Research Paper Thesis Alanazi Hassan 55830

Engineering Manufacturing Systems & Management
Master of Science: Engineering & Systems Management
8/22/2011
Research Thesis: Supply Chain in Oil & Gas Industries, Quality Developments within the Business | Alanazi, Hassan Saleh
P a g e |2 Alanazi, H.S.
Acknowledgements
I would like to thank my family and especially my father for supporting me financially before the beginning of King Abdullah Scholarship program and continued thereafter. Without his continued support and encouragement I would not have had the resolve to complete this degree. Again, I would like to thank King Abdullah, Ministry of Higher Education and Saudi Cultural Mission to the U.S. for their great effort, opportunity and support. Finally, I would like to thank Dr. Bavarian, for all of his support during the course of my thesis research. His dedication to the improvement of the engineering and management systems at California State University of Northridge was instrumental in my continued education. The time spent by Dr. Rajai, Douglas and Waleed, reviewing this research and participating as part of my committee is very much appreciated. Furthermore, I would like to thank Chevron Engineering and Projects department for providing me with the resources and support necessary to complete my research properly. It is my pleasure to be working in an environment where pursuing new technologies are encouraged and rewarded.
Table of Contents 1. Abstract.....5 2. Introduction ..6-7 3. Chevron & Other Oil & Gas Industries Overview ......7 4. Upstream Business 4.1Exploration.....9-12 4.2. Drilling....12-15 4.3. New Production Development of Heavy Oil..16-18 4.4. New Standards & Technology....18-22 4.5. British Petroleum BP Blowout Investigation.....23-29 4.6. Engineering & Projects Management ...30-33 5. Downstream 5.1. Refining Process.35-38 5.2 Storage & Transportations...38-39 5.3. Pipelines.......40 5.4. Marketing........41-43 6. Quality 6.1. Lean Six Sigma & Process Phases.....44-47 6.2. Quality Management.......47 6.3. Quality Control Continues Reservoir Modeling.....48 6.4. The International Organization of Standardization ISO....48 6.5. American Petroleum Institute API.....49 6.7. Application of Lean Sigma Real Life Projects..........49-55 7. Recommendations & Conclusions.....56 8. References.....57-60 9. Figures & Tables Index 61-62
Abstract
Supply chain is a cascaded process that starts from a raw material ending up delivered to customers. As in oil industry, supply chain starts from under the ground crude oil passing through a daily process ending up to customer. An upstream business involves exploration of oil reserves and drilling after confirming the location of oil reserves. Work over, outsourcing, commissioning, purchasing and project management are also is part of the upstream organizations. The cost of oil fields projects could be any range of Mega Million Dollars. When the oil gets produced of the ground, it gets transported to downstream business for storage, delivery or further processing means. The downstream business receives the crude oil through special specified pipelines. Either the crude oil gets shipped or goes for further processing and refining. The refining process involves separation of oil, water and gas where this process cost an oil organization Millions of dollar. Then, the oil goes for cracking and further processing to produce petroleum products as of gasoline, kerosene, gas, jet fuels, manufacturing fuels and other products. The prices of these oil products are controlled by the quality of the chemical composites and efficiency. As we can see, Chevron and Shell gas prices are the highest in the U.S. compared to Arco and other stations. Then, the oil, gas and its products are shipped based on the demand of customers by oil ocean tankers, pipelines and vacuum trucks. Every aspect of upstream and downstream processes, a lean six sigma is applied to resolve a technical, management or performance issue for future improvement purposes. Quality aspects and requirements are embedded in the oil process to ensure customer satisfactions, implementation of international standards and quality management systems QMS, which is also in line to minimum costs, safety issues and cost effects (1 39).
Introduction Supply chain is defined as the flow of materials from an original source to another and finally to the consumer. Supply chain consists of logistics purchasing, procurement, leadership, management, manufacturing, distribution and marketing. It is a system made up of business activities, information, resources and technology in moving a product from its original supplier to customers (1). When consumers have a demand for a quantity of a petroleum product, it is in general possible to meet the demand using a number of equivalent products. There are some factors that affects the supply chain decision such as season of the year , the availability of appropriate transportation and time(2).
Figure 1: Supply Chain Flow Diagram
Within oil and gas industries, supply chain consists of sophisticated system where its initial process starts at upper stream to downstream as shown in the block diagram shown in the above figure. Supply chain starts from the original supplier where the crude oil and gas have been produced through a complex process. A downstream business is where gas and oil get separated, transported and stored in oil or gas tanks in order to be refined and shipped to the downstream sub divisions. Ending up to selling and shipping of oil, gas or oil get pumped to oil
tankers where a crude oil is sold depending on the type and quantity by Barrels. Customers and companies use these products in their daily life production such as companies producing petrochemicals, navigation industries, chemical products and other oil derived products. Most of the large producing oil and gas companies in the world follow relatively similar supply chain process where the process is divided into upstream, midstream and downstream such as Chevron, British Petroleum, ExxonMobil, Saudi American Oil Company (ARAMCO) and other specialized Oil Producers Exporting Countries OPEC(1)(2). In this research, I am going to discuss the supply chain process from upstream to downstream and how quality is embedded into the oil and gas industries such as Chevron, British Petroleum BP and other oil businesses. Chevron & Other Oil & Gas Industries Overview Chevron headquarter is located at San Ramon California. It is one of the fortune 500 companies and its major focus is oil and gas production. Shell, ExxonMobil and other oil producing industries supply chain is classified into upstream and downstream related to each other. For example, if there is a higher production and revenues from producing oil , there would be more financial support to other department such as projects, facilities engineering, research and development areas for improvements. Chevrons supply chain is divided into four major global organizations: Latin America and Africa North America Europe, Eurasia and middle east South Asia (3)
Upstream Business
Upstream is an organization that is specialized in initiating the oil production process. Geologists, engineers and scientists are heavily involved in this stage. Thus, it requires more scientific theories and earth crusts studies to confirm an existence of oil reservoirs below the earth. Most of oil industries contract and consult with other specialized organizations. For example, Schlumberger or Baker Hughes companies are specialized in performing a high-tech drilling instruments, exploring and offshore installation of equipment of special oil and gas exploration early phases. Exploration In a global upstream gas and oil operations, business organizations partners develop and share best practices involving people, embedding quality performance improvement and risk management leadership. Thus, always strive to a better in ways that positively impact the full value supply chain management in the upstream business. Exploration and drilling are typically different and dependable on the type of weather. Since there is an offshore and onshore operation, scientists and engineers have to consider risk, complexity and other natural scientific factors. In the drilling process, mechanical or electrical errors may exist where diverse fields of engineering professionals have to be available. Thus, project engineers have a comprehensive knowledge and background in every field to ensure reliability, operability and maintainability. Also, communications within diverse engineering fields is important in all operations and production. At the offshore operations, there are additional constraints that have to be considered such as the deepness of the water, weather conditions, the distance of the logistical base. Also, geologists consider mainly the type of the soil or surface geology. Offshore and onshore are different in the way the rig is supported. A
P a g e | 10 Alanazi, H.S.
drilling could cost a company average of hundred thousand dollars daily till the drilling process reach to the oil and gas reservoir then the production (4)(5). There are high technology techniques and tools most of the leading oil companies utilize. The most important tool is seismic surveying. It ensures an extensive result in detection of oil and gas and brings up to date drilling operation and rig system employment in exploration and production of crude oil. An adequate quality systems and standardized measures is established in techniques adopt accepted in carrying out wiring, logging, casing, tubing and drilling operations in exploration and production of high volume of crude oil in the company(4)(5). Surveying team consists of two crews on board the exploration vessel: One crew is for the normal navigational operations Another crew is for carrying out the seismic measurements.
There are two and three dimensional surveying (2D & 3D). The 2D and 3D is used for structural and reservoir mapping in the oil exploration. Other types of surveying are used in some applications such as surveying in deserts and hills. In Saudi Arabia, a vibroseis vibration surveying is used. Other ways of exploration methods are also used such as Satellite imagery and air photos (4) (5).
Wire line logging for down-hole formation evaluation is extremely important after exploratory well drilling. Type of Logs: Gamma ray, neutron density, resistivity, porosity, cement bond, caliper, FMI and pressure, to name just a few (6). Offshore : Seismic Surveying Aero Magnetic exploration (7) In the Middle Eastern and Eurasian development, the black sea is under investigation of an offshore deep water exploration and drilling stages to produce about 6.5 million barrels a day. The proposed working area is going to be about 3320 square miles in the black sea. The drilling of the licensed area is going to be executed in 2011 (5) (6). Electro-Magnetotelluric ( EMT ) eField Exploration LLP This is a new system implemented by California-based eField Exploration LLP. Instead of transmitting high energy Electromagnetic singles, this system uses natural EM fields as the energy source. This system measures resistivity and conductivity where it flies 100 miles offshore over water up to thousand feet deep, the data acquisition gets completed by less than a week using a specially designed sensor package. Oil and gas wells are basically a blend of salty water and dissolved hydrocarbons. When currents flow through the limits between hydrocarbons and water, they generate intensive double layer electric charge effects. The accumulated charges affects on the variance that can be seen from the air by the eField Airborne EMT system. This concept is known as a Natural Field Induced Polarization, or NFIP(5)(6). For the offshore exploration and drilling operation, Chevron achieved great results in the two of the top 5 projects among other companies as BP and ExxonMobil in Tahiti in the gulf of Mexico and Tombua-Landana offshore Angola.
Figure 2: 3-D Seismic Simulation
Subsurface exploration: The aim of subsurface exploration is to explore the nature of the soil, sand and rocks formation. Due to the complexity of oil drilling and production, scientists have to find a the right equipment, factors and appropriate materials to drill inside the reservoir. Also, they consider factors such as cores, porosity, rocks formation and reservoir rocks either a limestone or sandstone theyll be treated differently. Offshore drilling are conducted from platforms which either float or are fixed to the sea bed. Offshore drilling rig has a diver support and meteorology station. Once a seismic survey is being conducted, geologists attend the site surveys and test the sand and rocks nature to ensure efficiency in production and drilling services before a drilling request is being ordered(4)(5). Drilling To ensure quality drilling, a final casing is being installed of different lengths to assure drilling efficiency. A logging system then has to be put to confirm there are hydrocarbons in the
oil wells. Thus, a successful and safe operating of tubing is ensured to the production area. Then, a Christmas tree is being fixed where a design of different valves is being installed based on specifications and specification and requirement of everyday tasks (5). In association with Chevron partners, who are market leaders in the drilling services, most of the companies offer comprehensive oilfield services such as seismic services, specialty chemical production, petro physical and data acquisition, processing and analyzing services. Some of these specialized companies are Schlumberger, Baker Hughes and Synergy (6) (8). General Drilling Quality Components o Application of common process o Technology o Engaging with the Marketplace and people Common process is a way of finding comprehensive way of implementing plans across the whole drilling and completions community based on operation practices. Each company that is brought to Chevron, British Petroleum and Saudi ARAMCO has a different way of planning and executing wells. Most likely oil or gas drilling has to go through these five general processes to avoid failures and achieve an optimum successful rig drilling completion. The five drilling processes are as follow:
Drilling Process
1 Prospecting
2 Packaging
3 Selling the Deal
4 Drilling
5 Completion
Who are the people expected to be Involved in the Process? Geologists Scientists Geophysicist Geologists Artist Designer Geologists Salesman Procurement Engineers C Maps Cross Sections T Marketing Cost Estimation Budgeting Legal Rights Financing Buyers Geologists Supervisor Engineers Advisor Geologists Engineers
Petroleum& Other Engineers F Porosity Pressure Drilling record Maps Cross Sections Computer Simulation Figure 3: Drilling Process A
Petroleum Engineers O Drill Bits Mud Logger Well Cuttings Cores Logging Tools R Perforation S
Most of the leading drilling companies identify the technology that are currently available or that needs to be developed to assure, improve quality and ensure excellent performance. Every year there is an improvement of minimum 10% of drilling methodology and materials that keeps drilling companies informed from users and observers to give feedback when facing drilling problems as we can see in the latest British Petroleum company oil spill disaster in the Gulf of
Mexico as Ill discuss a summarized approach of the cause of this problem at the end of this research (8). Technology types are most likely to be involved for the purpose of development where it usually starts from the research and development institution within an organization. A development involves studies of existing technology, extrapolation of existing and new technology. Existing technology consist of equipment, machinery, tools, assets and other existing technology that has been tested and utilized successfully on one or more comparable prior occasions. For instance, a new technology has to be previously used and described in previous design specifications, design standards, identified end users and established organized processes with full description of details. Thus, quality standards ensure general safety procedures and assurance of risk minimization. A new technology has to be assessed before its use to avoid any high risk associated and it has to be suitable for the industry demand and service. Professionals and experts employ and test new technology instruments to an oil drilling facilities by installation, instruction and a whole up to date procedure to avoid uncertainties at any time, reduce future failures and risks (8). The complexity of the wells is raising and the demand for right people in the right places is high. Oil industries are demanding more specialized personnel in drilling operations and completions due to the complexity of the drilling and risk associated with it. To ensure efficiency on services, drilling services companies are being conducted through drilling contractors and suppliers such as Schlumberger Company and Baker Hughes where they are known to their service provider of an excellent performance (8).
New Production Development of Heavy Oil Due to the complexity of most of the heavy crude oil composite, a new era of oil well simulation technology has been invented. Nowadays, oil industries are facing a problem with the oil extracting out of the wells. Therefore, the new invention is to inject steam under the ground to facilitate its movement out of the well. Porosity composite in the sandstones as we can see in Wafra Oil wells and Bakersfield need more well simulation. Thus, there are steam flood projects under structure in Bakersfield California and Wafra Kuwait (9) (10). Chevron has pioneered the integration of horizontal wells, water flooding, sand control and lifting techniques to successfully develop heavy oil fields offshore. The companys Captain and Alba fields in North Sea are among the worlds premier offshore heavy oil projects. Many of the same methods are in use at the heavy Kuito Field, offshore Angola and in Chinas Bohai Bay developments. The company has announced plans to develop the Frade Filed deepwater heavy oil project in Brazil. Potential future developments include the heavy Herbon Field, off-shore Newfoundland (11). Chevrons new Intersect reservoir simulator, being jointly developed with Schlumberger, a specialized oil drilling services company, will rapidly churn out multiple simulations in much greater detail, revealing new ways to optimize current heavy oil projects and improving Chevrons ability to design new ones. The two companies are also building a simulator exclusively for the unique subsurface conditions and specialized methods of heavy oil projects (11). Delivering steam of the correct mass quality to complex, stacked reservoir sands is a critical skill. Based on proprietary steam-flow research, Chevron has developed special, down-
hole steam-control devices to double production in areas of poor steam distribution in its major thermal reservoirs. The companys unique steam-profile control systems use specialized packing elements and low- or ultra-low pressure loss flow control devices (10)(11).
Figure 4: Kern River Production Development
As shown in the graph above, production data of Kern River in California. In the beginning of 1960 to 1970 an increase in production rate when they embedded heated oil reservoir. Thereafter, they started using steam wells injection where a remarkable increase of 20 in the oil production. Forecast of steam flood injection future is going to be rising over the next 30 to 40 years (11) (12).
Figure 5: Onshore & offshore Rig Parts (13)
Shell & Other Industries New Standards & Drilling Technology: Chevron & other oil companies have developed a new technology of drilling. They set new standards for drilling throughout their global stream. Its called an AutoTrak@ steerable rotary system and PowerDrive rotary system which manufactured by Schlumberger specialized company for drilling services. These systems are controlled remotely by a computer operator. It sends back and forth signals from the rig to the computer and vice versa. These signals control the drilling procedure by an advanced computer operator regardless of how complex the drilling is. Depending on the systems capability, digging into more details of the drilling specifications could play a major role in the performance and efficiency of the drilling. For example, Power
Drive rotary system can adjust the drilling bits according to the rocks formation underground (14). Also, one of Chevron joint operation companies in Kuwait is using a communication technology called WiMAX communications system. This system ensures efficiency in communication between drilling and work over rigs operating in remote locations. There are eight rigs where they are all linked up to a Local Area Network and gives 360 degree coverage for up to 17 Kilometers. This covers Wafra Joint operations and Om Gudair. This partitioned area is called a Partitioned Neutral Zone where the crude oil produced is been divided between two governments shares. Therefore, this goes into Middle East upstream exploration and production (9).
Figure 6: Interconnection of Many Oil & Gas Platforms
In the drilling, production and crude oil operations, a specialized company for drilling or work over areas is on a close communication with other joint operations to ensure high
performance, high quality performance and reliability. For example, in Kuwait and Saudi Arabia Partitioned Neutral Zone, Chevron monitors its production and drilling operations through a SCADA system and other communication methodology with the support of Schlumbergers scientists and engineers expertise. SCADA shell oil pipelines facilities is capable of providing the monitoring centers with data of wellhead pump and provide chevron monitoring centers with typically monitoring, control and emergency shutdown capabilities in case of fire or emergency. These data that are used within chevron SCADA system is linked and shared among all Chevron organization globally (15). In General, there are few major drilling systems: 1- Power System o Diesel engines are the main source of power to be supplied to electrical generators and provide the drilling with electricity at voltage approximately equals to 440 Volts. o Electrical generators work with the aid of diesel engines to provide power to facilitate the drilling process(16) 2- Rotary System o Drilling Bits Types: Steel Tooth roller cone bit Tungsten Imperiled Diamond Bit Gold Series
3- Figure 7: Drilling Bits
Figure 7: Drilling Bits
Each of these drilling bits types get improved by performance every year by 10% from previous model to increase the performance of the drilling and productivity. This is done with the quality control and assurance team (17). o Top Drive or swivel is a tool that takes control of the weight of the drilling and rotation movement and applies pressurized seal into the hole. o Kelly is a set of sided pipes that connect turntable and drill string together. It transports the movement between the turntable and drill string. o Pipe Connections has a process of adding a new length pipe referred as making connection. o A rotary movement drilling depends on the category of the well. There are three basic techniques of drilling by rotary movement: First, a rotary motion is transmitted through a pipe produced by a rotary table. - A power swivel is connected directly to the last drill pipe (16) - Drilling Engine Turbo-Drilling (16).
While drilling mud is dispersed into the well, Mud is pumped by a mud
pump flowing
through the center of the drill-string and exiting to the surface by flowing through the drill pipes and the well. The drilling mud has five main functions. It helps cleaning the base of the well. Also, drilling mud helps with cooling down the drilling bits. During drilling, drilling bits get in touch with the rocks and thus, generate high temperature which causes the bits to increase its temperature from a deep high fraction between the bits and rocks. Third,, the mud helps on
lubricating the drilling bits and strengthening the walls of the well-borne. Finally, it helps in adjusting the pressure such as to contain the flow of oil, gas or water from a drilled formation (16).
Figure 8: Derrick 4- Derrick : Derrick is a lifting machine that facilitates the lifting process of pipes and drilling rotary system. In the old days, derrick is used to be carried manually with human power. Nowadays, oil drilling firms use motors with a torque of five hundred horsepower and above to lift and lower down objects. This is located above the drilling bore and in the same direction of the drilling bits. There are many types of Derrick such as Hallen, Velle and Stlcken Derrick where they have different uses depending on how heavy the operations and objects they carry(16) 5- Mechanical System o Hoisting system is used for lifting and lowering heavy objects and cables. o Turntable 6- Circulating System consists of pumping mud and cutting rocks. The systematic approach of this system is as follow: o A pump to suck the mud and pump into the drilling pipes. o Mud pits: is a pit where all chemicals mix together and form a mixture that eases the rock cutting down-hole. o Pipes and hoses are used to extend pipes together and connect them to the drilling equipment.
British Petroleum BP Blowout Investigation
Possible Causes of the Oil Spill Crisis The main cause of the oil spill disaster is still under investigation and is unclear. There could be possible sources of errors as lack of routine maintenance, lack of training and lack of inspections. In the drilling progress, a casing is installed and extracted through the Christmas tree. Then, the mud fluid that goes inside the drilling tubes is a mixture of chemicals and water to ease the drilling process. While drilling, a high underground pressure occurred under the blowout preventer. Oil and high pressure gas over fifteen thousand PSI came out with the mud fluid through the blowout preventer. As a result the hydraulic system ( Blind Shear Ram ) as shown the figures below, broken and could not handle the high pressure coming out of the well. Therefore, an explosion occurred in the well (18). According to the business insider article stating that: Apparently, a pressure surge occurred that could not be controlled. While the equipment includes all kinds of controls and alarms, and a huge 450 ton device called a blowout preventer, somehow it was still not possible to control the hydrocarbon flow(19). With a high pressure, some uncontrollable gases came out of the oil and which apparently caused ignition and explosion. Impacts of the Oil Spill Environmental Impacts Gulf of Mexico BP oil spills had its major impact on the fisheries life and tourism in remarkable figures. It reduced the number of fisheries on the Gulf of Mexico, the countries, states and cities adjacent to the Gulf. We can notice the figures affect on the table below and how
the spill threaten the fisheries and mammals and it became a high risk to both tourism, nature, health, sulfuric acid pollution and threaten of sea creatures distinction(18)(19) Financial Impacts
Year 1 Alabama Tourism Fisheries AL Total Lousisana Tourism Fisheries LO Total MI Tourism Fisheries MI Total Florida Tourism Fisheries Florida PanHandle(@20%) Tourism Fisheries FL total Total Tourism Total Fishiries Total Tourism & Fisheries Assumed Earnings Economic Losses Toursim Fishing Clean-up Costs Lost Earnings Total out of Pocket Discount Rate Present Value 3200 1154 4354 9300 3107 12407 1600 205 1805 57000 5000
Year 2 3200 1154 4354 9300 3107 12407 1600 205 1805 57000 5000
Year 3 3200 1154 4354 9300 3107 12407 1600 205 1805 57000 5000
Year 4 3200 1154 4354 9300 3107 12407 1600 205 1805 57000 5000
11400 1000 12400 25500 5466 30966 50% 25% 100% 15586 5921 21509 8.00% 26773
11400 1000 12400 25500 5466 30966 50% 20% 50%
11400 1000 12400 25500 5466 30966 50% 15% 25%
11400 1000 12400 25500 5466 30966 50% 10% 25%
3917 3917
2596 2596
1958 1958
14000 12000 10000 AL Total 8000 6000 4000 2000 0 Year 1 Year 2 Year 3 Year 4 LO Total MI Total FL total
Figure 9:Four States Charts Impacted by the Oil Spill (Alabama, Louisiana, Florida & Mississippi) (18) (19)
1600 1400 1200 1000 800 600 400 200 0
5-May 10-May 13-May 20-May 28-May 1-Jun
Figure 10: Weekly Statistics of BP Oil Spill Frequency of Claims (19)
BP Oil Spill Claims May-June 2010

180000 160000 140000 120000 100000 80000 60000 40000 20000 0 Claims Processed Claims Made Calls in Claims
Figure 10: Weekly Statistics of BP Oil Spill Frequency of Claims (19)
Figure 11: New Containment System by Chevron
Figure 12: Blowout Preventer Inner System Parts (18)
Figure 13: Blind Shear Ram
Figure 14: Blowout Preventer, Rig & Blind Shear Ram(18)
Engineering and Projects Management The base line in engineering and project management goal is to ensure a course in a profit growth by looking into the following factors. A good projects and engineering organization should have metrics, milestones, key tactics, operation excellence ( Quality Assurance ) and a detailed cost optimization(22). Project Engineering Engineering Projects provide the appropriate project management services and through a specific system at all phases of projects (opportunity development, develop alternatives; develop best alternative, execution, commissioning and feedback including support services to all Joint operations divisions. Chevron Projects Development & Execution Process is a general process map for projects planning and it is used internally within the company facilities. The purpose of this process is to provide the project a good quality decision, good team communications, values, goals and metrics. In most oil industries, the facility project engineering is classified into three main divisions (Utilities /Services Facilities, Oil/Water Processing Facilities and Production Facilities). Project engineering functions are as illustrated as opportunity and alternative development (22). Opportunity development Opportunity development function conducts realistic and clear perceptive of the opportunity on hand by developing project framework in which the scope will include (opportunity Statement, project scope, vision, stakeholders, vendors, objectives. etc.) Also, another objective is to ensure alignment with business goals as to develop alternatives by generating a wide range of potential alternatives for the project and assess these alternatives
against the project value measures, and select the preferred alternative. Thus, to develop the best alternative , project engineers coordinates as required with other disciplines and stakeholders for further development of best alternative(21)(22). Engineering Services Request Engineering Service Request is required when a project needs a routine maintenance, new installation construction, modifying existing facilities, modifying contracts shut down, modifying running design and running operations. In some other organizations, they are called Engineering Work Request and the objective is one, to establish a commitment and quality decision making to achieve the job right. Request For Recommendation Most commonly ESR forms are used to authorize an official document for an urgent or proactive request for recommendation of services such as a design or upgrade to an existing facility and construction in the company assets. This type of ESR is used when a design is out of date and on demand for an update or upgrade to an up to date specifications. This could be implemented by project engineers and other specialized professionals. An ESR could be requested for a last phases of the design or before execution of a plan. It is helpful in determining the completion of a project and the process of the plan. Thus, there would be a weekly, biweekly or monthly inspection to ensure most the products and materials that are used in construction and design follow certain companys standards and laws.
Other reasons of engineering service request can be a problem Investigation for a current or pitfalls in design that could affect the peoples safety. Also, engineering service request can be varied on purpose such as a request for land survey, inspection of materials, inspection of hazard and request for consultation(21)(22)(23). Cost Estimates Every project has a monetary value and time frame regardless of the currency type. Usually a cost estimate can be conducted by specialized personnel who are experienced and educated about the market and contractors agreements. Follow up with prices and rates globally or locally depending on the type of organization or the ongoing project. A good cost estimate should be conducted with the cooperation of a team looking into a project from different views. For example, when we look at a project thats critical to safety and environment we have to consider the outputs of the project whether they are affecting the environment and what level of risk is associated with the project output, process or input. Each organization has a cost management that combines a comprehensive cost tracking characteristics with flexible systematic tools to facilitate a reasonable product costs. Cost management provides also a detailed why-why or what if analysis for further analysis and inventory appraisal (21). Benchmarking has indicated that while both upstream and downstream projects were achieving good Front End Loading FEL scores, there was still room for improvement. While Upstream projects 2001-2007 achieved competitive outcomes, recently completed downstream projects (2008) experienced slippage in both cost competitiveness and cost predictability. Furthermore, we were starting to see an alarming increase in the frequency and amount of
supplements from ongoing projects in both upstream and downstream. While the cost of goods and services COGS was certainly an issue (21) At the end of project cost estimates and engineering work request orders, alternatives are being studies to prepare the project for final decision. A final decision making for final selection and approval will come from the top management.
Downstream
Figure 15: Oil & Gas Downstream Flow Process
Downstream organization is a continuation of the upstream and midstream process. A crude oil gets carried out to be either shipped to customers or it goes to a further processing and refining. Refining is a valued stage where crude oil gets processed and heated up to produce chemical products, Kerosene, Gasoline, jet fuels and other power supplement products. Refining Process:
Figure 16: Refining Process a
Crude oil gets pumped through pipes with a specified pressure. The oil goes into boiler with super heated steam. Then, it goes into a distillation column to facilitate the cracking of the molecules. Then, it goes into cracking and Alkylations process where they get cracked from Hydrogen or other type of molecules. Before it gets cracked, the oil goes into a different grades distillation column as shown in the pictures below to produce Gasoline, Kerosen and other types of gases and products for daily life usage. The heavier the crude oil, the more difficult to separate the oil products from each other. (20)
Figure 17: Refining Process b (24)
Figure 18: Refining Process c (25)
Crude oil comes out of the ground natural containing hydrocarbons and gases. Hundreds of Hydrocarbons gets separated by a long process through distillation, high temperature boilers, hydrocarbon cracking and gas liquefying. Crude oil gets pumped by boosters or high pressure pumps. Then, the produced Oil goes directly into a refining process based on the customers specifications. There are various customers demand where some of them require gasoline only, jet fuel or other petrochemicals that are used as raw materials for manufacturing and further production. One example is SABIC (Saudi Basic Industrial Company) where they are specialized in gas liquefying, Naptha further processing, gas production for cooking and residential consumption (20) (25). The refining processes consist of applying heat on the crude oil using boilers with multilevel temperatures. The boiled oil is transformed into distillation columns and catalytic refining and cracking where it pass through a chemical processing then distributed into different
petroleum products. These products are then separated into different tanks. Each tank has pumping station to separate the quantity into barrels to be sold and shipped using different manifolds, control valves and pump boosters to control the flow of the transformation (20). There are many kinds of crude oil. Heavy black oil, medium, light crude oil and extra light semi clear colored oil. Heavy black crude oil contains a mixture of heavy chemicals, Sulfuric Acid gas and other hydrocarbons. Other types of crude oil are light crude oil with more gas contained in. Also, most of the crude oil mixture contains sulfuric acids in a state of solid or gases that are corrosive to other materials. Therefore, most of the pipeline construction designs, oil or gas tanks are protected from leakage and any external effect into the inner tanks. These days, they are facing corrosion through pipelines and areas surrounded by the refineries and oil tanks areas (20). Storage & Transportation Gas and crude oil are different in composite structure and materials that exist in the oil once its produced. Therefore, designers took into consideration for a safety and better pressure , temperature and flammable air maintaining to the difference between the gas and oil storage. Oil storage tanks are usually in a cylindrical shape and they consist of control system instrument in order control the prevention of extraction or contradiction of the tank in loading or uploading processes due to over or under pressurizing Hydrogen or Sulfuric Acid corrosion. On the other hand, liquefied natural gas tanks are usually in a spherical shape to better store the gas on its liquid or gaseous matter. Thus, this is applied in the transportation of oil and gas at shipping and uploading stages to the oil and gas tankers.
Figure 19: Gasoline Vacuum Truck
Crude oil, gas and petroleum products are a sophisticated process. It involves understanding and applying API standards, quality, safety inspections, delivery time and other factors that affect the economics and net revenues of the supplier and consumer. Thus, all the tankers and ships are provided with full protection of corrosive materials and any other exterior influence to the gas or oil tankers. All of these tankers and storage tanks have to be inspected daily in order to be protected again fire disasters.
Figure 20: Offshore Well Distribution Lines (26)
Figure 21: Liquefied Natural Gas Spherical Shape Tanks (27)
Figure 22: Oil Tanks Farm (28)
Pipelines: Pipelines vary in sizes and the oil composite from area to area based on the quantity of oil and gas going to be pumped. When installing pipelines routes, engineers identify the shortest distances from the production area to the end user to facilitate an ease flow in shorter time and distance. Pipelines could be buried under ground, under the sea for loading and for distribution. Therefore, ISO and API have certain standards to follow when designing and installing the pipelines to prevent any fire, corrosion or leak issues (29).
There is different type of tankers, onshore and offshore. There are also special floating oil tanks offshore where they have a capacity of holding more than one million barrels. This is a new way of storing oil in order to ship it to the ocean tankers. Oil Ocean Tankers are designed with new systems where every ship has an average of fifteen oil tanks separated from each other inside the ship. This new intelligent design is implemented recently in case of any fire in any of the tank, it doesnt affect the other tanks and therefore the loss of oil value is minimized (29).
Marketing
Marketing is the wholesale distribution of final petroleum products to variable business needs ranging from government, public customers, private consumers and other businesses worldwide. The oil and gas business is controlled by monetary economics and political conditions. Other factors are also oil spills, rig exploitation rates, oil and gas contracts. Usually crude oil and gas products get transported to suppliers that provide the most granted and high value. Thus, the closest customer is the most profitable to the supplier because it would provide the lowest transportation cost and high returns. The rate of the product flow is also affected by the demand of the products, refining and quality specifications. As we can see in the gasoline prices in the U.S. fluctuate up and down due to weather, natural disasters in oil rigs or other factors mentioned before. Gasoline and Kerosene service stations handle the volume of the wholesale processes and oil industries distribute oil products directly to manufacturing, marine services, power plants, aerospace industries, automobiles and other related petroleum products consumers (29)(30).
Figure 23: OPEC Downstream Capacity: Existing & Projected (31)
Figure 24: Three Years Oil Production for OPEC Countries (32)
Figure 25: Gasoline Pump Annual Pump Average Price 1919 2011 (33)
Quality & Six Sigma Applications
Quality in oil industries is a vital part. It is not only in engineering and manufacturing processes. Its also embedded through leadership, management, decision making, planning and shipping processes. Under quality goes standards, lean sigma and six sigma phases(34). Lean Six Sigma & Process Phases Six Sigma is a quality issue solving strategy that is applied to improve the quality of a process or project outcome by reducing and getting rid of the causes of defects. The methodology uses multiple tools and techniques to achieve its goal of errors removal. In other words, Six Sigma consists of five major phases, which are abbreviated as DMAIC. The phases are: Define Measure, Analyze, Improve, and Control (34). Six Sigma Process Phases Define phase, the project studied is summarized and presented. This process consists of creating a project charter, stating a specific problem, Voice Of the Customers VOC, milestones and schedule, and the Supplier, Inputs, Process, Outputs, Customers SIPOC diagram. Thus, this phase results on a comprehensible and a constrained problem definition (34). The second phase is Measure. First, rank a list of priorities according to the most to the least relative to the problem. Then, a measurement test is conducted by testing data for various trials. After running the trials, the quality engineer collects the resulted data and start transforming these data using software tools, such as Excel or Minitab, into understandable information and charts, which are Pareto charts, Control charts, and Gage-Run charts (34). Third is the Analyze phase where the results from the measure phase are analyzed to determine the problem. The first step is to identify the factor that requires improvements and are
Critical to Quality for the ongoing process. The results from the studies done in the Define and Measure phases are going to be deployed. Also, additional tools as, 5 why analysis, fishbone diagram or cause-effect diagram (Ishikawa), Failure Modes and Effect Analysis (FMEA), and scatter plots are applied to clearly identify the problem. To indentify the major contributing root causes of various number of defects in a process, a Pareto chart can be used to simply discover the major contributing sources of defects (34).
Figure 26: Fishbone ( Ishikawa) Diagram (35) Improvement phase is the solutions found from the previous studies are implemented. All the solutions are found using the outputs of the analysis studies on the process that needs improvements. These solutions are forecasted to improve the process and get rid of any variances. The main improvements done on a process are incident free reports, minimizing process time, profit increase, increase in returns and cost reduction. Tools used in the improvements phase are kaizen, root cause analysis, 5Ss analysis, and setup reduction.
The fifth phase is Control. This phase focuses on maintaining the improvements from the previous phase. As the improvements has been applied successfully, the quality engineers work on controlling the quality standard of the process by continually applying scheduled follow up and inspections with benchmarking the reading and outputs. A systematic approach used by the majority of businesses applying the quality control of their processes is Plan-Do-Check-Act where it plans the modifications, tests the adjustments, reviews and analyzes the outcomes, and applies the adjustments (34) Industries are dependable on major objectives. Production stability, revenue maximization, high quality output, and cost reduction are the main goals that any business tries to achieve. To reach these goals, organizations apply different techniques and strategies such as financial analysis, business expansion, and quality improvements. For quality improvements, companies adapt different tools. These tools are available within quality management (34). Quality Management Quality management is defined as the exercising of quality assurance, quality control, and quality improvement to achieve the quality standard required by a business. Quality assurance is the process of observing production performance to have a satisfactory result for the customers and business. Quality control is the tools and processes of maintaining the quality standards and levels of the production. Inspection of materials and test of products go under quality control. It also includes product reliability analysis, team spirit, safety and integrity. As quality improvement is the process or techniques used to improve the quality level of the production supported by the Quality control and assurance standards (36).
Quality Control Continues Reservoir Modeling Chevron geoscientists maintain detailed, 3-D geocellular models of active reservoirs. Using sophisticated data quality control and reduction, advanced earth modeling, and project surveillance data from thousands of field measurements, they assess saturations, energy, flow capacity and zone connectivity throughout the reservoir with high confidence based on these models. This provides a basis for applying proprietary skills in Heat Management (37). The International Organization of Standardization (ISO) For quality management to be applied, different institutes has constructed a variety of quality benchmarks applicable to the work environment. These quality scales have been constructed based on research and studies done within the industries and corporations. The most well known organization is the International Organization of Standardization ISO. The ISO has established different standards, guides, and technical information that assist businesses to sustain and improve their quality standards. Because of the major significance of quality management in any industry, industrial organizations started to adapt different systematic approaches to monitor, maintain, and improve the quality level of their products and services. A main method used within the majority of businesses is Total Quality Management TQM. The International Organization of Standardization ISO defined TQM as a management approach for an organization, centered on quality, based on the participation of all its members and aiming at long-term success through customer satisfaction, and benefits to all members of the organization and to society(36).
American Petroleum Institute Standards (API) API is well established organization that is used worldwide in the oil industries and oil related projects such as oil and gas pipelines and pump stations. Every API is followed by two to three digits correspond a certain standard which is mostly relative to quality, safety in design, specification, cost and other related standardized items as illustrated in this figure: APIXXX.
Applications of Lean Sigma Real Life Projects Electrical Pump Failure This is one of SAUDI ARAMCO (Arabian American Company) lean six sigma project. They used six sigma applications with the help of green belt project leader, production engineers, mechanical engineer and foremen. This Electrical Submersible pump consists of transformers with LV, HV, ventilation box, electrical cables, sealing system and motor control. The project objective was to determine the root causes of the electrical system failure and make recommendation for improvements for a minimum of three years life. This involves implementation of process improvement and maintains a good quality control of the process. Also, the electrical system cost the company a three million dollars averaging less than three years of life (38).
Figure 27: Histogram of Electrical System Run Life / year (38) SIPOC is a supplier, input, process, and output and customers breakdown details of the electrical failure issue with pumps. Figure 28: SIPOC Supplier Power Distribution Dept
Production Engineer Alkhorayf Field Services Workover Reservoir Management Centerlift Co.
Input Electrical
Oil Cable Control Technicians Operators Well Completion Reservoir Characterization Pumps/Seals Specification Motors
Process Design pump for required Rate

Install
Output Electrical Submersible Pump to deliver oil Production
Customers - Production Dept. - Output measure = electrical submersible pumps defect ( run-life)
Maintain Replace defect pump Evaluate Performance
Figure 29: Electrical Failure Cause & Effect Diagram (38)
A cause and effect diagram indicates the problems with their causes. Brainstorming many relative causes to the problem with their causes are efficient way to lead the highest contributing causes to the effect (38).
Figure 30: Line Plot of Number of Failures vs. Number of Feeder Trips (38)
Figure 31: Pareto Chart of Root Causes of The Electric Failure (38) A Pareto chart plot is a very good way to do a root cause analysis study. As seen on the chart above, it clearly identifies the highest cause numbered 5 then 4 as these are root causes. Therefore, sand, scale, downthrust and seal are mostly likely to be the root causes of the problem
and engineers have to work mainly on these causes to improve. Then, its easy to identify and classify the problems in the order of their frequency and priority as seen in Failures Mode & Effects Analysis table shown below (38).
Figure 32: FMEA Failure Analysis (38)
Application of Lean Sigma in the Refining Process A Six sigma concept is an effective methodology used in the oil refining process because of the significance of it to monetary terms, revenues, costs, and production. Depending on the nature of oil, viscosity or composite, crude oil may contain some solids that require expensive refining such as sour crude oil where it contains water H2O molecules. This type of oil needs treatment and a process called Water Treatment Plant to separate or reduce the water from oil and use it somewhere else. The production of water of a single Water Treatment Facilities Plant is about three to six million barrels a day. When the problem gets defined, six sigma improvement teams start to analyze the procedure for treatment function. The main issues that required improvements were the oil skimming procedure, the pump reliability chemical treatment, and the distribution of the fluids into parallel tanks to improve the system performance. This is one of the problems that most of the large oil producing companies are facing and engineers are investigating resolving this issue (39). Quality tools displayed a high progress in different businesses. The applications of Six Sigma helped organizations minimize costs, breakdowns and profitability increase for many different processes. Nowadays, more than hundred organizations worldwide are applying the methodology on their production or services systems. For the crude oil and petrochemical industries, Six Sigma is applied in all of the processes of the production and manufacturing systems. Before organizations apply the methodology, they identify their processes that need improvements as an analysis for requirements to the business (39).
What Does It Mean To Operate Under A Loss Minimization Philosophy In An Oil Industry? Establish an approach that analyzes a wells performance frequently, even continuously, prior to complete failure. Reach with urgency to moderate drops in production at the most economic point. Define the well maintenance program as a system for minimizing lost production. Use well maintenance and data quality metrics to standardize , benchmark and improve performance. Raise base production/ reduce decline to new standards. Loss Minimization Cost of Poor Quality Well Testing Example: Lean Sigma principles are applied to well gauging in most of the large companies specifically at Chevron. For example, in a test station, chevron analyzes the process capability for last gauges specification, where it has a certain percentile of crude oil: PCI = Cpk = Spec / 3 Also, a graphical analysis can be drawn for an Oil Rate Barrel of Oil Per Day for a three months study versus number of days about hundred days. Then, conduct a study for any system failure and optimum production loss. At the end of the study period, an analyst could find out an oil margin work over cost payout time, decline rate and well success work rate (38).
Recommendations & Conclusion Oil production is an indirect source of our daily life. Oil and gas operations are emission dangerous gases into the air. The Gas Emission Organizations are working for a gas emission free environment at the end of 2012. Oil industries and other manufacturing organizations should look for alternatives to save the environment such as: solar energy, wind mills and other gas free generation sources. Supply chain in the oil industries consists of extracting the oil from the ground, processing and providing services to that oil till it gets transported to the end user or customer. Thus, this process is called upstream and downstream. Upstream and downstream oil industries employ almost the same principles of processes with a slightly variations in production capacity, financial costs and revenues. Upstream business includes the exploration, drilling, production, projects and purchasing of heavy essential equipment for drilling of oil onshore and offshore. Downstream business is the process flow of upstream where crude oil gets transported to downstream. Crude oil gets distributed to refineries or directly to consumers. When it goes to refineries, they treat and process the oil to be separated from water and will get petrochemical products as daily production such as gasoline, kerosene, residential and other chemicals that are used as basic industrial manufacturing. Quality plays a major role in cost reduction and identifying problems within oil productions and ensures safety and oil operations. Lean sigma is applied to refinery processes, training, management, safety, production, transportation and other problems occurring within the upstream and downstream.
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8- Drilling Beyond the Best. BP Global: Frontiers. 2004. Issue 11. Web. <http://www.bp.com/genericarticle.do?categoryId=9013612&contentId=7021453> 9- Gulf Star. Saudi Arabian Chevron Magazine.LSP Milestone Reached with Installation of Steam Generators. Issue 38, March 2008. PP 6-7 10- Chevron- Human Energy Stories. Using Steam To Produce More Oil. Web. <http://www.chevron.com/stories/#/allstories/steamflooding/>
11- The World Heavy Oil Leader. Superior Technology & Unmatched Capability: The Winning Combination. 2007 Chevron Corporation. P. 3:9
12- Hinkle & Batzle.Heavy Oils: The Leading Edge. A world Overview. June 2006. Colorado School of Mines, Golden, USA. Web. < http://crusher.mines.edu/pdf/TLE_HinkleFinal.pdf > 13- Rigs, Platforms & Oil fields, whats the difference?. March, 2009. Singapore. Web. <http://www.captainsvoyage-forum.com/showthread.php?t=1027> 14- Chevron- Human Energy Stories. Using Steam To Produce More Oil. Web. <http://www.chevron.com/stories/#/allstories/steamflooding/ > 15- Gulf Star. Saudi Chevron Magazine Wafra Field WiMAX Project Boosts Drilling Communications, Safety. Issue 38, March 2008. P. 14
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31- OPEC downstream Capacity : Existing and Projected. 2009. Web. <http://www.opec.org/opec_web/static_files_project/media/downloads/data_graphs/MI05 2010.pdf >
32- Crude Oil Production Prices. 2008. Web. <http://www.opec.org/opec_web/static_files_project/media/downloads/data_graphs/MI05 2010.pdf >. 33- Gasoline Prices. Web. <http://www.eia.doe.gov/steo/fsheets/real_prices.html> 34- Gitlow & Levine Ph.D. Six Sigma for Green Belts and Champions: Foundations, DMAIC, Tools, Cases, and Certification. 2005 Pearson Education, Inc. Publishing as Prentice Hall Upper Saddle River, NJ 07458 . P. 62: 277 35- "File:Ishikawa Fishbone Diagram.svg -." Wikipedia, the free encyclopedia. Web. <http://en.wikipedia.org/wiki/File:Ishikawa_Fishbone_Diagram.svg>. .
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Figures & Tables
Figure 1: Supply Chain Flow Diagram Figure 2: 3-D Seismic Simulation Figure 3: Drilling Process Figure 4: Kern River Production Development Figure 5: Onshore & offshore Rig Parts Figure 6: Interconnection of Many Oil & Gas Platforms
Figure 7: Drilling Bits
Figure 8: Derrick Figure 9: Four States Charts Impacted by the Oil Spill Figure 10: Weekly Statistics of BP Oil Spill Frequency of Claims Figure 11: New Containment System by Chevron Figure 12: Blowout Preventer Inner System Parts Figure 13: Blind Shear Ram Figure 14: Blowout Preventer, Rig & Blind Shear Ram Figure 15: Oil & Gas Downstream Flow Process Figure 16: Refining Process a Figure 17: Refining Process b Figure 18: Refining Process c Figure 19: Gasoline Vacuum Truck Figure 20: Offshore Well Distribution Lines Figure 21: Liquefied Natural Gas Spherical Shape Tanks Figure 22: Oil Tanks Farm Figure 23: OPEC Downstream Capacity: Existing & Projected Figure 24: Three Years Oil Production for OPEC Countries Figure 25: Gasoline Pump Annual Pump Average Price 1919 2011
Figure 26: Fishbone ( Ishikawa) Diagram Figure 27: Histogram of Electrical System Run Life / year Figure 28: SIPOC Figure 29: Electrical Failure Cause & Effect Diagram Figure 30: Line Plot of Number of Failures vs. Number of Feeder Trips Figure 31: Pareto Chart of Root Causes of The Electric Failure Figure 32: FMEA Failure Analysis Table: Four Years Cost Estimation of The Oil Spill Impacts

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Engineering Manufacturing Systems & Management

Master of Science: Engineering & Systems Management

Figure 1: Supply Chain Flow Diagram

Figure 2: 3-D Seismic Simulation

3 Selling the Deal

Figure 4: Kern River Production Development

Figure 5: Onshore & offshore Rig Parts (13)

Figure 6: Interconnection of Many Oil & Gas Platforms

3- Figure 7: Drilling Bits

Figure 7: Drilling Bits

British Petroleum BP Blowout Investigation

11400 1000 12400 25500 5466 30966 50% 20% 50%

11400 1000 12400 25500 5466 30966 50% 15% 25%

11400 1000 12400 25500 5466 30966 50% 10% 25%

1600 1400 1200 1000 800 600 400 200 0

5-May 10-May 13-May 20-May 28-May 1-Jun

Figure 10: Weekly Statistics of BP Oil Spill Frequency of Claims (19)

BP Oil Spill Claims May-June 2010

Figure 10: Weekly Statistics of BP Oil Spill Frequency of Claims (19)

Figure 11: New Containment System by Chevron

Figure 12: Blowout Preventer Inner System Parts (18)

Figure 13: Blind Shear Ram

Figure 14: Blowout Preventer, Rig & Blind Shear Ram(18)

Figure 15: Oil & Gas Downstream Flow Process

Figure 16: Refining Process a

Figure 17: Refining Process b (24)

Figure 18: Refining Process c (25)

Figure 19: Gasoline Vacuum Truck

Figure 20: Offshore Well Distribution Lines (26)

Figure 21: Liquefied Natural Gas Spherical Shape Tanks (27)

Figure 22: Oil Tanks Farm (28)

Figure 23: OPEC Downstream Capacity: Existing & Projected (31)

Quality & Six Sigma Applications

Process Design pump for required Rate

Output Electrical Submersible Pump to deliver oil Production

Maintain Replace defect pump Evaluate Performance

Figure 29: Electrical Failure Cause & Effect Diagram (38)

Figure 32: FMEA Failure Analysis (38)

Figures & Tables

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