A report by the Economist Intelligence Unit (EIU) says in the battle to keep aging process manufacturing infrastructure operating, organizations are prevented from making true upgrades by the lack of financial and human resources, poor project planning, and regulatory hurdles.
The lack of project support, coupled with the heavy capital investment involved with an infrastructure replacement initiative in a volatile economic climate, keeps companies wary of committing monies to make wholesale changes.
The recently released report casts a spotlight on the challenges among oil and gas, utilities, and chemicals manufacturers to control rising costs and risks with old process infrastructure. More than half of the EIU’s survey respondents (52 percent) acknowledged that investments in new technologies, including advanced asset integrity management systems and real-time assessment tools, will benefit the efficiency and reduce the risk of breakdowns or failure of their operations. They admitted that they need to do better of jobs of upfront life-cycle planning and project management.
A substantial majority of executives (87 percent) reported that aging infrastructure has had an impact on their operations in the last three to five years, including some who experienced “severe problems.” More than one in three (33 percent) said they will have to increase infrastructure spending in the next few years.
The EIU study contacted 366 high-ranking officials around the world in the oil and gas, utilities, chemicals, and natural resource industries last September. Half of the respondents were C-level executives or board members and the other half vice presidents, directors, or business unit or department heads. They were spread evenly across North America, Western Europe, and Asia-Pacific, with others in Latin America, the Middle East and Africa, and eastern Europe.
Many of them are pushing outdated system infrastructure past their normal expected limits. Limited funding forces them to make short-term repairs and stopgap measures rather than long-term improvements, which ironically requires them to be even more vigilant in getting ahead of more frequent disruptions.
“Some of our system was designed 100 years ago, with pipes that are too small to meet today’s standards,” Kevin Dunn, director of engineering for Missouri American Water, in St. Louis, told EIU. His team has aggressively replaced and upgraded the company’s 4,200 miles of water pipe infrastructure in recent years to prevent outages and to maintain operations. But it is a constant battle. “There is always a bigger need than the funds available,” he was quoted.
“The U.S. has one of the oldest power generation systems in the world,” Philipp Gerbert, senior partner at Boston Consulting Group, noted to EIU. “While these plants and networks still function, they require constant maintenance to avoid outages and are often inefficient.”
Capital intensive industries face difficulties with long-term upgrade projects because committing to them takes years and costs hundreds of millions of dollars, which dramatically impacts yearly budgets and operational plans. Big organizations typically require stakeholder and executive leadership approvals, as well.
According to the EIU report, organizations that execute better early project planning and later project management benefit in being able to prioritize resources, determine risks on the horizon that can derail projects, and overcome obstacles, such as communicating with regulators. Ultimately, this enables projects to get funding and be finished on time.
More than 70 percent of executives at chemicals operators and natural resource companies in the EIU survey cited better upfront planning as their top priority in meeting project goals. More than one in four said proactive risk management, available resources, and greater stakeholder involvement “would help overcome obstacles to delivering projects,” according to the report. And the greater the planned spend, the more critical it is to obtain executive backing, EIU wrote.
“Unless you have support from the top level, such change won’t take place,” said Liane Smith, managing director of Wood Group Intetech, a U.K.-based oil-and-gas asset integrity consultant, told EIU.
It also necessitates difficult, often radical cultural changes on the part of organizations. Cheryl Campbell, vice president of gas engineering and operations for Xcel Energy, in Denver, said the organization has “spent the last several years working to transition from a ‘wait till it breaks to fix it culture’ to one where the company replaces assets before failures occur.”
Often, technology is the big enabler. An EIU report case study was Curt Pohl, vice president of distribution operations for NorthWestern Energy in Butte, Mont., who convinced executive management to invest in a seven-year, $350 million infrastructure replacement project using predictive analytics. He showed, in three investment scenarios — reducing infrastructure spend, maintaining same level of spend and allowing for repairs and maintenance, and increasing investment level — the different impacts on NorthWestern Energy’s system average interruption duration index. The first two scenarios would have led to higher disruption levels over time.
Campbell has adopted pipeline in-line inspection tools to detect damage and infrastructure anomalies in Xcel Energy’s buried pipelines, including a pipe at the entrance to a residential subdivision that was close to breaking. “They feel like I don’t trust them even though they’ve taken care of these pipes for 30 years,” she said of frontline workers. “We quickly go from ‘Why are you questioning my ability?’ to ‘When can we do more tests in my area?’”
Another utility, Missouri American Water, is using two new leak-detection technologies, one of which is an electromagnetic in-line pipe sensor to gauge structural integrity of embedded wiring. It discovered that only one-tenth of its water main system was problematic and replaced it, rather than do a costly razing.
Ronald Lee, global leader of asset care and reliability at DuPont, told EIU that his team regularly looks at “what tools may be necessary” to track schedules and cost and quality outcomes of upgrade projects. “If we can make the infrastructure more effective for a longer time, it will generate a greater return on investment,” he said. “By being proactive and holistic, you can extract greater value from your assets.”