Successfully reported this slideshow.

Changed program management requirements in unconventional gas programs


Published on

Satisfying growing energy requirements is a global challenge that will persist for decades to come. Meeting this challenge will require us to more efficiently use the energy we have but also increasingly require us to tap new sources of energy. Among these potential new sources are so-called unconventional gas resources which hold great promise particularly in the US. The unconventional gas industry is still in the earliest stages of development but sustained high levels of development and production will require the industry to develop a more programmatic approach.
The attached paper, “Changed Program Management Requirements in Unconventional Gas Programs” focuses on the US unconventional gas market and shares some observations on how program delivery may need to evolve to meet the unique aspects of this market.

  • Be the first to comment

  • Be the first to like this

Changed program management requirements in unconventional gas programs

  1. 1. PM World Today – November 2011 (Vol. XIII, Issue XI) PM WORLD TODAY – FEATURED PAPER – NOVEMBER 2011 Changed Program Management Requirements in Unconventional Gas Programs By Bob PrietoUnconventional gas represents an emerging energy option for a world whichincreasingly appears to have no clear and easy energy supply winners. This race todevelop unconventional gas resources is in many ways being driven by prospects in theUnited States, but early involvement of large global players sends a clear signal that thistechnology will be exploited more broadly. These new unconventional gas programsemploy evolving technologies, building on 60 years of experience, but more importantlyare witnessing the need to evolve program delivery models from those employed onmore traditional oil and gas projects.In this paper we will limit our focus to the US unconventional gas market and sharesome observations on how program delivery may need to evolve to meet the uniqueaspects of this market.What is the Unconventional Gas Opportunity in the US?Unconventional gas, or shale gas, developed by use of hydraulic fracturing or frackinghas transformed the US from a situation where gas production was declining to onewhere it is once again growing. Shale gas discoveries and the ability to exploit thosediscoveries through both vertical and horizontal drilling with fracking have extended USgas supplies to a 100 year horizon.The year ahead should see over $7 billion of new investment in unconventional gas forwell investment, new gas plants, new natural gas liquids fractionation plants, new andretrofit pipeline plans, and well hook ups. This annual level is expected to grow…ifconcerns are addressed and more efficient program delivery strategies are employed© 2011 Bob PrietoPM World Today is a free monthly eJournal - Subscriptions available at Page 1
  2. 2. PM World Today – November 2011 (Vol. XIII, Issue XI) Shale gas offsets declines in other U.S. supply to meet consumption growth and lower import need U.S. dry gas production (trillion cubic feet per 30 History Projection 1% 25 Net imports 20 11% Shale gas 45 14% 15 20% Non-associated onshore 8% 10 9% Non-associated offshore 8% 28% Tight gas 22 5 2% 8% Coal bed methane 9% Alaska 7%1% 0 Associated with oil 7% 1990 2000 2009 2020 2035© 2011 Bob PrietoPM World Today is a free monthly eJournal - Subscriptions available at Page 2
  3. 3. PM World Today – November 2011 (Vol. XIII, Issue XI)What are some of the Concerns?Unlike conventional oil and gas developments where a smaller number of higher volumewells are drilled and where fracking has been more limited in scope, unconventional gasdevelopment requires a much more extensive drilling program and the use of muchlarger quantities of water. The logistics and environmental issues associated with thischanged delivery give rise to a set of concerns which include:  Potential groundwater contamination  Traffic, safety, damage to roads and bridges, and other unconventional gas construction activity over a broader area  Potential for increased accidents and surface spills associated with frac chemical handling  Waste disposal related to frac return water; dissolved solids and radioactive isotopes from the wells  Air quality  Water useTo put some dimension on the differences between conventional and unconventionalgas development consider the following: Conventional Gas Unconventional GasCAPEX $ 1 billion $ 1 billionNumber of wells 5-6 400 - 600Water Required per Nil 3 – 5 million gallonsWellSand per well Nil 700 – 1500 tonsChemical additives per Nil 6000 gallonswellGas Production 2x 1xNew Program Delivery ChallengesUnconventional gas development programs are not our father’s gas developmentprograms nor are the fracking operations of today comparable to those used inconventional wells. In many ways the large, single location well and associated plant ofthe past is being replaced by a new distributed plant with many more smaller scaleactivities. These smaller scale activities however have associated with them logisticaland infrastructure demands that dwarf those encountered in extracting comparablevolumes of conventional gas.© 2011 Bob PrietoPM World Today is a free monthly eJournal - Subscriptions available at Page 3
  4. 4. PM World Today – November 2011 (Vol. XIII, Issue XI)In many ways these new unconventional gas programs sit at the intersection of:  Traditional oil and gas project skills  Infrastructure stakeholder, permitting, environmental, traffic and associated design and construction skills, and  Multi-plant operations, maintenance and small CAPEX delivery skillsThis new program paradigm creates new challenges that include:  evolving regulatory and permitting environments at the local, state, federal and multi-state commission levels  major stakeholder engagement programs  utilization of significant quantities of water for fracking, drawn from basins that in many instances have had limited industrial usage  generation, tracking and treatment of large quantities of frac water  pre- and post-environmental monitoring and reporting both as a risk mitigation strategy as well as to meet regulatory requirements  new temporary and permanent civil infrastructure, across wide areas of geography, spanning multiple jurisdictions  logistical challenges that will continue to evolve as unconventional gas resources are built out  fleet management challenges including safety, training, logistics, dispatch  new gathering lines  ability to access federal aid to highway facilities for longitudinal transport of gas  development of new intrastate and interstate transmission capacity  potential liquefaction facilities  waste water treatment strategies and facilities  public private partnershipsWith awareness of these new challenges, current program delivery strategies can beassessed and some conclusions about a path forward suggested.Observations on Unconventional Gas Program RequirementsThe following observations are drawn from a review of the conventional gas market andsuggest that a more comprehensive, life-cycle oriented program management approachmay provide improved risk mitigation, safety regime and cost benefits. We believe thismore comprehensive and integrated approach will become more important as themarket scales up and as the associated technologies are deployed on a global scale.© 2011 Bob PrietoPM World Today is a free monthly eJournal - Subscriptions available at Page 4
  5. 5. PM World Today – November 2011 (Vol. XIII, Issue XI) Ten Observations on the Current State of Unconventional Gas Program DeliveryObservation #1 – Program Management not being effectively deployed as adelivery strategyMany current efforts in unconventional gas are being approached on a project or multi-project basis with opportunities associated with a programmatic approach not being fullyrealized. Such opportunities relate to broader stakeholder management; environmental,health & safety (EH&S); risk management including liability management; supply chainand logistics; and longer term asset managementObservation #2 – Specialized resources are being deployed to lower valueactivitiesUnconventional gas players are deploying large numbers of their limited, specializeddevelopment and production resources in the management of local suppliers andcontractors. Demands are exacerbated by the distributed nature of the “plant” and thepresence of new issues associated with the deployment of fracking technology (watersupply, waste water collection and treatment or disposal, water quality monitoring, watertransport, reporting). Diversion of these resources from exploration, development andproduction sub-optimizes the owner’s returns.Observation #3 – A new risk focus is required reflecting the intersection ofmultiple program environmentsUnconventional gas development represents the combination of a set of risk driverstraditionally not found in oil and gas projects. For Fluor this set of risk drivers arecollectively what we experience in a number of our business lines and include:  energy & chemicals – drilling, pipeline, gas treatment risks; energy regulators  infrastructure – distributed “plant”; multiple often competing stakeholder interests; higher public and press visibility; programs comprised of a multiplicity of projects that are geographically dispersed; multiple often overlapping permitting authorities and regulatory bodies; local procurement and capacity building pressures; increased 3rd party liability exposure (risk is proportional to the length of the fence it would take to enclose the impacted area  global services – multiplicity of small CAPEX projects for a single owner; asset management focus on minimizing spares; distributed maintenance operationWe have spent considerable time in thinking through how to get the right risk focus.Observation #4 – Regulatory risks are both beyond traditional gas player areas ofexpertise and evolving at multiple government levels.Regulatory environment is evolving and rate of evolution is likely to accelerate before itslows down. Unconventional gas needs better pre-existing condition data, real time© 2011 Bob PrietoPM World Today is a free monthly eJournal - Subscriptions available at Page 5
  6. 6. PM World Today – November 2011 (Vol. XIII, Issue XI)monitoring of both construction impacts and any operations phase anomalies. Theinfrastructure project type nature of unconventional gas development opens new doorsfor regulatory and permitting mischief. A litigation framed risk mitigation strategy similarto that employed on many infrastructure projects may be appropriate.Observation #5 – Brand risk is growing as the number of multiple points of“failure” growsBrand risk will be high because of the multiplicity of failure modes so pre-emptive brandprotection strategies related to environmental, health and safety will becomeincreasingly important. Brand risk will also exist to the extent that local corruption withrespect to permitting activities is present.Observation #6 – New supply chains and new supply chain strategies arerequired.Supply chain is not the traditional many sources to one (or a few) points. It is manysources to many points. Client furnished material percentages (CFM %) appears to below compared to broader industry practice representing a cost savings opportunity.Logistics chains are becoming overwhelmed and conditions on certain aspects aredegrading.Observation #7 – Stakeholder engagement and management models will not bedrawn from the conventional oil and gas industry practices.Stakeholder engagement programs will increasingly be required to look like thoseundertaken for large infrastructure programs with high touch and recognition that thereare a multiplicity of communities that will need to be engaged.Observation #8 – Latent safety risks exist today and are growingSafety risks are elevated during construction because of a large untrained anddistributed workforce. Class action type labor risks can be mitigated through provensafety training programs such as the driver safety training program deployed by Fluoron the South Carolina Construction and Resource Manager (CRM) program.Observation #9 – A more robust contracting community with requisite skills andimproving practices is requiredLike all infrastructure projects there will be growing pressure to mobilize localcontractors and labor force. This requires a programmatic approach to ensure sufficientqualified contractors with increasing scale capable of reproducing quality results. Bestpractices will need to be captured and leveraged and systemic craft and contractortraining programs similar to what Fluor has implemented on other large programs may© 2011 Bob PrietoPM World Today is a free monthly eJournal - Subscriptions available at Page 6
  7. 7. PM World Today – November 2011 (Vol. XIII, Issue XI)be considered.Observation #10 – The opportunities of leverage that strategic programmanagement can bring still lie ahead.Consistency across multiple unconventional gas plays will promote efficiencies. Thisleveraging effect is applicable across all phases (planning, permitting, design,construction, operations and maintenance)Implications for Program DeliveryThese new challenges must be addressed in new ways recognizing the distributednature of this asset base and life cycle characteristics different from many existingproduction platforms.We believe an integrated program management approach that reflects the uniqueintersection of three traditional program delivery markets is required. Specifically, webelieve the needs of the unconventional gas market can be best met through anapproach that integrates:  infrastructure focused strategic program management capabilities that include: o early involvement in project definition, selection and siting o strong, early and ongoing stakeholder management programs and dashboards tailored to public concerns o regulatory, permitting and agency engagement o transportation modeling o civil engineering oriented design and construction o environmental mitigation o public private partnerships including use of unique structures that may open new right of way options  energy and chemicals focused PMC and PMC+ capabilities that include: o strong baseline centric driven program management o resilient risk assessment and management o offsites and utilities engineering and construction o pipeline and compressor design and construction o water and wastewater treatment and recycling o solid waste handling and disposal o chemical tracking and storage o industry leading safety program© 2011 Bob PrietoPM World Today is a free monthly eJournal - Subscriptions available at Page 7
  8. 8. PM World Today – November 2011 (Vol. XIII, Issue XI) o regulatory and permit reporting  operations, maintenance and logistics capabilities that include: o infrastructure and treatment plant operating and maintenance services o material management services including strategic procurement, logistics, warehousing and free issue o small cap project implementation o asset management and improvement Like all good program management, successful delivery of unconventional gas programs will require:  Strong and decisive leadership by senior management  Early, consistent, and direct involvement of frontline staff  Engagement and ongoing involvement by each stakeholder population both within the owner’s organization as well as externally  Acceptance and projected confidence in the implementation of new strategies and solutions at an early program stage  Use of experienced, neutral, and external facilitators to o drive organizational change management and alignment processes o identification of latent conflicts for resolution o facilitation of building the required multidisciplinary team focused on undertaking the program management “journey”  Clear recognition that many parts of the project delivery system need to be restructured simultaneously for effective program delivery  Collective determination of key performance indicators and their application  Comprehensive data analysis by experienced staff with a programmatic and systemic focus and timely reporting of Key Performance Indicators (KPIs)  Recognition and reward for success emphasized over penalty for failure  Appropriate resourcing of program management role with sufficient flexibility to migrate the organization structure and skills mix as the program evolvesIn order to be a viable energy supply competitor, the unconventional gas program musthave a life cycle focus. The linkage between operating revenues and program quality asmeasured by total system availability will be a key performance metric and will require aflexible, lean and cost effective EPC capability potentially coupled with innovativefinancing approaches for non process infrastructure to lower capital costs.As operators we understand that what is designed and built is linked to the productivity,labor, materials and energy costs experienced in operation. Common equipment typesand broader asset management strategies must be deployed to reduce inventoryrequirements© 2011 Bob PrietoPM World Today is a free monthly eJournal - Subscriptions available at Page 8
  9. 9. PM World Today – November 2011 (Vol. XIII, Issue XI)Unconventional gas will drive new infrastructure networks and the reconfiguration ofmany that currently exist. Stakeholder communities will go well beyond the immediatevicinities of individual projects. A focus on sustainability that begins at the very outset ofthe program, influencing project selection, water extraction strategies, treatmentoptions, and traffic management is essential.SummaryUnconventional gas is a key element in meeting the energy supply needs of the US andthe world in the years ahead. It is a market with a set of challenges different than thoseexperienced in the conventional oil and gas markets driven by both its “distributedplant”, high infrastructure impacts and its position squarely at the intersection of theworld’s energy and water challenges in the decades ahead.New challenges require new models or the adaptation of those that have served us wellin the past. The authors see the new management model sitting at the intersection ofthree markets which currently employ variants on program management. Blendingthese approaches to obtain the right program management model for theunconventional gas market will be a key factor in its long term success.© 2011 Bob PrietoPM World Today is a free monthly eJournal - Subscriptions available at Page 9
  10. 10. PM World Today – November 2011 (Vol. XIII, Issue XI)About the Author Bob Prieto Author Bob Prieto is a Senior Vice President of Fluor Corporation, one of America’s largest engineering, construction and project management firms, where he is responsible for strategy insupport of the firm’s Industrial & Infrastructure Group and its key clients. He focuses onthe development, delivery and oversight of large, complex projects worldwide. Prior tojoining Fluor, Bob served as chairman of Parsons Brinckerhoff Inc. He served as amember of the executive committee of the National Center for Asia-Pacific EconomicCooperation, a member of the Industry Leaders’ Council of the American Society of CivilEngineers (ASCE), and co-founder of the Disaster Resource Network. He currentlyserves on a number of committees looking at issues related to infrastructure deliveryand resiliency and disaster response and rebuilding and is a member of the NationalAcademy of Construction. Until 2006 he served as one of three U.S. presidentialappointees to the Asia Pacific Economic Cooperation (APEC) Business AdvisoryCouncil (ABAC) and previously served as chairman of the Engineering and ConstructionGovernors of The World Economic Forum and co-chair of the infrastructure task forceformed after September 11th by the New York City Chamber of Commerce. He recentlycompleted ten year tenure as a member of the board of trustees of PolytechnicUniversity of New York culminating in its merger with New York University. Bob is theauthor of “Strategic Program Management” published by the Construction ManagementAssociation of America (CMAA) and more recently a companion work entitled “Topics inStrategic Program Management”. He is a member of the National Academy ofConstruction.© 2011 Bob PrietoPM World Today is a free monthly eJournal - Subscriptions available at Page 10