Cost blowouts to Australian LNG projects had been wrongly attributed to construction issues and poor labour, whereas the real culprit was engineering failure.

This was said in an exclusive interview by Ed Merrow, President and CEO of Independent Project Analysis, at the Year in Infrastructure 2015 Conference in London, who stated that the much-maligned Australian worker was not the chief culprit for the Lucky Country’s bad rap in mega-project construction delivery.

Merrow was commenting on the sideline of a conference that saw The Innovation In Offshore Award going to Keystone Engineering for adapting a deep water jacket-type support structure design from the oil industry for five, 6-megawatt wind turbine generators on America’s first offshore wind farm supplying electricity to Rhode Island and New England.

The US$290 million project deployed Bentley SACS to achieve cost savings of 20 per cent by shortening the design cycle – as a result of using parallel process multiple simulations and performing multiple iterations in the time it would take to do a single past - by 50 per cent compared to a typical European offshore wind project.

The other finalists were Sinopec, for maintenance and support engineering at Chengdao oilfield, offshore China, where the life of 90 per cent of ageing platforms were extended by 10-years with SACS delivering savings of US$3 billion by increasing the quality of analytical data for safe operations.

Zakum Development Company’s US$3 million structural integrity assessment of a ship-impacted wellhead platform offshore Abu Dhabi was the other also ran due to their ability to evaluate and reinstate the structural integrity of a platform and resume oil production. Using SACS to identify critical subsea nodes and optimise inspection times constrained by weather factors, the company was able to secure an early release of the platform for operations and justify insurance claims.

No oil and gas plant project featured in this year’s awards for mega-projects, with previous winners including BG Group’s QGCLNG coal seam to LNG plant on Curtis Island and Shell’s Pearl GTL facility in Qatar.

However, with four of Australia’s six recent LNG plants having sustained cost blowouts and time delays, the spotlight was on Australian efficiency and Merrow said that contrary to popular perception, Australia was not the costliest country for capital expenditure in industrial projects.

“That is about normal for the oil and gas industry,” Merrow said of the global rate of attrition mirroring Australia’s 65 per cent cost blowout and time delays in LNG projects.

“We’ve done probably every major industrial project in Australia over the last 10 years. BG Group and a couple of others were OK. Conoco’s LNG project (in Darwin) ended up going pretty well, but it’s a relatively short list,” Merrow added.

Engineering Agonies

“Today the oil and gas industry is in a terrible price squeeze, partly because the real price of projects has more than doubled over the last 15-years. But we are really having a crisis in engineering, which is in far worse shape than construction and since 2008, when the GFC hit, the engineering error rate - mistakes that have to be reworked and designs that are wrong - has doubled on industrial projects. The average slip in engineering for industrial projects is over 40 per cent on average, that is oil and gas in particular, and that slip is one of the things that endangers construction; because when design slips, procurement slips, which means we don’t have the design, we don’t have materials that we need to construct in an efficient manner,” Merrow explained.

“We always like to point to field labour labourers are lazy. Union work rules are killing us and we whinge about this while the engineering is late, inaccurate and out of sequence and the materials are not there. Until you get that sorted out, don’t whinge about the labour.

“A lot of the construction problems in Australia were actually engineering problems disguised as construction. The engineering sloshed over and the overlap of detailed engineering and construction, which was planned to be small, gets huge. The effect of that is labour is not productive because they have nothing to do. In construction the key to success is that everybody is always working, but if the engineering is not there, if the material is not there, we sit.”

IPA has formed a partnership with Bentley that will endeavour to deploy a suite of sophisticated software products enabling oil and gas CEO’s and EPC firms to make tactical decisions to improve on the design, EPC and lifecycle of their projects.

“So this mutual development (between Bentley and IPA) that we are doing is to make it accessible and transparent to owners to know where we actually are in the development of design. Where we are in the procurement of materials and when the contractor says, ‘oh no, we will catch up’, to know how to discount that. You need to be able to assess if that’s realistic or not, because if you can’t then you will go right ahead and get in the field too early,” he explained.

At present, an oil and gas sector treading water for survival in a price slump is also on a 3D digital learning curve as it grapples with an invest now and profit scenario against short-term objectives.

“If there was a magic wand solution, then what we are trying to do is put better data into some really smart people and by partnering with IPA we want to make sure they know how to utilise the data,” explained Harry Vitelli, Bentley Vice President Construction and Field Applications.

“What our system does is it forces you to implement best practice around how to execute the project, having engineering work pacs that supply to the path of construction, procurement work pacs that supply to that and then good insulation work pacs out to the group. The owners are now getting educated.”

Getting educated, yes, but still slow to leap into the digital era.

“It is enormously important that the owners embrace this, because if they don’t it just wont go anywhere. The owners have got to come to the digital age here. Part of what they have to do is using the data that are available,” said Merrow.

“When we talk to the fab yards the complaint, over and over again, is not enough design, not enough material. We have people sitting while they are doing what they are doing, but it is not giving us what we need to actually fabricate the modules, the ship, whatever it is.”

“But we are going into the fab yards and putting the software there as well, specifically ConstructSim. When you are using it there really is no place to hide because everything gets lit up in a 3D model in terms of what has to be delivered when. So you can just walk into a room and look at a picture and see what’s late. When we started doing this and working with these owners, they wanted visibility, not just for the total project level, but also down at where the key touch points were going to be, the key risk areas. This gave the fab yard manager the tool to go into their suppliers and kick ass in terms of what had to be done,” said Vitelli.

The IPA boss revealed that in 95 per cent of cases, oil and gas companies did not even take ownership of designs that they had paid for.

“A few years ago, when I would accost them with not taking ownership of their own data, they would say: ‘what would I do with it? Then when I bring in another contractor, he is going to use a different system and so he won’t be able to read all of that stuff and will throw it out anyway. Why should I bother with that?’

“That problem got resolved as we developed software that makes different platforms interoperable, but there is a lag time here and that lag time is they have never set up systems that enable them to use the design and have 3D as builts, so they wouldn’t have to change organisationally. This is a very difficult time to get the oil and gas industry to invest a lot of money in coming up to speed, because they are hurting for money,” said Merrow.

“But once the oil and gas industry embraces it, will catch up and surpass the public sector very quickly, but they’ve got to get over that energy formation,” added Merrow.

None of the ageing oil refineries, some with 50-100 year vintages, had been designed in 3D and the conversion process for a single facility could cost up to US$300 million.

“The owners say: ‘Look, it’s really nice, but US$300 million is not something I have on hand to spend on something that will mostly aid my successor anyway’. So we are very short-term focussed,” Merrow said.

“By partnering with IPA we are able to provide more data and faster into the engineering sequence. Much less onerous data movement and a lot of this is about good data mobility. Buildings are fairly easy. When it comes to technical difficulty, buildings average 3-4 per cent of their total cost in engineering. Industrial plants average 20-25 per cent. So just how much of that work has to be managed is quite different,” added Vitelli.

Nevertheless, a tipping point appears over the horison as younger talent coming into the industry is embracing the need for digital revolution in project delivery and asset performance.

“What we are seeing is a lot of younger talent come in. The demographics are starting to change and the other reality is that everyone is smarter at $100 a barrel. At $50 a barrel everyone is a little more challenged. I would say the IQ goes up and down with the oil price. At $147 a barrel we were all borderline genius. Now you have to sharpen your pencil and get good on how you are going to execute on your project,” said Merrow.

“The challenge is that oil and gas industry which is very quick to embrace some kinds of innovation, for example venturing into very deep water. We’ve been really good at that. It is also in its way highly risk-averse. Part of that has to do with the fact that the industry manages immense hydrocarbon resources all of which have the potential to destroy their reputations.”

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