................................. 2,097 2,020 $/bbl1 9-22-06
Seattle .......................... 224.1 273.6 286.0 Oil rigs ............................................... 310 203 United Kingdom-Brent 38° ..................................... 60.49
PAD V avg. ............... 212.1 264.1 294.8 Gas rigs ............................................. 1,422 1,273 Russia-Urals 32° .................................................... 57.28
Week’s avg. ................ 193.8 238.2 272.2 Total offshore .................................... 95 87 Saudi Light 34°....................................................... 56.80
Sept. avg. .................... 208.9 253.3 282.5 Total cum. avg. YTD ....................... 1,625 1,351 Dubai Fateh 32° ..................................................... 57.94
Aug. avg. ..................... 252.4 296.7 250.2 Algeria Saharan 44°............................................... 61.60
2006 to date ................ 222.1 265.6 — Rotary rigs from spudding in to total depth. Nigeria-Bonny Light 37°......................................... 62.15
2005 to date ................ 177.6 219.7 — Definitions, see OGJ Sept. 18, 2006, p. 42. Indonesia-Minas 34°.............................................. 62.61
Venezuela-Tia Juana Light 31° .............................. 55.33
*Includes state and federal motor fuel taxes and state Source: Baker Hughes Inc. Mexico-Isthmus 33° ............................................... 55.22
sales tax. Local governments may impose additional taxes. Data available in Oil & Gas Journal Energy Database. OPEC basket ........................................................... 58.81
Source: Oil & Gas Journal. Total OPEC2 ............................................................. 57.55
Data available in Oil & Gas Journal Energy Database.
SMITH RIG COUNT Total non-OPEC2......................................................
Total world2 ............................................................
US imports3 ............................................................
55.60
56.38
54.46
9-29-06 9-30-05
REFINED PRODUCT PRICES Proposed depth,
ft
Rig
count
Percent Rig Percent
footage* count footage*
1
Estimated contract prices. 2Average price (FOB) weighted
by estimated export volume. 3Average price (FOB) weighted
9-22-06 9-22-06 by estimated import volume.
¢/gal ¢/gal 0-2,500 50 — 24 41 Source: DOE Weekly Petroleum Status Report.
2,501-5,000 83 38.5 64 34.3 Data available in Oil & Gas Journal Energy Database.
Spot market product prices 5,001-7,500 238 20.5 149 20.8

Motor gasoline
Heating oil
No. 2
7,501-10,000
10,001-12,500
398
388
3.7
2.0
337
320
4.1
1.5 US NATURAL GAS STORAGE1
(Conventional-regular) New York Harbor .... 157.88 12,501-15,000 293 0.6 297 — 9-29-06 9-22-06 Change
New York Harbor ......... 150.75 Gulf Coast ............... 162.00 15,001-17,500 112 — 112 — –———— Bcf ————–
Gulf Coast .................... 144.88 Gas oil 17,501-20,000 71 — 49 —
Los Angeles ................. 163.55 ARA ........................... 169.21 20,001-over 35 — 17 — Producing region ............... 942 915 27
Amsterdam-Rotterdam- Singapore .................. 170.98 Total 1,668 6.3 1,369 5.3 Consuming region east ..... 1,874 1,835 39
Antwerp (ARA) ........... 143.91 Consuming region west .... ——– 438 ——–427 —––11
Singapore ..................... 157.14 Residual fuel oil INLAND 38 40 Total US ........................... 3,254 3,177 77
Motor gasoline ............... New York Harbor .... 84.83 LAND 1,564 1,275 Change,
(Reformulated-regular) Gulf Coast ............... 86.31 OFFSHORE 66 54 July 06 July 05 %
New York Harbor ......... 147.80 Los Angeles ............ 117.41
Gulf Coast .................... 148.05 ARA ......................... 97.62 *Rigs employed under footage contracts. Total US2 .......................... 2,779 2,450 13.4
Los Angeles ................. 168.55 Singapore ................. 104.56 Definitions, see OGJ, Sept. 18, 2006, p. 42. 1
Working gas. 2At end of period.
Note: Current data not available.
Source: DOE Weekly Petroleum Status Report. Source: Smith International Inc. Source: Energy Information Administration
Data available in Oil & Gas Journal Energy Database. Data available in Oil & Gas Journal Energy Database. Data available in Oil & Gas Journal Energy Database

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W ORLDWIDE CRUDE OIL AND GAS PRODUCTION 7 month average

July June —–— production —–— ——— Chg. vs prev. year ——— July June Cum.
2006 2006 2006 2005 Volume 2006 2006 2006
——————————— Crude, 1,000 b/d ——————————— % ——————— Gas, bcf ———————
Argentina ...................................... 670 640 638 656 –19 –2.9 160.0 134.7 968.06
Bolivia ........................................... 45 45 45 40 5 12.5 40.0 40.0 273.00
Brazil ............................................. 1,725 1,630 1,702 1,610 92 5.7 30.8 29.5 203.60
Canada .......................................... 2,491 2,333 2,448 2,288 160 7.0 485.5 502.9 3,518.68
Colombia ....................................... 536 533 531 525 7 1.3 17.5 17.5 120.00
Ecuador ......................................... 543 518 542 531 11 2.2 0.3 0.3 2.18
Mexico .......................................... 3,232 3,287 3,322 3,330 –8 –0.2 165.0 163.8 1,104.58
Peru ............................................... 122 120 114 113 1 1.1 6.8 4.3 30.82
Trinidad.......................................... 152 130 149 149 — –0.2 112.2 96.1 720.35
United States ................................ 5,171 5,219 5,095 5,431 –335 –6.2 1,625.0 1,671.0 11,288.00
Venezuela1 .................................... 2,470 2,590 2,597 2,731 –134 –4.9 80.0 85.0 575.00
Other Latin America ...................... 78 79 80 81 –1 –1.5 7.5 7.5 50.97
–––––– –––––– –––––– –––––– ––––– –––– ––––––– ––––––– –––––––––
Western Hemisphere ....... 17,235 17,124 17,264 17,485 –221 –1.3 2,730.6 2,752.5 18,855.25

Austria ........................................... 17 17 17 17 — 0.3 5.6 5.5 38.27

Denmark ........................................ 344 336 338 386 –48 –12.4 22.7 30.0 217.14
France ............................................ 21 21 21 21 — 0.5 3.0 3.7 24.84
Germany ........................................ 66 69 71 68 2 3.0 45.6 58.3 390.36
Italy ............................................... 104 110 111 115 –4 –3.1 32.0 33.0 228.00
Netherlands .................................. 20 28 28 44 –16 –37.3 140.0 200.0 1,885.00
Norway .......................................... 2,571 2,365 2,538 2,738 –200 –7.3 243.0 260.0 1,793.12
Turkey ............................................ 43 47 42 42 — 0.1 2.0 2.7 18.73
United Kingdom ............................ 1,468 1,410 1,569 1,755 –186 –10.6 188.1 241.3 1,803.92
Other Western Europe .................. 6 6 5 5 — –6.0 0.2 3.1 17.87
––––– ––––– ––––– ––––– –––– –––– ––––– ––––– ––––––––
Western Europe ............... 4,661 4,408 4,740 5,192 –452 –8.7 682.2 837.5 6,417.24

Azerbaijan ..................................... 630 600 590 391 199 51.0 14.0 24.0 172.00
Croatia ........................................... 17 16 17 18 –1 –4.3 4.9 4.2 33.06
Hungary ......................................... 15 17 17 20 –3 –15.7 8.5 7.6 63.00
Kazakhstan .................................... 1,300 1,200 1,107 969 139 14.3 60.0 100.0 496.00
Romania ........................................ 98 98 99 100 –1 –0.7 18.0 18.0 119.00
Russia ............................................ 9,520 9,600 9,446 9,113 333 3.7 1,750.0 1,925.0 13,315.00
Other FSU ...................................... 500 500 514 400 114 28.6 400.0 450.0 3,200.00
Other Eastern Europe .................... 46 43 44 49 –5 –9.6 41.8 31.3 286.49
–––––– –––––– –––––– –––––– –––– ––– ––––––– ––––––– ––––––––
Eastern Europe and FSU 12,126 12,074 11,835 11,059 776 7.0 2,297.2 2,560.1 17,684.54

Algeria1 ......................................... 1,330 1,350 1,351 1,341 10 0.7 286.0 268.0 1,879.00
Angola ........................................... 1,462 1,303 1,393 1,142 251 22.0 2.4 2.2 16.40
Cameroon ...................................... 90 91 89 81 9 10.9 — — —
Congo (former Zaire) ..................... 20 20 20 20 — — — — —
Congo (Brazzaville) ........................ 240 240 240 240 — — — — —
Egypt ............................................. 650 640 680 697 –17 –2.5 42.0 41.0 282.00
Equatorial Guinea ......................... 320 320 320 320 — — 0.1 0.1 0.42
Gabon ............................................ 230 240 239 230 9 3.7 0.3 0.3 2.12
Libya1 ............................................ 1,720 1,700 1,689 1,633 56 3.4 22.0 22.0 150.50
Nigeria1 ........................................ 2,260 2,290 2,220 2,406 –186 –7.7 75.0 74.0 480.00
Sudan ............................................ 290 290 290 290 — — — — —
Tunisia ........................................... 68 67 65 72 –7 –9.4 7.1 6.2 46.77
Other Africa ................................... 243 243 242 243 –1 –0.3 10.2 10.2 70.35
––––– ––––– ——– ––––– ––– ––– ––––– ––––– ––––––––
Africa ................................ 8,923 8,794 8,838 8,715 124 1.4 445.1 424.0 2,927.56
Bahrain ..........................................
170 172 173 175 –1 –0.7 26.6 26.7 181.65
Iran1 ..............................................
4,250 3,950 3,876 3,926 –50 –1.3 285.0 275.0 1,893.00
Iraq1 ..............................................
2,060 2,070 1,886 1,830 56 3.0 5.5 5.0 35.90
Kuwait1,2 ......................................
2,475 2,510 2,507 2,403 104 4.3 31.0 31.0 213.50
Oman .............................................
730 740 750 744 6 0.8 59.0 59.0 407.00
Qatar1 ...........................................
840 830 823 783 40 5.1 119.0 116.0 797.00
Saudi Arabia1,2 ............................
9,215 9,210 9,249 9,247 1 — 176.0 190.0 1,264.00
Syria ..............................................
430 430 436 467 –31 –6.7 15.5 15.5 108.00
United Arab Emirates1 .................. 2,670 2,630 2,630 2,383 247 10.4 135.0 132.0 909.00
Yemen ...........................................
360 350 346 347 –1 –0.4 — — —
Other Middle East ......................... — — — — — 9.9 9.3 6.0 47.09
–––––– –––––– –––––– –––––– ––– ––– ––––– ––––– ––––––––
Middle East ...................... 23,200 22,892 22,675 22,305 370 1.7 861.9 856.3 5,856.13
Australia ........................................
496 352 376 448 –72 –16.2 134.0 112.0 794.50
Brunei ............................................
190 194 201 184 17 9.5 35.3 31.9 249.26
China .............................................
3,716 3,737 3,704 3,624 80 2.2 169.5 162.6 1,210.03
India ..............................................
679 706 676 684 –8 –1.1 82.5 82.7 564.08
Indonesia1 .....................................
890 900 914 949 –34 –3.6 190.0 195.0 1,340.00
Japan ............................................
15 16 17 16 — 2.2 8.6 10.0 70.09
Malaysia .......................................
740 750 741 789 –47 –6.0 144.0 140.0 969.00
New Zealand .................................12 16 15 15 — –0.9 12.5 10.0 77.50
Pakistan .........................................
65 65 65 65 — 0.2 122.0 118.0 834.59
Papua New Guinea ....................... 55 58 58 46 12 25.2 0.5 0.5 3.50
Thailand ........................................
203 210 215 172 43 25.1 73.0 72.7 497.66
Viet Nam .......................................
340 340 340 340 — — 15.0 15.0 105.00
Other Asia–Pacific ........................ 29 30 31 35 –3 –9.3 65.5 66.5 452.05
——— –——— –––––– –––––– –––– –––– ––––––– ––––––– ––––––––
Asia Pacific ....................... 7,430 7,373 7,353 7,366 –12 –0.2 1,052.3 1,017.0 7,167.27
TOTAL WORLD ................. 73,575 72,666 72,706 72,122 584 0.8 8,069.3 8,447.4 58,907.99

*OPEC ............................................ 30,180 30,030 29,741 29,631 110 0.4 1,404.5 1,393.0 9,536.90
North Sea ...................................... 4,397 4,125 4,461 4,888 –428 –8.7 495.6 591.0 4,377.93
1
OPEC member. 2Kuwait and Saudi Arabia production each include half of Neutral Zone. Totals may not add due to rounding.
Source: Oil & Gas Journal. Data available in Oil & Gas Journal Energy Database.

Oil & Gas Journal / Oct. 9, 2006 67

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C l a s s i f i e d A d v e r t i s i n g

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EMPLOYMENT

Geotech Engineering and Testing, located in

Houston, TX seeks degreed Geotechnical  




 
*!.#5
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Engineers to analyze the characteristics and
behavior of surface soils, investigate foundation
distress problems and develop standard design rec-
ommendations. Mail resume to Attn.:
Operations Manager at 800 Victoria Dr., Houston, +)%*%+*



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ConocoPhillips Company in Houston, TX seeks +'%!/
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applicants will possess an MBA and two year !*!.#5
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experience in energy market economics. Submit
resume to Senior HR at [email protected] Put 

job code SA475 on resume.  



   

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Grant Prideco in Houston, TX is looking for a #!+(+#%(
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PRODUCT ENGINEER II to provide oilfield *
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development of plunger lift product lines & related
equipment. Req’s: 3 yrs in-job or 3 yrs.
managerial/supervisory exp w/plunger lift
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Brooks at 713-693-4275 or
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_____
PROJECT MANAGER
Schlumberger Technology Corporation, Sugar Land Technology Center, is
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code PC1023 on resume. www.slb.com. E.O.E. and include Job Code #MFG QE012006. See our website at www.slb.com. EOE

68 Oil & Gas Journal / Oct. 9, 2006

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EMPLOYMENT MISCELLANEOUS

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C l a s s i f i e d A d v e r t i s i n g
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Advertising Sales / Advertisers Index

Houston
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B M
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Aberdeen, AB10 1TN, Scotland, United Kingdom; Tel: +44 Shell Global Solutions ................................... 18
(0) 1224 791178; E-mail: [email protected].
H www.shell.com/globalsolutions
SOR Inc........................................................... 13
Paris Honeywell International, Inc. ...................... 11 www.sorinc.com/classics
Daniel Bernard, 8 allee des Herons, 78400 Chatou, France; www.honeywell.com/ps
Tel: 33 (0)1 3071 1224, Fax: 33 (0)1 3071 1119; E-mail: Sumitomo Metals Industries, Ltd. .. ............. 23
[email protected], France, Belgium, Spain, Portugal, www.sumitomo-tubulars.com
Southern Switzerland, Monaco.

Essen
Verlagsburo Sicking, Emmastrasse 44, 45130, Essen, I
Germany. Tel: 49 0201 77 98 61, Fax: 49 0201 781 741; E-mail:
[email protected]. Wilhelm F. Sicking, Germany,
Austria, Denmark, Northern Switzerland, Eastern Europe,
Industrial Rubber, Inc. .................................. 12
www.iri-oiltool.com
T
Tenaris ........................................................... 37
Russia, Former Soviet Union. Invensys Sim-Sci-Esscor.................................. 4 www.ogclearinghouse.com
The Oil & Gas Asset Clearinghouse ............. 13
Tokyo www.ogclearinghouse.com
e. x. press Co., Ltd., Hirakawacho TEC Building, 2-11-
11, Hirakawa-cho, Chiyoda-ku, Tokyo 102-0093, Japan, Total Compression ........................................ 14
Telephone: 81 3 3556 1575, Fax: 81 3 3556 1576; E-mail: www.totalcompression.com
[email protected]; Manami Konishi Turck, Inc. ..................................................... 27
Brazil K www.turck.com/process

Grupo Expetro/Smartpetro, Att: Jean-Paul Prates and KBC ....................................... Inside Back Cover
Bernardo Grunewald, Directors, Ave. Erasmo Braga 22710th www.kbcat.com
and 11th floors Rio de Janeiro RJ 20024-900 BRAZIL;
Telephone: (55-21) 3084 5384, Fax: (55-21) 2533 4593; E-mail:
[email protected] and [email protected]

Singapore
Singapore, Australia, Asia Pacific, 19 Tanglin Road #09-07,
Tanglin Shopping Center, Singapore 247909, Republic of
L W
Singapore; Telephone: (65) 6 737-2356, Fax: (65) 6 734-0655; 13 Days: The Pythagoras Conspiracy ............ 15 Weatherford International Ltd. ...................... 7
Michael Yee, E-mail: [email protected] http://lastarkbooks.com www.weatherford.com

India
Interads Limited, 2, Padmini Enclave, Hauz Khas,
New Delhi-110 016, India; Tel: +91-11-6283018/19, Fax: +91-
11-6228928; E-mail: [email protected]. Mr. Rajan
Sharma.

Italy
Jean-Pierre Bruel, sas di Jean-Pierre Bruel, Via Trieste This index is provided as a service. The publisher does not assume any liability for errors or omission.
17-22066, Mariano Commense (Co), Italy; Tel: 39-031-51494,
Fax: 39-031-751482; E-mail: [email protected]

Oil & Gas Journal / Oct. 9, 2006 71

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From the Subscribers Only area of www.ogjonline.com

Where’s the money M a r k e t J o u r n a l by Sam Fletcher, Senior Writer

worry in US bans
October gas contract ends near 4-year low
on OCS leasing?
The expiring October natural gas contract dropped to a near 4-year low on the
The US Congress deserves credit for its
New York Mercantile Exchange during the last week of September, while crude prices
concern about those federal offshore oil
and gas leases that lack price thresholds for continued to fluctuate as traders speculated whether the Organization of Petroleum
deepwater royalty relief. Exporting Countries might soon cut production.
It’s gratifying to see elected officials The October natural gas contract expired at $4.20/MMbtu Sept. 27 after trading as
quiver with indignation over mistakes of low as $4.07/MMbtu during that session in anticipation of a continued build in winter
governance. It’s reassuring to watch them storage. The November gas contract continued to fall, down by 27.7¢ to $5.39/MMbtu
demand that public coffers not be denied a Sept. 28 on NYMEX.
penny of their possible due.
Even more welcome in these matters, Gas storage
The US Energy Information Administration reported the injection of 77 bcf of gas
T h e E d i t o r ’ s into US underground storage in the week ended Sept. 22, down from 93 bcf injected
P e r s p e c t i v e the previous week (OGJ Online, Sept. 28, 2006). US gas storage then stood at nearly
by Bob Tippee, Editor
3.3 tcf, up by 377 bcf from year-ago levels and 354 bcf above the 5-year average.
That reduced injection rate “reflects the start of some ‘line pack’ issues [gas
occupying pressurized sections of the pipeline network] along with perhaps some
however, would be a measure of consis-
tency. constrained wellhead output concurrent with the pipeline pressure builds and, in our
For some reason, deepwater Outer opinion, is not the result of any sudden sharp uptick in demand due to the drop in
Continental Shelf leases issued during 1998 natural gas prices,” said Robert S. Morris, Banc of America Securities LLC, New York.
and 1999 omitted oil and gas price limits on Analysts with Raymond James & Associates Inc. in Houston said, “We now antici-
royalty relief. Production from those leases pate...gas storage levels will be between 3.4-3.6 tcf at the end of October. Because
is coming on stream at a time when prices this is likely to test the limits of full storage (noncoincidental storage from each
exceed price thresholds in leases granted region over the past 12 years has only totaled as high as approximately 3.467 tcf
in other years. Congress estimates the including salt dome additions), gas should still be extremely volatile over the course
government will be denied $2 billion as a of the next 6 weeks.”
result. Analysts at Friedman, Billings, Ramsey & Co. Inc. (FBR) in Arlington, Va., said
The Department of the Interior, which they see similarities between the present gas market and 2001 “when gas fell from
manages OCS leasing through the Miner- $10.20 to $1.74 but rebounded in 2002, even as storage was at record levels.” They
als Management Service, has drawn heavy, said, “We maintain our bullish outlook on the E&P sector but recognize that the near
bipartisan fire for the lapse. It hardly eases term looks volatile.” FBR analysts said, “Multiple near-term catalysts should posi-
the pressure that the best explanation so tively influence the commodity. Gas storage is showing a 380 bcf overhang (7 days
far has been a probable breakdown of com- demand), which should be whittled away by declining production, rebounding indus-
munication.
trial demand, and normal winter weather....High initial decline rates across major
It doesn’t help, either, that it’s an elec-
US basins provide further cover, despite robust rig counts and capital programs. We
tion year, when winning back some or all of
that theoretically lost money can be made have begun to see producers shutting in marginal wells as prices hover below cash
to look heroic. Indeed, lessees are negotiat- margins in high-cost basins.”
ing possible compensation, although legali- In a separate report in late September, EIA said US gas reserves grew by 6% in
ties and partner relationships make the task 2005, the largest annual increase in 35 years, with onshore gas reserves up for the
tougher than politicians make it appear. seventh consecutive year, offsetting a 10% decrease in gas reserves in US waters of
Leases are contracts. Companies signed the Gulf of Mexico (OGJ Online, Sept. 28, 2006). However, Morris said a survey in
them in good faith and, by all reports, have May of Banc of America Securities’ group of 55 independents and 12 major inte-
met their commitments. grated companies, representing 58% of total US gas reserves, showed their proven
Noteworthy in all this is sudden reserves (including revisions and “improved recovery”) increased 12% in 2005.
congressional worry about money from Total US gas production declined 4% in 2005 because Hurricanes Katrina and
offshore oil and gas leasing. Commend- Rita shut in 80% of gulf production, EIA said. Gulf gas production was in 10% annual
able as it is, where’s that worry in leasing decline prior to those hurricanes. EIA reported US crude reserves also increased in
exclusions covering the OCS off the East 2005 for the first time in 3 years.
and West Coasts and in the Gulf of Mexico
off Florida? Oil price fluctuates
In fiscal 2005 alone, the MMS collected The November contract for benchmark US light, sweet crudes temporarily
$6.3 billion from federal offshore leases—
touched $64/bbl Sept. 28 on reports from Nigeria of possible OPEC action to shore
almost all from the 15% of the Lower 48
up prices. But it closed at $62.76/bbl, down 20¢ for the day on NYMEX after OPEC
OCS that’s available for lease. The rest is
precluded from leasing by congressional dispelled those rumors. “We believe the commotion could be an attempt to ‘talk up
and presidential action. the markets’ in the heat of considerable plunges in crude prices, and if any OPEC
Without a test of the resource, there’s no producer were to reduce supply, it would likely be countries that are currently
way to tell how much revenue the govern- producing above their quota (Saudi Arabia and other Persian Gulf producers), as op-
ment forswears with its antileasing policies. posed to Nigeria, where output has declined by 800,000 b/d in the last few months,”
But it’s probably more than $2 billion. said Raymond James analysts.
So where’s the indignation? As a mis- Meanwhile, US gasoline demand trends remained positive, with gasoline imports
take of governance, this one’s more appall- up “a surprisingly large 660,000 b/d (83%)” during the week ended Sept. 22, said
ing than Interior’s. FBR analysts. “Given the large decline in US refined product margins that has
occurred over the past month and the commencement of European maintenance
(Online Sept. 29, 2006; author’s e-mail: season, we expect imports to decrease materially over the coming weeks,” they said.
[email protected])
(Online Oct. 2, 2006; author’s e-mail: [email protected])

72 Oil & Gas Journal / Oct. 9, 2006

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