An insight into the world energy supply and demand

1. “The future of oil and gas supply amidst
persistent cost overrun: A review”
By
Evans Akwasi Gyasi
PhD Researcher
(Warwick University, UK)
E.A.Gyasi@warwick.ac.uk

2. Outline
Introduction
Cost overrun
Method
Findings and Results
Conclusion

3. Introduction
 About 81% of world energy demand is on
fossil fuel (IEA 2012, WEO 2012)
Current Oil demand is 92m/pbl (IEA 2013).
Average daily global oil production is
approximately 88m/pbl (OGJ 2013, and EIA
2013).

4. Critical Issues
Peak Oil Threat-(oil running out?)
Strict laws, rules and regulations (e.g. BP-US)
Environmental concerns (“going green”)
High risks and complexities (deep waters)

6. Demand and Supply Gap (Forecast)

7. Trend and future outlook

8. Action point
The need for different methods of oil and
gas production
Need for more innovation and technology
Efficiency in production to maximise supply
Manage and control Cost Overrun-(focus)

9. Cost overrun
 Definition: The amount by which the
actual cost of a project exceeds its budget
(Sheldom and Peng 1972).
Types include OPEX, CAPEX etc.
CAPEX overrun (Research Focus)

10. Oper
ator
Oil
Field
Start Year
&Estimate($)
End Year
Final cost($)
%Over
run
Shell Sakhali
n
2003 10b 2007 22b 120%
Agip Kashag
an
2005 7b 2009 14.9b 112%
Shell Bonga 2001 2.7b 2005 4b 48%
**Petr
obras
Upstrea
m
2010 125.8b 2012 141.8b 12%
Sunco
r
Calgary
(OS)
2011 36.7b 2011 39.6b 7.9%

11. The Threat
8 out of every 10 upstream oil and gas project
overrun its cost (CAPEX)
Global Cost overrun(CAPEX) is 40%.
Oil producing regions, recorded overruns are as
high as 50-100% (Canada, Brazil, Nigeria etc.)
Threat to Future projects and profit

12. Why bother?
Impact on oil production
Impact on oil prices and demand
Impact on global economic growth
Impact on shareholders and operators profit
Impact on host country royalties tax

15. So what?
A call to manage energy projects efficiently
There is the need for pragmatic approach to
control CAPEX overrun.
Current level of overrun (40%) requires a quick
response

16. Method
Qualitative Systematic Review method-
preliminary tool(gap)
Survey Analysis was used for the work
Survey focus (5 oil regions)
Respondents(Project Managers, Cost Engineers,
Contractors and Service providers.

17. Findings and Results
Cost Overrun Causes Impact/severity (%)
Frequent design and scope changes 23.9%
Incorrect planning and scheduling by contractors 17.8%
Delay in material procurement 11.8%
Fluctuation in prices of materials 9%
Underestimation of project duration 7.5%
Contract mismanagement 7.5%
Unforeseen conditions (risk) 7.5%
Practice of assigning contract to lowest bidder 6%
Shortage of site workers 4.5%
Lack of communication 4.5%

18. Discussion 1/3
1. Frequent design and scope changes and
Incorrect planning and scheduling by
contractors representing 23.9 and 17.8%.
Reasons
 Incomplete requirement capture
Environmental changes (bad weather)
Geographical location
Business change

19. Discussion 2/3
2. Delays in materials procurement (11.8%) and price
fluctuations (9%) are dominant factors in especially
Africa and other parts of the world eg. Nigeria,
Angola, Canada (Suncor Calgary oil sand overrun)
etc.
Reasons
organizational weaknesses
 suppliers' defaults
 governmental regulations
 transportation delays

20. Lack of clarity with respect to supplier offer
& materials specifications
Level of Approving authority
Exchange rates
Global economic instability

21. Discussion 3/3
Underestimation of project duration
Contract mismanagement
Unforeseen conditions (risk)
Practice of assigning contract to lowest bidder
Shortage of site workers
Lack of communication

22. Conclusion
There is a link between oil and gas project
performance and cost overrun factors
Finding efficient ways to control cost overrun
would increase profit margins and increase
investment for alternative energy source by
operators in the industry.
Current energy environment demands
efficiency cost management for business
survival, therefore cost control is a necessity.

23. Future Works
Is starting point towards developing a validated model
that would help predict project cost accurately
Findings can be helpful in other industries such as
military, construction, ship building, highways, and
multi-complex project companies.
Lessons will be learnt from other industries to help in
the modelling process.