Taking the Risks out of Energy Infrastructure Capital Projects

by Patricia Doherty, Dassault Systàƒ¨mes

Energy infrastructure capital projects today are bigger, more global and riskier.

The surging global demand for energy is pressuring energy companies to find, build and produce a clean, sustainable energy supply economically and fast. But energy-related capital projects are bigger, more global and riskier than in any other industry. Invested dollars must deliver on expectations. One failed project–a problematic design effort, a plant plagued by equipment delays or an otherwise on-track project slowed by data miscommunication–potentially can jeopardize a project’s success and a company’s long-term goals.

For economically mature, industrialized nations, an uninterrupted energy supply is taken for granted. For growing powerhouses such as China, India and others, energy fuels economic growth, world stature and a higher standard of living. In other parts of the world, consumers are increasingly vocal in lobbying for a cleaner planet, creating political, social and ecological pressures for cleaner energy. Beset by multiple environmental concerns–fears of global warming related to greenhouse gas emissions from fossil fuel power plants, rising costs, complexities and risks associated with offshore oil and gas exploration, ecological imbalances caused by hydro dams, management of hazardous radioactive nuclear waste–responding to future worldwide energy demand is becoming challenging. Energy companies are pressured to find new, affordable sources that will offer a balance of fossil, renewable, nuclear and new unconventional sources such as shale gas and nuclear fission to satisfy growing demand and comply with environmental standards.

Whatever the fuel source, location or project type–brownfield or greenfield–the industry’s increased complexity and globalization drives high risk in capital projects and significantly impacts revenue for stakeholders. Planning, engineering and delivery are increasingly decentralized across globally distributed organizations, and new projects are faced with environmental constraints, stringent regulatory and policy compliance requirements, security and safety concerns, as well as unmatched financial market and consumer expectations. Today’s integrated project environment, where multiple parties are responsible for design, construction and commissioning of the final facility turnover to the client, requires close collaboration and integration of deliverables without compromising intellectual property. To mitigate risks and deliver successfully, capital projects require clearly defined and auditable business processes and thorough planning upstream to provide the basis for sound construction execution and delivery downstream. Engineering procurement and construction companies (EPCs) and owner-operators must have the ability throughout a project life cycle to dynamically assemble a loose amalgamation of data, materials, equipment, skills and know-how from functionally and geographically disperse players. Then, they must funnel that information into a tightly knit, unified collaborative project repository so project stakeholders and decision-makers have the information to deliver capital projects on time and budget.

A new fossil fuel-powered plant can cost several billion dollars and take three to five years to complete before handover to operations for startup and commissioning. Construction costs of nuclear power plants are significantly higher and project life cycles are longer because of special materials, sophisticated safety features and backup control equipment. Capital spending for oil and gas drilling rigs, refineries or offshore platforms soars into billions, and the farther offshore, the greater the capital investment and risks.

Because an energy facility remains in operation longer than an average person’s career span and is subject to strict but evolving regulatory compliance, a streamlined, integrated approach to information management is essential.

Throughout a refurbishment or a new construction project, participants from diverse engineering disciplines and project functions generate billions of dynamic, living documents containing multiple iterations and revisions of mission-critical project information such as requirements, contracts, designs, drawings, equipment specifications and maintenance instructions. Retaining this information accurately, ensuring it is up-to-date and all project stakeholders have access to the most recent version of each document–throughout the project phase, but more important, the operational life of the power plant, oil rig or other energy facility–is daunting. Often the issue is not whether the information exists, but whether it remains consistent with the sources and easily accessible to all stakeholders. In the case of older plants or oil rigs built in pre-computer times, most facilities still rely on paper drawings and documents. Today, one of the initial tasks when undertaking a life extension or refurbishment for a facility is to make sure these key records are accessible digitally.

Mitigating risks in a capital project requires access to accurate, up-to-date project information regardless of the time or location. Making the right information available to the right people at the right time is one of the major challenges owner operators and EPCs face.

With shareholders’ interests to consider, owner-operators and EPCs must optimize and standardize project execution processes, accelerate the handover process, and facilitate ongoing plant operations and maintenance procedures.

The larger the project, the more complex the business processes. EPCs must integrate and consolidate information from many sources intracompany and from the extended global project ecosystem of partners and suppliers. Transparent interoperability with the complete project ecosystem is vital to optimal management of project schedules, deliverables, materials and resources. Accurate information ensures better decision-making, smoother issue management and streamlined reporting to all stakeholders throughout a project and facility’s operational life cycle.

When EPCs and owner operators miss their targets, the results are obvious: late deliveries, budget overruns and disgruntled shareholders. Capital projects in oil and gas frequently exceed schedule and budget more than 10 percent, especially in the case of megaprojects, according to a 2006 Booz Allen Hamilton survey of energy leaders, “Capital Project Execution in the Oil and Gas Industry” (see Figure 1). In such multibillion-dollar projects, a schedule overrun of even 1 percent has serious financial impact.

A critical component of successful project performance management and risk mitigation is ensuring effective collaboration among all stakeholders. A growing trend exists: Major owner operators are taking more active roles in project governance or alternatively imposing severe penalties on EPCs for schedule and budget overruns.

While owner-operators concentrate on the results, EPCs focus on the execution. A reliable project life cycle management system that enables owner-operators and EPCs to work collaboratively from the same up-to-date information is a key to success.

In its survey, Booz Allen Hamilton identified three themes owner-operators and EPCs view as imperative to the industry’s future well-being:

  • Adopting a more global project management framework to increase performance,
  • Standardizing design and targeting technological innovations, and
  • Revamping the relationship between owners and suppliers.

To enhance owner-operators’ ability to centralize and share information, Booz Allen Hamilton recommended a single knowledge management repository. Centralization drives significant increases in project performance, reducing budget overruns and schedule delays (see Figure 2). Tighter collaboration between owner-operators and EPCs has the greatest potential for improvement in planning, resource efficiencies and equitable sharing of risks and incentives.

An effective capital project governance system enables an energy facility to scale across its entire life cycle from inception to decommissioning. Real-time, automated project dashboards and scorecards provide stakeholders visibility on project progress and eliminate risks of schedule and budget overruns and enable real-time stakeholder collaboration and mutual issue handling.

These features overcome the causes of project risks, delays and cost overruns identified in the Booz Allen Hamilton report.

Interoperability and Efficient Information Management

The most significant challenge for capital projects is managing and synchronizing project information in an environment of constant change. Experts in far-flung regions of the world create and maintain information in disparate systems that are not integrated. They often work in isolation and fail to communicate effectively, which results in poor information management.

A U.S. National Institute of Standards and Technology (NIST GCR 04-867) report estimates the costs of inadequate interoperability in U.S. capital projects at $15.8 billion a year. This is a conservative estimate of the costs incurred on projects because of:

  • Lack of collaboration software that integrates with other systems,
  • Fragmented life cycle management processes that are not integrated across the project life cycle,
  • Incompatible software packages,
  • Computer-aided design (CAD) interoperability issues,
  • Lack of data standards,
  • Fragmented business processes and legacy systems,
  • Automated and paper-based systems (depending on location), and
  • Limited use of technology for managing business processes and information.

Enabling owner-operators and EPCs to work from the same project data updated dynamically and originating from the same single source alleviates inadequate interoperability, identified as the key cause of project schedule and budget overruns.

Patricia Doherty is director of energy industry global market development at Dassault Systàƒ¨mes. She has a bachelor’s degree in environmental sciences from University College Dublin Ireland and a master’s degree in international business. She has spent most of her career as a consultant helping energy, oil and gas companies worldwide improve their business performance through use of enabling technologies. For more information, visit http://3ds.com/energy. Reach Doherty at patricia.doherty@3ds.com.

More Electric Light & Power Current Issue Articles
More Electric Light & Power Archives Issue Articles

Previous articleComEd proposes plan to modernize Illinois electric system
Next articleSeptember

No posts to display