The effect of Oil Prices and Automation spending

With oil and gas activities growing like gangbusters, process automation and instrumentation companies are understandably calling a lot of attention to those activities, emphasizing their capabilities in a burgeoning industry including the industrial roll off services to transport the material. But at so many of the latest user group meetings that have filled my fall travel schedule, there’s also been an increasing amount of talk about oil producers struggling with exploration costs and falling prices in a competitive market.

Automation execs point to concerns about mega projects becoming perhaps a little too prevalent. At Emerson Exchange last month in Orlando, Fla., Steve Sonnenberg, president of Emerson Process Management, talked about how today’s projects are getting bigger and more complex than every before. “In the oil and gas industry, the number of projects over a billion dollars has quadrupled in the last 10 years,” he said.

But can that be sustained? At the Yokogawa Users Conference a couple months ago in Houston, Chet Mroz, president and CEO of Yokogawa America, mentioned that Chevron was cutting way back on it capital expenditure. The major oil producer just had too many mega projects going on all at once and realized they needed to scale back. Chevron announced last month that it was delaying the development of the second phase of a deepwater natural gas project off Indonesia. Yokogawa certainly feels the effects of such cutbacks.

Honeywell, GE and Emerson have all indicated that they expect near-term oil industry spending to remain constant, but extended low oil prices will affect 2015 O&G revenues.

At the same time, conversations about falling gas prices often lead to the reasons why exploration companies need to pursue automation all the more—to improve efficiencies and get the most out of the drilling operations. At GE Intelligent Platforms’ User Summit just last week in Orlando, I spoke with an engineer from one of the largest onshore drilling companies who was very excited at the prospects of applying what he’d learned to his operation’s shale efforts.

Whatever the anecdotal evidence is, Global Automation Research contends that its predicted five-year growth rate for process instrumentation and automation in oil and gas will not decline, despite a drop in crude oil prices from a high of $113 in June to about $85 in October. “We were naturally concerned that a price-related cutback in oil production spending would impact our forecast,” said Paul Rasmusson, president of Global Automation Research, in a report, noting that was not the case.

Oil prices have been dropping because of an oversupply caused not only by a worldwide drop in demand but also increased production from U.S. shale and also in Libya and Iraq. Saudi Arabia also plans to maintain its production rather than push prices back up with OPEC’s usual tactics of reducing production.

According to the International Energy Agency, only a small portion of U.S. oil production will be affected by the lower prices. Most U.S. shale production costs range from $65 to $75, letting them maintain moderate growth with the selling price at $85. There is more risk for oil sands production in Canada, where the breakeven price is $100.

Global Automation Research expects oil industry spending on process instrumentation and automation to continue at its current rate through the end of this year and into the next. “Oil companies will finish projects near completion, continue drilling and production activities to maintain trained crews, and press suppliers for efficiency improvements,” the report said.

However, continued low oil prices would likely mean a drop in industry spending, the report continued. “Both Shell and ConocoPhillips have said that lower oil prices will drive the 2015 capital expenditures lower,” the authors said. “Honeywell, GE and Emerson have all indicated that they expect near-term oil industry spending to remain constant, but extended low oil prices will affect 2015 O&G revenues.”

The recovery of European, Chinese and Indian economies over the five-year forecast period would drive oil demand to levels that support higher oil prices, leading to the recovery of automation spending.


Programmable Logic Controller

The most popular control systems today use modular Programmable Logic Controllers (PLCs) , they are able to provide simple operation of highly precise automation tasks.

Almost 85% of the PLC marked is dominated by Siemens SIMATIC PLCs. Industrial Control offers a wide range of PLCs including Siemens Simatic S7 200 series, 300 series and 400 series PLC for our customers automation tasks.

We also offer the SIMATIC S7-1200, a compact, versatile, and powerful modular PLC that will fit a variety of applications. The SIMATIC S7-1200 is suitable for customers seeking an inexpensive solution for processing small-size applications.

At the core of majority of our applications is the Siemens SIMATIC ET 200S, a Programmable Logic Controller with a efficient multifunctional I/O system. It provides our customers a comprehensive range of capabilities and scalability. Coupled with the ET 200S intelligent motor starter, this powerful platform implements intelligence and advanced diagnostics to any motor control environment.

simatic-et200m-im153-4-pnThe SIMATIC S7-300 PLC is an all-purpose automation system that is ideal for applications which require a flexible concept for central as well as local configuration. Able to use the highly effective PROFinet or industrial Ethernet, it enables interfacing within networks of controllers and simple data exchange from the plant to enterprise level.

The high end controller from Siemens is the SIMATIC S7-400 . The S7-400 is especially suitable for data-intensive tasks in the process industry. High processing speeds and deterministic response times guarantee short machine cycle times on high-speed machines in the manufacturing industry.

The S7-400 is used preferably to coordinate overall plants and to control lower-level systems. This is guaranteed by the high communication power and the integral interfaces. Many of the S7-400 components are also available in a SIPLUS version for extreme environmental conditions.