June 2007 Update

In the news...

• Palin Has Signing Ceremony for Gas Line Act (6/6/2007) -- Governor Sarah Palin held a ceremonial signing of the Alaska Gasline Inducement Act (AGIA) in Fairbanks, Alaska. The event took place at the Fox Visitor Center near the Trans-Alaska Pipeline. "This legislation is open to all comers, all viable, responsible, reasonable entities wishing to compete for the right to tap Alaska's resources," Palin said. "AGIA excludes no one; it's open, transparent, competitive." Due to logistical problems the Governor was unable to sign the actual bill but was expected to sign it into law on June 7, 2007. AGIA will establish a process for competitive bids to build a pipeline to the North Slope and includes incentives and a cash subsidy of up to $500 million. [More here]

• Exxon Mobil, Enbridge Consider Pipeline to US Gulf Coast (6/5/2007) Exxon Mobil and Canadian crude oil pipeline operator Enbridge are considering the construction of a new pipeline that would transport crude from a storage hub in Patoka, Illinois first to Beaumont, Texas and then onto Houston, Texas. It is targeted to be in active service by 2010. Enbridge operates the world's longest oil and liquids pipeline system. It carries Canadian crude to U.S. markets in the East and Midwest. [More here]
  

• Mobil Corp CEO Casts Doubt on Major Pipeline Projects (5/31/2007) In one of the biggest energy stories of the year, Exxon Mobil’s CEO Rex Tillerson told reporters; the company may scrap plans to build the Mackenzie Valley natural gas pipeline in Alaska and Canada. The cost for the pipeline has escalated to $16.2 billion. Tillerson went on to say in an article published by The Globe and Mail, “We are now in a situation where it's not economic at current costs. It may just be that the project is going to have to wait for a different cost environment." Without additional subsidies from the government, chances are slim this project and another planned near the existing Alaskan oil pipeline will go ahead. If the two pipelines are not built by 2014, around 10% of future natural gas supplies will disappear or the equivalent of 25% more energy than that contained in oil imported from Saudi Arabia. [More here]
  

• NEB Approves Emera Brunswick Pipeline Applications (5/31/2007) The Canadian National Energy Board (NEB) has approved Emera Brunswick Pipeline Company Ltd.'s (EBPC) application to build and operate a 30-inch diameter pipeline that will span 145 kilometers from Canaport LNG Terminal at Mispec Point, New Brunswick, to the US border near St. Stephen, New Brunswick. Several conditions were imposed in conjunction with the approval. The conditions included an environmental protection plan, an emergency procedures manual and response program, detailed public consultation program and progress reports. The pipeline is expected to be in service by the end of 2008. [More here]
  

• Hurricane Risks Higher than Usual for Most US Coasts (5/25/2007) A large part of the U.S.’s Gulf of Mexico and Atlantic coastlines have a higher risk than usual for hurricanes in 2007 according to two hurricane researchers. Mark Johnson, a statistics professor at University of Central Florida and Chuck Watson founder of Kinetics Analysis Corp. of Savannah, GA, say coastlines in a total of 20 counties including ten in Florida, eight in North Carolina and one each in Louisiana and South Carolina have the highest probabilities of hurricane-force winds according to their statistical forecast modeling. They expect La Niña weather conditions to develop this summer, causing warmer than normal Gulf of Mexico and Atlantic Ocean temperatures to increase the chance of oil and gas production disruptions from hurricanes. The researchers utilize a computer model that incorporates every oil platform, pipeline, refinery and terminal in the Gulf of Mexico to develop estimates for oil and gas production. By simulating every storm since 1851 the researchers found there is 98 percent chance that at least one week’s worth of oil and gas production will be disrupted during the years with La Niña weather conditions. [More here]

Product Installations – they should be easier

Making the decision to buy a natural gas application, whether it be to replace an existing system or to make the leap from spreadsheets can be tough. Not only for the energy company making the decision, but also for the vendor companies trying to provide solutions. In a perfect world, you buy an application, install it, add your data, and you are up and running. How hard could it be? Of course, the issue of the “slight configurations” often get in the way.

Companies buying products want to pay for a product, receive the upgrades, and not have to worry about customizations. Nor do they want to have to worry about either maintaining large IT staffs to run the application or having to go to the vendor every time an add or change needs to be made. One problem comes when companies aren’t willing to step back and look at different ways to do things. That leads to customizations that might not be necessary. When it comes to unique specifications, many might think, “You might as well add it to the product. It will make your product better and more flexible. Heck, you should pay me since you’re going to make all this money re-selling it.” The other mistake companies make is assuming that their business process will change. While it certainly makes sense to go to an “industry standard” way of doing things, it is often a very difficult task to convince the folks actually doing the daily work that the ‘the way we’ve always done it” needs to be changed.

One area where I see vendors and their clients getting into trouble is as follows. The vendor can comply and usually does provide a solution to a certain business requirement. However, the way it works in the application may not be acceptable to the customer for whatever reason. At that point, who needs to change? The company, because their requirement is not standard, or the vendor who said they complied? This can often lead to contentious discussions that no one really wants to get into. As a side note, in my personal opinion, if a vendor complies with everything you ask for in your Request for Proposal (RFP), with no comments, be careful.

The solution is to spend more time up front during the RFP process and the Functional Design Specification (FDS) once the deal is signed. Set expectations correctly, and everyone will be happy.

So, where does this leave us? It seems that vendors should provide solutions that offer flexibility without having to be everything to everybody. Trying to capture everything is a recipe for an application that is either continually being “debugged”, won’t have very many new releases, or won’t last very long. Energy companies should be realistic in their expectations as to what they expect and what their staffs will accept. Working together and spending a little more time up front will cause a lot less pain at the end of the process.

At the end, you just might end up with an application you are happy with that actually meets your business needs and keeps you and your customers happy. Then all you have to worry about is interfacing the application to the rest of your systems. Now those are really easy, right?

Robert W. Young
Product Manager

May 2007 Update

In the news...

• Alaska Gasline Inducement Act bill passes (5/11/2007) - Governor Sarah Palin's Alaska Gasline Inducement Act or AGIA has been passed by both houses of the Alaskan legislature. The bill will be finalized by the Senate Finance Committee to reconcile slight differences in versions passed by the Senate and House. AGIA establishes guidelines and inducements for companies desiring to compete for the rights to build a gas line in Alaska. On July 1st a request for applications to a competitive bidding process for the right to build a North Slope gas line will be issued. The winning bidder will have the right to construct a natural gas pipeline to the North Slope, which has an estimated 35 trillion cubic feet of gas. The line may eventually transport 4.5 billion cubic feet of natural gas a day, which is approximately 7 percent of the current U.S. demand. [More here]

• Ethanol: Boom or Bust? (5/8/2007) - As the market grows for U.S. produced ethanol products, skeptics wonder if the demand will be there in the future. In 2006 American farmers harvested its third largest corn crop ever of 10.5 billion bushels of which an estimate 3.2 billion bushels will go into ethanol production. Although this amount allocated to ethanol is 49% more than the previous year, skeptics worry about ethanol's efficiency (worse than petrol), economic benefits and effect on the environment and food prices. [More here]

• Gas line project could establish new standards for financing (5/8/2007) - Up to now most gas line projects required funding of well under $10 billion, according Frederic Rich of the New York law firm Sullivan and Cromwell. However the projected cost for a new Alaska gas pipeline could reach $30 billion. This unprecedented amount presents numerous challenges to obtaining necessary financing. Funding will have to be customized to the risk profile of the project before construction can begin. Risk will need to be allocated between numerous stakeholders including lenders, the project builder, and the owner each, with funds at risk as well as federal loan guarantees to have a successful project completion. [More here]
  

• Official pushes joint gas line with Alaska (5/3/2007) - As cost estimates to construct gas pipelines southward from the Arctic continue to escalate, a Canadian official called again for a single line serving both North Slope Alaska and northern Canada. The proposal recommends first building a line to Mackenzie River delta reserves on the Arctic seacoast of Canada, then adding another leg westward linking up Alaska, instead of building a separate Alaska-U.S. line. While not new, the proposal has renewed urgency because estimates to build the Mackenzie pipeline have risen from $7.5-billion three years ago to $16-billion today, said Brendan Bell, Northwest Territories industry minister. [More here]
  

• National Energy Board participates in Operation NARWHAL 07 in Norman Wells, NWT (4/24/2007) - The National Energy Board (NEB) of Canada participated in Operation NARWHAL 07 in Norman Wells, Northwest Territories. The NEB regulates gas and oil operations in the North and since 2005 has been responsible for the security of pipeline infrastructure. The training exercise involved military troops, aircraft assisting the Royal Canadian Mounted Police (RCMP) and other northern civilian agencies in response to a simulated threat to Canadian oil production and transportation infrastructure in the Northwest Territories. [More here]

• Transportation Safety Administration (TSA) Joins Private Firms in Securing 2.4 Million Miles of Energy Pipelines (4/2007) - In 2004 the TSA's Pipeline Security Division began its assessment of a 3,300 mile cross-border pipeline system responsible for carrying 2 million barrels of oil a day between the U.S. and Canada. From that assessment came two reports – one classified, one unclassified – on vulnerabilities, risk-based strategies for addressing them, and options as threat levels change. Critical information was shared with the Canadian government as well as the pipeline company. Cross-border assessments represent just one of the division’s initiatives. Others are domestic corporate reviews, monthly conference calls with company officials, a weekly suspicious incidents update shared with the companies, an annual pipeline security forum, and security training assistance. [More here]
  

Online Applications Offered as Standard Products

Installing online pipeline application software has always been seen as a major project (writing specs, testing applications, generating project specific documentation etc.). Naturally, this approach is often rather costly (since you pay for the software and a fairly large amount of overhead as well). In many cases this makes sense - but in the past years many pipeline software packages have matured tremendously and are today offered as more or less standard software packages.

A good example is leak detection and location software. Today Energy Solutions offer standard leak detection software that is easy to configure and install and yet provide superior performance. The latest innovations in User Interfaces also makes it extremely easy to use, so the need for training has diminished significantly. It is therefore possible to install this software using a completely new approach:

A sale includes software license as a minimum. The configuration and interface to a SCADA system can be done by the customer or by Energy Solutions (or typically as a joint effort). With the latest graphical configuration environment and standard communication protocols like OPC, this phase is rather easy and often takes just a few weeks.

Since the software is a standard product, detailed Factory Acceptance Testing and custom documentation can be bypassed, so within a fairly short time frame the system can be installed on site. The only thing remaining is a brief Site Acceptance Test where the data interface and configuration details are tested and validated.

This approach has been taken successfully for several customers and I highly recommend it for "standard" applications like leak detection. The benefit is a much shorter time frame and associated lower cost. The problem is getting pipeline operators used to this approach - it has been done differently for many years, and I realize this approach is drastically different!

Would you like to try this on your pipeline? You will be positively surprised. No more writing huge specifications, project management, weekly meetings, having contractors in your control room for months etc. Doesn't that sound nice?

Morten Kristiansen, Product Manager

How important is Customer Service to Natural Gas Pipelines?

Pipeline companies don’t care about customer service – unless it can make them a buck. That’s a bold statement any way you look at it. I would hasten to say that any pipeline company worth its salt would strongly disagree with it. Yet how many people could say that they’ve never heard that before? In my opinion, it depends on your definition of customer service. It’s one thing to complain about a pipeline just because they don’t do things your way – or resolve an issue to your complete satisfaction. However, do those people who complain try to look at the other side of the issue? Pipeline companies spend a lot of time trying to make sure they treat everyone consistently. Now, the amount of time and energy each pipeline spends is another matter.

Customer satisfaction surveys show that different types of pipelines value customer service at different levels. It seems that interstate pipelines care more about keeping their customers happy than do midstream and intrastate pipelines. At least that’s what the customer satisfaction surveys show. Certain interstate pipelines take great pride in touting their rankings that come out each year. However, midstream companies seem to still have a lot of work to do. EnergyPoint Research’s latest Customer Satisfaction Survey of the midstream sector shows that the overall rankings of the industry as it relates to customer satisfaction leaves something to be desired. On a scale of one to ten, the mean rating of the sector stands at 6.46. That’s right around the rating of the Internal Revenue Service. Doug Sheridan, founder and managing director of EnergyPoint Research, the Houston-based firm states “Providers of unregulated gas gathering and intrastate transportation services clearly have plenty of room for improvement when it comes to customer satisfaction. The group’s aggregate ratings are some of the lowest EnergyPoint has collected since we began conducting our surveys in the oil patch in 2003.”

The question remains as to why these ratings are so low. Compared to interstate pipelines, could it be that the big interstates are backed by rate bases that allow for the expense of keeping customers happy? After all, with a guaranteed margin and the ability to recover these costs in rates, wouldn’t it be wise to make sure that business systems and processes took the extra step to develop more bend-over-backward functionality? The midstream sector doesn’t have that luxury. The money they spend on improving systems for the benefit of their customers is a direct expense. Now that doesn’t justify a non-caring attitude, but it could certainly figure into the equation when coming up with a budget. Disregarding customer service will come back to haunt you in the end, but can a company be faulted for dividing the budget pie a little unevenly – and allocating more to immediate revenue generating projects?

Secondly, could it maybe be the perception of the customers themselves? I would venture a guess and say that an average producer or marketer views interstate pipelines as a basic requirement, much like interstate highways. They are necessary to move product, and a producer or marketer certainly would not think of building a pipeline to a major downstream market on their own. However, when it comes to the midstream sector, they are often viewed as necessary evils standing between the wellhead production and the mainline pipes. In fact, many assume that if they did not have more important designations for their dollars – like drilling for production, they would build their own midstream facilities.

With that type of attitude on behalf of many of their customers, can midstream pipelines ever catch a break when it comes to customer satisfaction? Maybe not. But focusing a little more on efficient business systems, business processes, and giving consistent and detailed data to their customers could only help. Certainly enough to be thought of in a kinder sense than the IRS.

Robert W. Young

The debate on disclosure continues

The debate on how much information pipeline companies should be expected to make public regarding their equipment and location of pipelines continues. The latest story is on seattlepi.com.

What's at issue in the public-records dispute is information such as the operating pressure, thickness of pipeline walls and the locations of features such as pressure regulators and the spots where pipes are tested for strength.

There are numerous articles on this topic lately. I've just listed a few here. Are there any other opinions that haven't already been stated?

From the Olympian.

How Much Security does Pipeline Software need?

Well, this is my first post on this blog. In the interest of full disclosure, I will introduce myself: my name is Richard Wagner, and I am a Product Manager working for Energy Solutions, the sponsor of this blog site. I am working with the development team on PipelineTransporter for liquids scheduling, PipelineOptimizer for pump and energy optimization on liquids pipelines, and GasLoadForecaster, which predicts natural gas demand based on historical data and available weather forecast data.

I joined Energy Solutions about two months ago, having spent many years working for software companies serving the pharmaceutical industry. I must admit, I wasn't quite sure what to expect when I joined, since the pharmaceutical industry is quite different from the petroleum and gas industry. Interestingly enough, the challenges we face as a software provider are quite similar across the two industries. Our biggest challenge, like most software companies, is to listen to the industry to determine what their biggest challenges are, and deliver really helpful applications without getting too caught up in the technology.

That being said, one interesting difference I have noticed between pharma and oil & gas is in the area of software security. Due to the incredibly tight scrutiny from the FDA, pharma companies have very demanding audit trail and security requirements for virtually all their software systems. On the other hand, I have noticed that many applications in oil and gas have little or no built-in security measures; many of them depend simply on the network administration team to determine who can or cannot use them. In many ways, this can simplify the management of the applications. But I am hearing and reading about increasing concerns concerning the vulnerability of the energy industry in America to radical groups who might want to attack energy assets, including pipelines.

The question is, what should be done to mitigate this potential threat? Dealing with the threat of physical attack on the pipelines is the most obvious place to start. This could include increased security patrols and surveillance, as well as more sophisticated sensors and leak detection software and emergency response teams. But is there anything we need to do to protect pipelines against cyber-attack? With a central control room able to control valves, pumps, compressors and more for hundreds, or even thousands of miles, and millions of barrels at stake, what measures are appropriate to record and protect the software systems that manage this complex interaction?

The physical security that controls access to the control room is part of the answer. The other part will need to be an assessment of the required system security built into the software. SCADA security has already been recognized as an area where improved controls are required, and vendors and independent industry organizations are both working on this. The question I have, and which I need to explore as a product manager, is whether we need to tighten security and auditing controls in our software. Does scheduling software require the same level of user control and auditing as SCADA or other systems?

This is my question to the readers of this blog: what security measures (if any!) do you require, or might you require in the next five years, from the software systems that interact with SCADA, like pipeline scheduling, leak detection, load forecasting, etc. Any and all feedback is welcomed!

Richard Wagner