The water in our oil

A couple of weeks ago I was walking past one of the many petrol and diesel storage facilities that are scattered around Kampala and noticed a black sticky tar bubbling out from an open drain. People walked casually by, some even smoking cigarettes oblivious to the hazardous substance inches from their feet. As a health and safety expert I was immediately aware of the dangers to health from this substance and the possible risk of an explosion. When I reported it to the oil company they were unconcerned and the guard at the front gate simply smiled and said “We have insurance”. It was only after complaining to the city council, the drain was finally cleaned and the leaking pipe fixed. It made me wonder if this cavalier attitude is widespread in East Africa or just a specific problem in Uganda?

What worried me the most was how much contamination did this localised leak cause to the water supply. A recent article indicated that the State of California have been complicit in allowing oil producers and refiners to contaminate ground water supplies and if this situation can happen in America where oil drilling has been going on for over a hundred years then what chance do emerging nations have in maintaining a strategic health and safety policy.

Some might say as more and more African nations start to produce and refine oil they have not had enough time to realise the impact of an oil spillage. However in 2009 an oil consortium in Southern Sudan was accused by a German aid organisation of contaminating the local water supply which seriously affected over 300,000 people. The water supply had the same level of contamination as an oil well borehole which is a horrifying thought considering how important clean drinking water is to the human body. These ‘life-threatening’ substances were found in nearby wells, with people from the local village complaining about the unusual taste from the water supplies which made them ill.

Fuel poisoning is a serious issue and happens when the substance is inhaled, swallowed or touched. Crude oil is made from various hydrocarbons which are carcinogenic to the human body and can cause various symptoms to the ears, eyes, throat and nose. A person who has been affected by fuel poisoning may have a loss of vision, vomiting blood, burning of the contact area, physical weakness and even death. Therefore if the symptoms are so serious what are the causes of this type of water contamination?

In the UK fracking (hydraulic fracturing) has become a hot issue concerning the land trespassing laws but in America fracking has been going on for some years and recently the Obama administration published a report stating this technique can contaminate the water supply. The energy companies did contest these results and believe if contamination did occur, it is only in very isolated incidents. However the environmental organisation Earthworks have categorically said the idea of fracking as a safe method of oil extraction is a myth and governments need to rethink their approach to this method.

Apart from inland contamination our oceans and seas are polluted on a regular basis by spills, dumping and oil run offs. The water pollution guide also says oil spills contribute to ‘12% of oceanic oil contamination’ and a large amount of the remaining commercial waste comes from shipping transportation. This is a serious problem because if a tanker spills oil then a very large amount can quickly accumulate in one specific place killing the eco structure within that area. Fish suffocate, birds are unable to fly and marine plants die due to lack of light, this is because the oil forms a think sludge which is not dissolved in the water.

Now a number of countries have started drilling near lakes or actually in the lake where local people depended on that water source for cooking, cleaning and food. If a spill happens in this area the impact is so much worst for the eco structure and the surrounding communities. Could you imagine Lake Albert or Lake Victoria saturated with oil? The social, environmental and economic cost would be huge and quite frankly devastating, so how can this impact be minimised or eliminated?

Prevention rather than response must be paramount to protecting water supplies. Companies and sites need a regular health and safety inspection to maintain agreed standards. Employees have a duty of care for their work and surroundings and additional awareness training may be required filtering through to every employee. Facilities should be design with increased reliability, old systems (pipes, tankers and storage units) maybe reaching the end of their lifespan and thus are more prone to failure. Furthermore the big oil producers are now regularly fitting leak detection systems to monitor risk. Unfortunately smaller or less scrupulous companies may cut cost to gain a contract or increase profits by not fitting monitoring devices or using substandard materials. Finally prevention can come in the form of choosing better transportation routes located away from local communities to minimise contamination.

Once preventative measures have been implemented then procedures for fast response to a spillage needs to be considered. International agencies like CEDRE have pushed forward legislation in western countries for oil producers to have an emergency response plan for each site assessing the impact of marine and freshwater contamination. Once a spill has been identified a rapid response team are sent to minimise the impact and will use equipment suitable for the situation. For example a mechanical skimmer maybe used to remove oil offshore, but with all the best will in the world response will never be better than prevention.

As for Kampala, a week later I went past the same spot where I found the original spillage and found everything had been cleared, no mechanical dredging devices used, rather manual labour to repair the drain and remove the oil. Did it contaminate the water supply? I cannot say but I hope I never have to see such a spillage in the high street again, because oil can bring so many benefits for a community as long as it is controlled and applied correctly.

Digital Oil Part 2

Previously I delved into digital communication standards now commonly used within the oil industry and the importance of sharing real-time operational data between data centres and contractors. There is also a strong move towards a completely digital virtual oil well operated and controlled by a minimum of workers, but why are companies spending millions to develop and integrate these virtual systems?

Oil prices consistently rise year on year, even when the stock markets crash, oil is always one of the first commodities to recover its costs. However the industry has always faced a shortage of skilled workers for the many areas of hydrocarbon production. It has been estimated that over 100 million barrels oil will be needed everyday by 2015 and with this amount of supply required many more engineers, geologists and rig workers will be needed. In many African countries expats are used due a lack of skilled local workers, therefore the idea of a digital oil field turns from the realms of fantasy, to now becoming reality. So what is meant by the term digital oil field (DOF)?

Software is now available to capture the daily operations and behaviours of an oil rig and can be used to manage the whole production lifecycle.  Such software should allow for a full visualisation of the reservoir and the wellbore. This enables managers and engineers to see real-time monitoring and control data offsite, real-time drilling data which should include down-hole pressures, drill directions and rotational speeds. Furthermore Real-time surveillance will trigger alarms when production integrity has been breached. This allows companies to fully audit operations and procedures. Booz&Co reported that one company had introduced selected oil field technologies and has saved a massive US$20 million annually by automating data storage facilities, data integration across multiple systems and wellbore visualisation by using fewer but more skilled staff, located at a central control centre.

If such savings can be made why are the technologies not being taken up by every petroleum operator? Many smaller organisations are simply unable to absorb the initial implementation costs or have the forethought to properly use the available software. Often when a new system is required it causes a ripple effect over the current system while it is being integrated into working practices. From my experience managers often struggle with new technologies, both with their effectiveness and implementation. Furthermore workers at the ‘coalface’ can be resistant to change asking questions like ‘I have done it this way for years why should I change now?’ and this can be a major drawback to the implementation of a virtual digital system. The whole point for a digital oil field is to help tackle some of the following areas: Supporting staff development allowing for functional specialisation of assets and operations. Supplementing an ageing workforce where oil workers with years of experience are able to move into a less physical role as they age but still utilises their immense knowledge. Modern oil fields have a large amount of data to process with sensors being placed on almost every piece of equipment and a digital oil field brings with it the advantages of visualisation software. Also the risks and uncertainties are reduced if not eradicated due to the use of workflows and risk prediction algorithms. The problems of a lack of skilled workers are also eased as computer integration usually allows one person to do the work of many. Finally information and knowledge is easily exchanged with organisation that have different specialism, tasks and agendas which may be very different from the main oil production skill set of the operator.

However there are issues to consider as with any new technology one must first decide on what aspect to digitise. With so much data and information to be processed a company can be quite literally overloaded and as a result paralyse a company’s decision making processes instead of helping them be more proactive with decisions. Therefore it becomes necessary to carefully select or ‘cheery-pick’ the data required for specific information goals. The problem is if you record all available data then storage costs become prohibitive and the times required to process and sift through to find something relevant increases with every upload. Alternatively by only selecting certain types of data, you risk deleting information that might have intrinsic value to the company. So good visualisations are vital, which allows complex data to be shown in a graphical format to simplify the decision making process.

Oil rigs produce huge amounts of data on a daily basis, so it is not about implementing digital technologies but how oil companies use it to communicate the right information to the right people in the field. The Chevron Machinery Support Centre (MSC) looks at real-time data distributed over 6 continents from Kazakhstan to Colombia they monitor 65% of the U.S gas supplies. At their hub computer operators, overview a number of computer monitors looking for distribution paths to meet current gas supplies and to check for system alerts. Recently one of their African drilling operations started to overload. An alarm immediately alerted the controllers of a compressor problem at MSC some 6000 miles away from the original incident; this allowed the fault to be found and resolved quickly without any injuries to the workforce and saved millions of dollars in possible production downtime. Chevron has now implemented a number of digital systems to its upstream operations one of which is called Upstream Workflow Transformation (UWT) which has taken decades of investment and development to produce, but is now at the forefront of its digital campaign.

As a way of combining IT, automation and instrumentation technologies DOF software offers many benefits from faster reservoir production and analysis, increased workforce safety and operational management through the use of workflows, as long as data is properly analysed and filtered to give expected results for manager and engineers to make timely and accurate decision.

Digital Oil Part 1

Today is a very different world from the time I was at school. No mobile phones, internet and only 1 computer in the whole school. Now things are very different with computers being used to control many aspects of our day to day lives. I recently saw a documentary about the Toyota car factory and how they used computers to control automated robots to build the cars. Designers would sit in offices using 3D software to prototype the new models and use virtual turbines to check for wind resistance and airflow over a computer created model. Now just think of the possibilities of using such technology to control and operate a modern oil rig.

Firstly let’s look at the issues of communication. Many companies will sub contract specific operations to specialist teams. Each team would need technical information about the rig and traditionally this operational data was sent using American Standard Code for Information Interchange, otherwise know as ASCII code. However it was quickly seen that the amounts of data that needed to be transmitted was huge and ASCII transfer was not going to be quick enough to deal with the growing data requirements. Therefore another protocol for transmitting data needed to be deployed quickly. Wellsite Information Transfer Standard Markup Language (WITSML) was developed to overcome the limitations of ASCII and has now become a standard for transmitting technical and operational data between organisations within the oil industry.

Why is a standard system so important for data communication? Hyper Text Markup Language (HTML) was created as a standard protocol for website screen design so that many different computers and browsers could display web pages in the same format. In the same way WITSML is a standard way to collect and transmit drilling information to separate and previously ‘closed’ systems, giving operators a method of collaborating and communicating shared data. This standard has now been developed for over 12 years and has undergone a number of changes and versions by the global consortium that facilitates the development of the standard. The benefits for companies using this standard is that is allows for a much broader use of commercially available tools and software during the drilling process. Previously being a very niche market, such software and tools were written on a bespoke basis and at considerable cost. 3^rd party software companies wanted to access the mass drilling markets with their real time virtual systems. Unfortunately many of these developers locked the operator into a specific system which was not much different to the original bespoke methodology. 

WITSML effectively unlocked the data which could be collected from vendor software or directly from surface and drilling tools in real time. The data would then be stored in this standard format to be used by a variety of analytical tools. It may come as a surprise that petroleum operators have been collecting the technical data from the drills at least 20 years ago and the idea of a digital oilfield is not a new one. On the fly data logging (wireline logging) is essential within a modern drilling environment. Sensors are used to monitor a variety of variables from the drilling head, its speed and angle to the flow of oil and water pressure. Accurate data logging is vital for the prevention of blowouts which can cause fatalities and seriously impact a company’s reputation.

BP was one of the first global oil producers to fully integrate digital technologies and they have found that such systems produce a noticeable increase in efficiency and recovery of operating costs. WITSML has helped BP too accurately measure performance from its global reservoirs and to aid in the transport of fast data analysis over 1200 miles of high-end fibre-optic cable was laid linking BP hubs with their contractors and Advanced Collaborative Environments (ACE). This means a safer and more productive environment is created for everyone. The use of WITSML operations has made it possible to use virtual reality and real time systems enabling three main areas of oil and gas production to be enhanced.

Firstly a well can be remotely monitored. BP developed an Integrated Surveillance Information System called ISIS. This sends alerts when a well reaches a certain operational condition. Well analysis can take place instantly and many hazards and accidents have been reduced as a result. Compare this to 100 years ago when you found out a well had gone critical only after it had exploded in a fireball of destruction. Next facilities are greatly enhanced by using Data to Desktop (D2D) software which allows the petroleum engineers to monitor and remove potential bottlenecks. For example if a valve is not operating within certain limits or a drill head is about to fracture, then these will be highlighted and action can be taken immediately. Also where mechanical breakdowns have occurred a new workflow can be created while parts are being delivered to make the repair.

Finally data integration and standardisation helps to support daily operations. Model Based Operating Support programmes (MBOS) are used to enhance operations by using decision making flows to predict outcomes and reduce potential risks. By using flow controls the operator can quickly access production needs and the amount of oil required compared to the suitability and availability of the well. If another 1 million litres of oil are required, MBOS will help the analyst to gauge production costs and then to plan the distribution needs to supply the increased oil. It is not enough to be able to produce more oil if it cannot be delivered on time and if necessary stored at a depot until required by the customer. As you can see data communication software plays a vital part in oil production, risk analysis, operational controls and safety management.

The true price of oil

We have all seen the price of oil fall dramatically from over $100 to less than $50 a barrel and this is mainly due to supply being greater than demand. It seems the world as we know it likes creating mountains of produce, from cars, butter and now oil. Yes the price has rallied lately to over $50 a barrel but predictions suggest this is only temporary and a further fall is imminent. When I first started distributing oil in Uganda the price of a truck of petrol and diesel from Kenya was around £28,000 now it can be had for £17,000. This sound very good as I could almost buy two trucks for the same money increasing my profit margin, however the tax per litre has been increased thus making it more difficult to supply oil within East Africa. 

There are fundamentally two issues that need to be resolved within the East African petroleum markets, firstly is the continued increase in the price of oil and secondly how to expand the demand for oil. Demand can be seen as region specific and as someone who lives in Uganda the demand has always been high and will continue for many years to come. When you then compare African and Asian demands for crude oil against the West and in particular America, the requirements for energy and its consumption greatly differs.

People in the U.S, have not suddenly stopped using power or driving cars, but the energy they use is now very different as many campaigners have argued for cleaner and greener supplies of energy to replace fossil fuels. This has resulted in companies using alternative sources of energy and where fossil fuels must be used for engines, generators and power stations they have become more efficient requiring less fuel to run resulting in lower carbon emissions. This situation means the supply of oil is far too great for the major markets, which in turn drives the price even lower. 

The cost associated with E&P (Exploration and Production) are some of the highest in the petroleum lifecycle and must be recouped for oil producers to stay profitable and invest in the exploration of new oil wells. However a recent report showed that so much oil has been produced that storage is now becoming a primary issue. The longer a supplier has to store petrol and diesel before it is delivered to the customer then the higher the cost of oil will be at the pumps. However because supply has outstripped demand this additional cost has been swallowed up by the producer and not the customer, effectively becoming a buyer’s market and as car drivers rejoice at the lower cost of filling up their beloved vehicles we must remember that the lower price of oil will pose a risk to jobs. Simple economics state that if input (income) is less than your output (costs) then you make a loss and the easiest way to cut losses is to reduce the number of workers within your organisation.

Globally the way we use oil has shifted enough for prices to take a long term dip and the problem will only get worse as more countries join the green zone of economies. Unfortunately the price of oil at the pumps in Uganda has slightly increased due to underhanded measures of restricting supply causing a number of petrol stations to run out of fuel forcing an artificial demand to be greater than the available supply and elevating the price. It appears some of these oil suppliers have yet to learn the lesson of controlling the amount of crude they take from the ground. 

Considering the huge amounts of crude oil being stored I find it disgraceful that supply is restricted at point of sale to keep profits high. Oil suppliers need to wake up as this cannot continue and only makes the situation worse. The problem is compounded by many investment planners having put a lot of investors’ money into petroleum as a sure fire way to increase long term profits and you may think this will only hurt a certain number of private investors who have decided to take a gamble on the stock market. Unfortunately many pension plans are also in the hands of equity fund managers who as I said have played their petroleum card and put too many eggs into that basket. Therefore when the price of oil fell, so did the pension plans. If the price of crude goes as low as $20 a barrel, then a few analysts have predicted a financial meltdown. This may be no more than scaremongering but it will hurt in jobs linked directly to oil production, indirect employment necessary to keep supply and production operational and petrochemical sales.

There certainly has to be equilibrium in price, but how to achieve it is at the moment debatable and should not continue down this path to the extent of a petroleum depression. Yes rigs may need to be closed during the short term and jobs may be put on hold as petroleum stocks are used, but in the long term it will produce a healthier market that is hopefully not artificially inflated. I remember when car manufactures made too many cars and 1000s of them were stockpiled getting rusty because supply did not match demand, it caused a number of big U.S car manufactures to declare bankruptcy. Furthermore the price of oil must be sustainable; If we look at the football analogy do you think these premiership footballers are worth £200,000 a week for kicking a ball? No the price is artificial and has caused a number of UK football clubs to close due to lack of funds. Simply put petroleum and petrochemicals are tightly woven into the fabric of today’s societies and economies. If the pricing structures presently in place are not corrected then it creates a boom-bust economy which can and will destabilise emerging nations.    

   

Carrot or stick?

A Subsidy could be considered as a carrot for oil producers and a sanction as the proverbial stick which can be used to bombard and punish petroleum companies and certain countries for their misdemeanors. But how are they used as a control mechanism and who are the controlling powers that wield them? Firstly let’s define a sanction. Where international law has been broken a court can apply a sanction to restrict trade in an attempt to control certain behaviour or reverse policies that have a negative effect on another group. The sanction will then be lifted once a balance has been restored to the point prior to where the unfavourable behaviour started.

For example Iraq invaded Kuwait to control the flow of oil. The first course of action is to impose economic sanctions by stopping the trade in oil. Iran builds a nuclear facility which some believe would cause a danger to others, again prompting oil sanctions. The same thing happened to Libya until the sanctions caused the desired change in behaviour. The reason oil sanctions are used with increased regularity is that countries generally rely on oil production to fund the majority of the state budget. This is seen clearly with new oil producing countries, they may have a very good cotton, tea or coffee exports, then oil comes in as the major revenue leader and the government starts to rely more on the oil exports than the cotton, tea or coffee production. Over time as the economical wealth of the country and citizens increases, petroleum becomes the only viable source for revenue growth within the country and when a sanction is applied to alter the behaviour of a government or leader, it can have a marked effect on the quality of life for those who live there.

So actions and implements the sanctions? The United Nations Security Council imposes the sanctions and the European Union (EU) implements them. Occasionally the EU may impose their own sanctions if they deem it necessary. Commonly assets can be frozen, travel bans implemented but these can have limited results. Therefore the flow of income through the curtailing of exports can produce a quicker and deeper impact. It can be argued sanctions imposed by the U.S alone do not have the same legitimacy and as a result the U.S will usually try to obtain EU agreement and backing. Recently such combined sanctions were being considered against Russia’s oil industry. This is due to Russia’s military involvement in Ukraine and the issues surrounding Yukos. The international court of arbitration ordered the Russian government to pay Yukos shareholders $50 billion. Why has this happened? Yukos was Russia’s major oil producer generating over 20% of the country’s petroleum requirements and as a result the owner Khodorkovsky became extremely rich. It has been argued that the Russian government broke up the company and transferred assets to Rosneft an oil firm, of which the majority is owned by the government, passing wealth from the private shareholders to the state. Recently as the West imposes these sanctions on Russia, President Putin has announced a $20 billion oil trade agreement with Iran effectively circumnavigating and nullifying the impact of the sanctions. This is a double blow for the EU and U.S as Russia is now helping Iran increase its oil output.

If sanctions are the agreement of states to impose restrictions on another state to change a behaviour or course of action, how effective are they when countries like Russia and Iran can still continue to trade? It is theoretically possible for a number of sanctioned countries to join together and trade exclusively with each other especially where petroleum and energy distribution is involved as it is a vital part of economic and social growth. The problem with sanctions is that if too many are placed against the wrong country, then you have the risk of conflict. Furthermore petroleum producing countries often work with international companies which are usually allowed to continue drilling operations while sanctions are in place. Why would there be a sanction placed on a specific country to prohibit oil and gas drilling and distribution and not impose it on the major E&P organisations? Simply if Exxon or BP started to lose money or the overall distribution of oil was vastly reduced then the cost to the consumer would increase. Look at it this way, a democratic government is elected by its citizens and if that government has decided to impose sanctions upon another and as a result the price of oil rises and then the cost of living, those elected individuals would find themselves on very shaky ground come election time.

We also have to face the reality that until the world finds a new cheap form of energy, petroleum will always be in hot demand and as a result there will always be buyers and sellers coming to the market place. I see sanctions as an effective tool for certain situations as a means to restrict trade when combined with other measures towards companies that are trading illegally, or against countries that use the profits to fund acts of terrorism. However to apply an oil sanction towards a country that is a mature heavyweight and has political, economic and military might to back up what they are doing, then sanctions have little impact and can in fact start a war. The problem is the need for oil is so great that whoever controls a region of oil production wields great influence within that region. Therefore due to instability with conflicting governments in the East, the West now tries to influence African leaders and gain control of rich production sites. Even China is trying to carve a stake within the African market. I would suggest clarity of thought and a maturity of action when applying sanctions, in the same way a subsidy can have both positive and negative impact, so can a sanction. Therefore let the flow of oil continue so that it can benefit the lives of local people allowing them to prosper, and to increase wealth within the global community for many years ahead.

Subsidising the oil industry

A recent report showed Egyptian LNG (Liquefied Natural Gas) supplies have suffered due to the government’s program of subsidisation. Before examining why this is happening lets explore the term subsidisation within the petroleum industry. When a government implements a fossil fuel subsidy it will generally produce a lowering of production and consumer costs in the form of tax breaks, price controls and reduced loan agreements. On the face of it, subsidies seem like a good idea especially in new or stagnant markets. However they are not without risk or consequence. In Egypt the result of lowering the cost of gas has resulted in a huge increase in consumer demand. Wonderful I hear you say, customers get a cheap supply of gas, companies make more money on sales and the government acquires a positive image, but when local demand outstrips contractual export requirements then we have a problem.

A government will generally make more money from exporting oil and gas than selling to the local market and as a result may win a number of contracts to supply an amount of petroleum at a certain price for a fixed period, when they fail to deliver it will have an impact on both governmental credibility and potential future investments. Earlier this year the situation became so bad for Eqypt that international arbitration was launched by the Spanish energy company Fenosa because the government suspended exports of its part owned LNG plant. So are the lessons for Uganda as production starts? If the crude oil is efficiently drilled, refined and a competitive contract has been put into place then the requirement for a subsidy should be minimal. If this is not the case then Ugandan oil will not be a competitive product to challenge other more mature competitors.

If Ugandan oil costs more to produce than expected, what remedial measures could the government use to correct the balance? One way is to increase import duty on foreign suppliers. By raising the level of tax the government benefits from having a balanced national market and even a more competitive national product if the tax is high enough. Also the increase revenue could be diverted to aid domestic needs. However the downside to this is that neighbouring countries who directly supply oil or indirectly as part of a distribution network may increase their levies on Ugandan imports to offset the increased costs. This tit-for-tat is annoyingly prevalent with governments who jostle to outdo one another.

Another option is to subsidise the cost of oil and gas at the pumps, giving the customer a cheaper local option. Again this can have many benefits but as we have seen with Egypt if local demand becomes too high then exports suffer as supply runs low. Another alternative is to subsidise at source with the operator. This can be done in the form of interest free loans or tax breaks allowing the operator to ideally pass on the cost savings when delivering to the market. But reducing tax within such a prevalent market can have its drawbacks. The U.S, alone spends a minimum of $10 billion each year to subsidise the local fossil fuel market and internationally governments could be spending up to $1 trillion annually, which I am sure you will agree is an astonishingly large amount of money.

If subsidies were removed how would this impact the national and global markets? A subsidy is born out of a need to deliver petroleum and petrochemical products at a cost effect price that consumers and market forces find attractive, allowing for a continual growth in the national product. Furthermore a subsidy will aid and complement market balancing for International distribution requirements. The problem is that subsidisation is very expensive and will generally add to National debt. Oil Change International a research organisation, say that $21 billion is annually spent in the U.S on production subsidies and that this amount does not include military, health or industry costs. They believe this money is effectively wasted and could be better spent on providing health care for the poor and needy. Therefore to remove subsidies would increase the flow of tax payer money back into the economy.

Also if subsidisation was not in place the true cost of fuel would hit the high street. The cost of production and refining would have to be past onto the consumer resulting in a sharp rise of petrol, diesel and heating oil. Presently oil is wasted on a large scale due to the public perception of a plentiful supply and a sharp rise in prices would curb this especially if pump prices increased in the States. Currently in the UK petrol is the equivalent of $2.20 a litre, while in the U.S it can often be found for around $0.97 a litre meaning many U.S car manufacturers produce vehicles with large powerful engines which are totally unsuitable for day to day commuting. If petrol was so expensive car manufacturers would have to make small highly economical cars as the general public could not afford to run anything else and as a side effect global warming would reduce either because car ownership diminished or because cars became environmentally friendly. Furthermore a poll conducted by Stanford University found that nearly 85% of the pollsters would favour tax breaks for companies that produced hydroelectric power instead of using fossil fuels.

I see there must be a middle road that would allow for growth without over expansion. Oil is a National and International commodity and to pretend otherwise is to be somewhat short sighted. The need for petroleum and petrochemicals is not going to dissipated overnight therefore it would be more than prudent to fully understand how we can apply subsidies in a mature and responsible way to create growth in new markets until such a market has reached maturity would be a logical option. However to use them to prop up a stagnant or artificially high market would be dangerous and could lead to an implosion as the markets destabilise. For the U.S, subsidies should be gradually tapered off but for Uganda I see them as a positive short term option for growth in the future. 

End of a Titan

The transportation of crude oil is a very sticky topic. A company may have a rig in Uganda but the crude oil needs to be transported to a refinery in Kenya. The refined product is then distributed to customers globally. The problem arises when the distribution chain becomes interrupted and I do not mean by social economic factors but rather spillages of pre and post refined crude oil. The economic impact can be great and companies will certainly lose money, but the environmental impact is far greater financially, environmentally and socially for the producer, distributer, ecologies and communities.  

The reason I say this is due to the substances involved. If you have been following my articles then you will know that petroleum is formed over millions of years and is a combination of various hydrocarbons which are broken down during the refining process. These compounds include sulphur, hydrogen, carbon, oxygen and nitrogen all of which form naturally. The problem is that crude oil is very toxic to most organisms and highly combustible. Have you seen an oil rig fire on TV? They burn extremely fiercely and can take days, even weeks to fully extinguish. The petroleum lifecycle is one of pollution, from excavation of the unrefined material, refining and its waste products to consumption and burning of oil within combustion engines. However much has been done to try and reduce soil erosion, disruption toward communities and eco systems. Even cars and oil burning generators are becoming more efficient reducing carbon waste products.

I see one of the main problems surrounding the oil industry is the transportation of crude oil, simply because if there is an oil spillage then the destruction can be devastating. A tanker can carry nearly 30 million gallons of oil and can be 460 metres long compared to a standard aircraft carrier of 340 metres. These tankers are so huge and hold such a vast amount of oil, that when they are breached the oil slick can cause immense damage to the local ecosystem. Such a system is finely balanced and each organism is a food source for another. If any of these creatures are killed by an oil spill then it affects others higher up the food chain. For example single cell organisms called plankton may not seem relevant to you and me, but for a whale it is their food source and if the environmentalists are not crying over billions of dead plankton then they certainly will for even a single dead whale!

There are a number of factors to determine the effects of an oil spill, including the type of oil and the quantities involved. But all spills impact the ecosystem in the same way, firstly physical effects upon wildlife caused by the oil coating or smothering organisms and wildlife. Most of us have seen pictures of seabirds choking on oil drench beaches almost unrecognisable to the beautiful birds seen soaring through the sky and the toxic effects from crude oil as it is absorbed into the cells should not be underestimated. Also when a certain type of organism is destroyed or reduced it is usually replaced by another that is not fitting with the already established ecosystem. For example in the UK the red squirrel was a much loved sight but has become a rare sight these days since the release of the more aggressive American grey squirrel which has increased in numbers as the red diminishes.

Other indirect effects are the changes to the local environment and habitat. If these changes become too great, the ecosystem stops supporting the immediate ecology, thus killing not only the environmental habitat but the species of animals that need it to survive. The problem is that once a habitat is destroyed it may take decays to return if ever. Therefore if the dangers of oil spillages are so great then maybe we should look at the oil tankers and if there are alternatives that would better protect our precious environment.

So what are the alternatives and can we make the current tankers safer? Modern tankers are double and even triple hulled, but a number of private companies are still using single hulled tankers and as you can imagine they are much easier to rupture and a lot cheaper to buy. But with so many oil spills happening over the last decade we cannot afford to cut costs as the environmental damage is far greater. To be honest I see the oil tankers of old out dated as a means of distribution. The investment for deep sea pipes are very high but once in place take little maintenance, can be monitored electronically and greatly reduces the possibility of oil contamination. They are relatively clean and efficient compared to a diesel powered tanker. There could still be breaches to the pipeline but this should not be on the same scale as a tanker spillage and the flow controls of modern oil pipelines allow the values to be remotely closed at pipe intersections reducing the quantity of the spillage.

Ultimately the answer is to remove the risks of sea based transportation and produce oil as locally as possible to the consumer demand. The problem with this approach is that consumer demand maybe unsustainable for the levels of available production for a particular region. For African and Asian markets this levels of oil production could support the infrastructure and petroleum needs of their respective continents. The only way to keep petroleum supply close to demand is to maintain equilibrium between the two and for Western countries especially America, may mean controlling consumer demand by restricting the flow of oil and using alternative energy supplies. This has already started with States like California heavily promoting LPG as an alternative to petrol, not because it reduces the use of tankers but because certain American States suffer from smog which is a mixture of smoke and fog. This was extremely dangerous in Victorian England during the industrial revolution but the motor car is now seen as the modern day culprit. Therefore let’s seriously assess how we use oil, where it is produced and how it is delivered? Let this generation make a positive change that will allow the next generation to live in a cleaner, healthier and safer world.    

From Russia with love

Some time back I had the idea of supplying oil from the Kenyan refinery to Uganda via well established trade routes and distribution channels with the aim to reduce the holding time and cut costs resulting in healthier profit margins. I am happy to say this venture is going very well, but within I few days of starting I would get emails requesting a meeting with other suppliers. Intrigued I met with a few and they were mostly businessmen from Tanzania who were trying to break into the Ugandan market. Now Tanzania produces some natural gas for the country and has potential for crude oil especially from Lake Malawi, but they are certainly not in a position for production. So the question is why would they need a refinery and where is the large amount of crude coming from in the first place to attempt to disrupt the Kenyan market? 

A modern trend has started where countries like Kenya and Tanzania, who either do not produce oil or indeed very little of it, are taking a slice of the petroleum pie buy offering refining processes close to potential markets. This can be beneficial for the producing country who may only be drilling for crude and not processing it and for the refining country who can then distribute the refined product back to the original producer, so the investment needed to build a refinery of around $6billion for Tanzania, should over the next few years produce a healthy return on the investment. Now as Africa is a growing economy who would benefit from using this type of refinery, other African players?

Most of the big petroleum players in Africa have their sights set on the American market and often forget the potential to sell closer to home. It is therefore more external forces who are trying to capitalise in Africa, namely India, China and Russia. Interestingly a few years ago Russia appeared to be distancing itself from the African market but Mr Putin the Russian President has decided that Russia needs to exert more influence within the region and the quickest way to achieve this is to control the trade of oil. I have previously said that oil is power and whoever controls that oil has a big say about the politics and economic structure of the trading country. When Russia pulled away from African investments, China stepped in with a number of trade deals moving into the construction of infrastructure, for example they seem to have built most of the major roads in Ethiopia. Now Cnooc (China Offshore Oil Corporation) is pushing hard to control the drilling rights in a number of countries, this has forced Russia to play a more aggressive hand to try and reclaim some of the ground they lost. Nigeria has really accepted a lot of Russian trade and is probably their biggest trade partner in Africa. When a Nigerian-American oil deal was on the table, the Russian government made it very clear that any such deal would have a serious impact on Nigerian-Russian trade. Russia was clearly seen to exert influence over the African nation. 

Now going back my original question of who was supplying the oil to Tanzanian businessmen? They openly said it came from Russia who wanted to heavily penetrate the refined petrol and diesel markets. The problem was these guys were charging too much for their product and could not hope to sell any major quantities. The businessman looked at me, made a call speaking in Russian and immediately undercut our other prices. I said “how could you make a profit doing it so cheap?” The reply was “We take the market from Mombasa then increase prices later”. So clearly these guys were happy to make a huge loss, just to claim the market share, so what does this mean for the new players in the oil market? When Kenya and Uganda start production will they survive in such a cutthroat market place? The answer is yes if they can combine resources. The big players effectively have money to waste, to sell at a loss over an extended period of time is not good business sense and ultimately unsustainable unless of course you have very deep pockets. 

The Uganda-Kenya Crude Oil Pipeline (UKCOP) will help to merge potential exports especially if South Sudan constructs their pipeline to join UKCOP. Uganda probably does not need the additional expense of building a refinery at the moment, but considering petroleum was found in 2006 they have been a little slow to capitalise on their natural resources. Kenya is in a stronger position with its established refinery and trade links, in fact setting up good distribution channels is half the battle and must be planned well in advance of the first barrel of oil being produced, after all no point producing oil if it is prohibitively expensive to deliver to the customer making your product unattractive to the consumer and unprofitable for the producer. I found the Russian suppliers wanted to keep their product pure and not mixed with other crude oil suppliers. Now we can see that they either genuinely believed their product is of a superior quality and other local crude would contaminate their oil or alternatively they wanted to block other suppliers dealing with the local distributor again taking control over the distribution rights for that region.

Whatever the reasons now is the time to set firm those supply contracts ready for when production starts. Kenya has a head start and Uganda is close behind but unity could allow both countries to survive a Western power play for the region, the last thing either of these countries need is for another state run oil supplier dictating policy because they managed to get carte blanche over oil supply and distribution, thus influencing foreign and domestic policy. Let’s not forget American and Russian policy is not necessarily the policy of Africa and its Nations. Often these superpowers are butting heads trying to get one up on the other and having economic control over a region that is desired by a rival can be seen as a political coup de grace.      

Training - Malaysia or Africa?

Over the past few years the petroleum industry has become extremely favourable for the Malaysian economy and there has been much discussion about oil and gas production for that region. However I find it fascinating to see the increase in training programs originating from Malaysia, in particularly from the federal capital of Kuala Lumpur. If you do a quick internet search you will find pages of courses on oil and gas studies in Kuala Lumpur. Now I have to admit they do host a number of important conferences for the region, but are they the real driving force for Malaysian training as the distances needed to travel there seems excessive, can African institutes offer the same courses for local and international customers? There has been a lot of invested money and facilities to make training in this region attractive, but I believe Africa could be the new hub for oil and gas training.

I have two friends, one in the UK the other in Nigeria. The UK guy went to Kuala Lumpur for training and the Nigerian friend travelled to London. Interestingly both felt training courses outside of their respective countries were of more value and the additional expense incurred was worth it for the quality of the course and instructors. What they did not know was the two training companies providing the training were owned by an umbrella company where the CEO is a personal friend of mine and showed me the training material which was used by both trainees and the courses were almost identical. Now could the training have been conducted in Nigeria, Uganda, Kenya or any other country other than Malaysia or the UK? Certainly it could have been but do the training providers offer the same quality of service and value for money? Petroleum extraction and petrochemical refining are specialised areas that need educators with a strong background within the industry and not just theoretical knowledge acquired from PhD research.

Therefore what do African training providers need to offer to pull customers away from the Asian market? Firstly all institutions need to offer the very highest quality of educational standards and quality control. The ISO (International Organisation for Standardisation) is globally recognised along with the BSI (British Standards Institute) for quality control systems. Why is this important? I am a professional educator and have been a Headmaster and Principal and have seen too often institutes suffer from having no quality standards in place, which results in a lack of good quality teaching. If you had a choice of two institutes, one was cheap but did not follow any recognisable standards and another that was more expensive but had taken the time to implement internationally recognised standards, I believe most people would go for the later especially if they are willing to pay top dollar for the training.

Next institutions need to employ petroleum experts. I have seen academics take over a program and halt academic progress because of certain ideals and snobbery. Yes it is very nice being taught by a Professor; however I personally prefer educators with practical skills within the industry they are teaching. If you want to learn about business then seek a business mentor who has a proven track record, you will only learn so much from a book or from a lecturer who has never applied his or her knowledge in the real world. Professional work experience means so much more than a PhD, an oil worker will know the theory but also how to apply it and what not to apply because it either does not work or is dangerous. Once solid professionals are in place then practical experience needs to be offered to attract customers. The problem with oil rigs, they are extremely dangerous environments that need careful and constant monitoring. The last thing you want to do is to take students to an active oil field only to encounter a blowout which could result in serious injury or death. Therefore an investment must be made into modern technology and for petroleum studies this could involve a practice rig which is not producing oil but can show students how the mechanics of the system works, this would be safely controlled environment enabling students to have hands-on experience. Alternatively virtual reality is becoming very popular as a training aid. Virtual oil rigs come in a variety of formats from drilling simulators that run on an iPad, rig software for the PC and the most expensive a virtual console environment with HD screens. 

The expensive option will usually have a control deck where the student will sit, having a number of controls and joysticks to operate. In front of them there will be either one large cinema style screen or a number of LCD displays using fly-by-wire technology. This really is the future of training, so many oil companies are now investing millions of dollars to create virtual oil rigs that can be maintained from their HQ, which is often thousands of miles away. The problem with virtual rigs is they are very expensive unless you opt for a PC based solution. Therefore many universities and colleges have to partner with oil companies or other training providers to assist with the purchasing of such products.

The future is a virtual one and if your university or college does not provide such a system then I would seriously consider going elsewhere because without the hands-on experience these systems provide then your qualification is only theoretical. Heavy investment needs to be applied in these technological areas for African institutions to compete against their Malaysian counterparts. I would love to see people travelling to Africa for oil and gas courses. This continent has so much potential for the future of educational development and new technology must be placed into revenue mix. Furthermore governments should also play their part either to offer subsidised loans and equipment or to give tax breaks for educational institutes that wish to purchase new technology. This will allow Africa a chance to reach its full potential as a major player in the petroleum educational sector.

  

African Superpower

With African oil production progressing at an outstanding pace is it time to say farewell to the old guard and welcome the new champions of petroleum production? In 2011 the International Energy Agency published a report to say the top 10 oil producing countries accounted for 63% of the world’s petroleum production. Furthermore not one African country is featured in the top ten. The first to feature being Nigeria at number 13 producing 2.5 million barrels per day. Interestingly the top spot was not Saudi Arabia but Russia producing 10 million barrels of crude oil everyday. In 2013 The Richest, produced a top 10 African list and showed Nigeria was still top within the African continent and South Africa came last in the round up.

So what does this mean for Africa as a continental petroleum superpower and what is the impact for new suppliers like Uganda? The Society of Petroleum Engineers (SPC) recently highlighted a 2002 report from Washington, saying that within the next 50 years Africa will overtake the Middle East as America’s main petroleum provider. This is considered quite amazing by many, considering the tight stranglehold the Middle East has over global petroleum markets. I remember OPEC (Organisation of the Petroleum Exporting Countries) slowed down oil production in the early 80s and this had an instant impact on the stock market sending the price of crude oil to an all time high, leading some to suggest it was a deliberate ploy to increase profits. When this is coupled to the knowledge that 60% of the biggest petroleum discoveries were found in Africa it does beg the question do we need the Middle East in the next 10 years? Certainly a number of countries will be looking to source their supplies from other places and this may produce a pricing war as emerging countries try to forge a path into a new hydrocarbon marketplace.

The Africa oil and gas review states that Africa has reserves of over 100 trillion barrels of crude oil which equates to about 8% of the world’s supply so is the U.S buying all the African oil and gas? Well in the early 2000 Nigeria along with Angola and Algeria did provide a good portion of their supply. However in 2014 that market has dried up as America moved into shale hydrocarbon release systems. Now the biggest importer of African oil is India closely followed by China, who happens to be the two fastest growing emerging global economies. With the increase in financial wealth and the rise of the middle classes, people from those countries have a greater available income which in most cases is spent on the high street buying goods made from petroleum derivatives.   

This shows how unpredictable oil and gas markets can be, especially with new technologies allowing companies to extract hydrocarbons from previously unreachable sources. Therefore the global dynamic can easily change with every new reservoir discovery, new release in technology or political instability changing the positioning of the major suppliers. So what is needed for the African markets to expand? Certainly there is a need for additional resources, in Europe governments are under a lot of pressure from environmental groups like Greenpeace to reduce hydrocarbon footprints and minimise the use of fossil fuels. In the UK heavy discounts are being offered to consumers to buy solar panels to provide hot water, electric cars and even to buy new fuel efficient petrol vehicles.

However the environmental lobby has not made as much impact on newly emerging markets. China and India are petroleum hungry as they develop their countries. After speaking to a number of consumers in Nigeria and Uganda, they were more concerned about the price and supply of fuel rather than the effects on the environment. Therefore demand in Africa is high and growth can come at an astonishing rate but can African countries properly unlock their true potential? There must be a good infrastructure available and in place before production starts this means pipelines, roads and refineries are ready. A properly skilled workforce have been hired or trained. Also health and safety guidelines need to be drafted and passed by parliament to ensure good safety practices by the operators to avoid injury to employees and waste pollution to the surrounding environment.

Regulations in Europe have become progressively strengthened in a attempt to stamp out price fixing and corruption. However such regulations have either not been implemented or not enforced within the African continent. In recent years it has been reported that Nigeria has lost close to $29 billion due to possible price fixing by the operators Shell, Total and Eni. This situation has forced the Nigerian government to create a special taskforce to help combat corruption within the oil industry. The problem is that the amounts of money involved can easily push a supplier to either take unnecessary risks in the production stage, cutting health and safety corners or do illegal trading to increase profits.

Many countries now use expert auditors to oversee such projects. I am personally involved in training members of parliament in the proper use of governance to aid correct decision making when deciding on the right petroleum contract that  servers both local community and national interests. Due to this new awareness by many members of parliament, organisations have started to voluntarily correct any potential misconduct before government intervention forces them. Recently Statoil, a prolific Norwegian oil company recently changed one of its state partners to a couple of local companies who had a much better record and more transparent business accounting.

Wherever a country is along the development cycle either fully fledged crude oil production and refining or has just started exploration. It is important to assess the available technology, accessibility of the reservoir, the geology and political stability and willingness to grow. But most important of all is having the right people in the right places. Locally trained experts who have a passion for their country and want the best for it and its people.