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Opinion

ThoughtStream Will Leonard, ABB

Megaprojects: Mega headaches megaproject is one that costs more 6. Environmental concerns day-to-day technical integration.

A than US$5 billion to develop. They 7. Production lower than expected The concept of a main contractor status stretch a company’s capabilities to their 8. Investment needed to improve is something that has been at the disposal limits, especially in the harsh climates production ef? ciency of the industry for many years. However, like the Arctic or in ultra-deep water. 9. Increasing service costs it is essential that the contractor is cho-

In 2000, oil companies took on seven 10. Exchange rate ? uctuations sen carefully. As the EY report points out, megaprojects, while in 2012; they took 11. Underlying economic conditions “selection of contractors through which on 37 megaprojects – a ? vefold increase affecting project viability an organization engages with its third in over a decade, according to the Wall 12. Need for collaboration on projects parties are key to project success, because

Street Journal. EY’s (Ernst & Young) report titled poor selection decisions have signi? cant

The UK think tank Carbon Tracker “Spotlight on oil and gas megaprojects” consequences.”

Initiative (CTI) recently compiled the says that despite the importance of A contractor needs to have the resource world’s 20 costliest oil projects under project performance, a high percentage and global reach if their engagement is construction, with a combined price of of megaprojects fail to deliver on time to be pro? table. Quality clearly matters, $90.6 billion. Nine are in Canada, eight or meet approved budgets, with 64% of as EY identi? es: “Frequently, we see are oil sands projects in Alberta, the rest projects facing cost overruns and 73% of decisions based too heavily on cost, with are either deepwater or Arctic projects. projects reporting schedule delay. insuf? cient emphasis placed on quality,

These projects are Oil and gas price despite the known impact of quality on expensive to develop, increases during the project cost and schedule performance 64% of projects face requiring huge sup- past decade have later in the project life cycle.” ply chains, needing masked many of the The EY report also points out the cost overruns and expensive shipping, consequences of mega- impact of the human capital de? cit on 73% of projects report massive transport net- project overruns, but a project. As a result of labor shortages schedule delay.

works and thousands this trend is unlikely companies are struggling to secure the of workers. to continue. If the capabilities, capacity and expertise

Why are megaproj- industry is to secure required to effectively manage their most ects critical for the world’s energy supply? the required investment to supply challenging projects. Using, for example,

The easy-to-reach oil ran dry long ago or future energy demand, it must delivery a main automation contractor or main is in the hands of state-owned companies improved performance in the deliv- electrical contractor approach, can help like Saudi Arabia or Venezuela. Major oil ery of its capital projects, especially plug these skills gaps, which are even companies have to spend more money to megaprojects. scarcer on the engineering front.

produce less oil. And many of these proj-

Among the internal areas of failure One approach is to use a technology ects take longer than expected to build and identi? ed by the EY report are poor company with a broad portfolio to man- exceed budgets. procurement of contractors, poor contrac- age the risk. Provided such a company

Plans to pump oil using man-made tor management, and ineffective project has a project management capability, the islands in the Caspian Sea could cost management. We believe that improve- company can act as a MAC/ MEC and a consortium that includes Exxon and ments could be made by delegating integrate the technology with a lower

Shell $40 billion, up from the original certain aspects of the project, such as risk to cost and schedule. As technol- budget of $10 billion. automation and electrical systems, to the ogy evolves at a rapid pace, this option

Among the challenges and issues being technology solution provider. becomes ever more attractive.

This does not mean that an operator faced are: or the principal EPC contractor loses 1. Project complexity Will Leonard is the Head of Marketing for any control. In fact, it could enhance 2. Completing projects on time and on ABB’s Chemical, Oil and Gas business their position by enabling them to focus budget in the UK & Caspian region. Will has a more on the aspects of the construc- 3. Cost control dual honors degree in Business and Law tion at which they are skilled, while 4. Rising labor costs at Keele University. He has worked in the allowing the supply chain to handle 5. Safeguarding dividends industry for the past 10 years.

December 2014 | OE oedigital.com 12 012_OE1214_Thoughtstream.indd 12 11/21/14 8:47 AM