Can Saudi Aramco’s Karan Gas Program use quality improvement tools in Offshore Drilling Operations to reduce environmental impacts?

  1. Introduction and the Nature of the Research Question

Saudi Aramco produces over 12.5 million barrels of oil daily, generating revenue of more than $1 billion dollars a day while producing 10% of the world’s oil(Saudi Aramco).  Estimates have Saudi Aramco being valued at over 30-40 trillion dollars.  This is including oil that has yet to be pumped and put into the market.  As a result, Saudi Aramco is singlehandedly one of the largest polluters in the world.  Saudi Aramco has a responsibility to reduce as much pollution as possible due to their business activities.

Saudi Aramco has stated its intentions to be able to keep up with the world’s demand for oil with a majority of its oil going to Asian markets, namely China (Mahdi, 2011).  Saudi Aramco has refineries located throughout the world.  This includes four in Saudi, two in China, one in the United States, and one in South Korea (Saudi Aramco, 2010).

Saudi Aramco is a state-owned company owned by the Kingdom of Saudi Arabia.  According to John Perkins in his book Secret History of the American Empire, he arranged for a deal to be struck between the USA and Saudi Arabia in order to have Saudi oil to backup American currency resulting in the US dollar not really being a fiat currency (Perkins, 2008).  Saudi Arabia currently holds 1.7 trillion dollars in US currency reserves (The World Bank).

The Karan Gas Program is an offshore drilling rig that is owned by Saudi Aramco and became fully functional in 2012.  The Karan field has 21 wells and five offshore wellhead platforms.  There is also drilling being carried out on 14 more wells with three more offshore wellhead platforms (Offshore Technology, 2011).

The Karan Gas Program has helped to boost Saudi Aramco’s gas production by 18%.  Karan produces 1.8 billion standard cubic feet per day (scfd) during the peak summer drilling period.  Saudi Aramco is using local participation in this venture creating jobs for the locals (Saudi Aramco).

2. Problem Statement

After the BP oil spoil in the Gulf of Mexico, the dangers of offshore drilling has been in the general public’s thoughts.  As a result offshore drilling has become a very politicized topic even though there is no disputing the positive impacts that offshore drilling has on the economy both locally and globally.

Is it possible to improve the quality of offshore drilling practices and techniques?  Is there a lack of the following of a lack of protocol or procedures that are already in place?  If so which quality management tools can be used to improve the quality and the safety of offshore drilling and techniques?

In order to understand why this issue is so important it is crucial to understand the environmental impacts that offshore drilling has on the environment.  Looking at Karan Gas program’s impact on the Arab Gulf should be sufficient to educate the reader on these impacts.

Some of the environmental risks involved in the Karan Gas project deal with the day to day operations of searching, drilling, and extracting for oil.  This causes chronic problems to the entire ecosystem of the Arabian Gulf.  The next risk happens in the unfortunate event than an oil spill occurs which causes immediate and tragic consequences to the ecosystem.

The very first risk associated with the project is in the search for the oil.  When the ultrasound is released into the water it harms large mammals that rely on sound such as the Blue Whale(Lamb).

When the drilling occurs, this affects the soft-sediment and coral-dominated limestone habitats on the seafloor.  Limestone is good for regulating pollutants in the water so when this happens it is dangerous for the ecosystem.  There is also evidence of this amongst the coral-reefs in the area due to the offshore drilling.  The coral reefs are important for animal such as small crustacean and anemones which serve as food for other animals such as fish and otters (Melina, 2010).

The Coastal Flats, Sabkhas, which can be covered by dwarf shrubs and Tussock grasses, can be affected by drilling or a spill.  They offer habitat for fish and other animals to live in as well as release oxygen for fish.  If they are damaged it can cause major problems for the eco-system.  Mudflats along the Western Coastline of the Arabian Gulf can be affected as well.  These Mudflats are covered by dense, highly productive microbial mats, comprised mainly of diatoms and cyanobacteria. These mats can form an essential habitat and food source for intertidal macrofauna. If these food sources are affected then it can affect other animals and plants living in the Arab Gulf(Melina, 2010).

Sea grass communities are widespread in the Arab Gulf and fish use them for living as well as for hatching baby fish and nurseries.  They can be harmed from a spill or from drilling. They also sustain shrimps, green turtles, and the world’s second largest population of the endangered dugong, Dugong dugong(Melina, 2010).

Crustaceans, Mollusks, and other invertebrate live in the area, if an oil spill occurs this population will be heavily affected.  Also if the area sustains damage over time they will be affected as well.  Dolphins, whales, and sharks live in this area so in the event that an oil spill occurs, this population will be heavily affected.  Also if the area sustains damage over time they will also be affected (Melina, 2010).

The oil exploration, drilling, and extraction, as well as shipping of the oil have caused long-term pollution of the Arabian Gulf. However, despite this the coastal habitats have shown resiliency and the ability to bounce back.

The use of equipment and burning of energy can cause Carbon and other GHG gasses to be released into the air causing air pollution.  This then can be deposited back into the Arab Gulf through the rain (NCBI, 2011).

The high hydrocarbon content in this region has been hypothesized to provide an important selective pressure favoring bacterial assemblages capable of mineralizing crude oils.  Saudi Aramco has worked on new technology in order to reduce carbon emissions as well as to reduce potential oil spills.  This has been beneficial in limiting their impact on the environment (NCBI, 2011).

3. Literature Review

What is and what is not quality in terms of offshore drilling?  This has been recurring theme in research journal articles in relation to offshore drilling. One definition of quality is, “Conformance to requirements if we are to manage it” (Duncan, Le Moign, McMorran, & Nordquist, 1996).  Quality Management also deals with continuous process improvement and customer satisfaction (Gupta & Graham, 1997).

In the past oil companies focused on how fast that they can get a rig up, get it operational, then move on to the next location.  For them this was what quality was, how fast that they can expand operations.  As a result, the quality of the end product, the well suffered (Duncan, Le Moign, McMorran, & Nordquist, 1996).

During the 1980s oil companies realized that this really was not quality and was actually detrimental to their bottom line.  This was due to the need of cutting costs an squeezing the most out of every dollar spent.  The companies had to do this in order to ensure their survival and increase their bottom line.   As a result quality was determined to be the single factor that would make or break a company. Up until this time methods for improving quality was only used in industries outside of the oil industry (Duncan, Le Moign, McMorran, & Nordquist, 1996).

Some of the questions that managers in the oil industry must ask themselves are: Where is my organization now in terms of quality?  Is there a gap in internal vs. customer in terms of product, project, or service quality?  What dimensions of quality are important to my customers?  What needs to be done and in what sequence?  What will be the short and long term payoffs? (Gupta & Graham, 1997).

One of the best ways to improve quality is to change the culture of a company into a quality culture.  This should be emphasized and stressed within every level of an organization. This has resulted in reorganizing the way tasks are performed and toward reengineering the management structure and interfaces (Duncan, Le Moign, McMorran, & Nordquist, 1996).

Diamond Offshore Drilling, Inc. is a company which has been successful in changing the culture of their company.  This has been done by focusing on Total Quality Management (TQM), Business Process Reengineering (BPR), and Continuous Quality Improvement (CQI)(Gupta & Graham, 1997).

Diamond Offshore Drilling, Inc. developed a process called Global Excellence in Management Systems (GEMS).  This program was designed to oversee the entire quality process and to establish, review, and assess quality goals and implementation processes (Gupta & Graham, 1997).

Diamond Offshore Drilling, Inc. began this process by creating a study of their six main customers.  The results were divided into three main categories: 1. Analysis of rig utilization and market share; 2. Understanding of buyers’ buying criteria; and 3. Customers’ perceptions of Diamond relative to other offshore drilling contractors (Gupta & Graham, 1997).

There were three stages in performing this data.  The first stage was an internal assessment.  This involved detailed interviews, questionnaires, and focus groups.  The second assessment involved an external assessment.  An extensive interview guide was developed to standardize data collected from each customer.  Some of these questions dealt with the perception of Diamond and Diamonds performance in comparison to its competitors.  The third stage involved the analysis of the data collected.  It was found that Diamond was viewed as equal to most drilling contractors in the Gulf of Mexico but was behind the perceived industry leader. This resulted in Diamond’s market share as being in the middle of the pack. It was also found that the industry leaders were charging, on average, 5% above the market share (Gupta & Graham, 1997).

As a result of the analysis Diamond devoted more resources towards its Total Quality Management program resulting in its GEMS program.  It was realized that by doing this Diamond could increase its market share and its overall revenues. The major goals of the GEMS program were to Diamond’s quality of service through proactive initiatives and to achieve the mutual synchronization of perceptions between Diamond’s management and its customers regarding Diamond’s performance, service quality, and overall status in the offshore drilling industry (Gupta & Graham, 1997).

After GEMS was implemented another questionnaire was given to their customers and it was found that Diamond had improved dramatically.  One-fourth of the respondents indicated that Diamond was their preferred supplier.  The perception of Diamond had also changed into being an industry leader.  Also Diamond was able to get new contracts from organizations that had refused to do business with them previously which resulted in a higher market share and an increase in revenues (Gupta & Graham, 1997).

Sedco Forex is also another company that focused on changing its company culture.  They did this through three distinct phases: 1. Conviction-Deciding that something needs changing; 2. Commitment-Demonstrating a serious need to change; 3. Conversion-Embracing the change (Duncan, Le Moign, McMorran, & Nordquist, 1996).

Sedco Forex believes that a Total Quality System should be simple and well defined.  It should be passed through all elements within the organization and everyone should understand it.  It should be focused towards both clients and employees. Actions should be proactive not reactive.  The ultimate goal should be to work towards constant quality improvement, which good is never good enough.Sedco Forex also works towards keeping ISO 9000 certification (Duncan, Le Moign, McMorran, & Nordquist, 1996).

The Center for Offshore Safety was developed to create guidelines and techniques for steadily improving quality and offshore safety in the oil and natural gas industry.  The center gathers industry practices that foster safe and responsible operations, shares the information and helps operators improve their safety and environmental management systems (SEMS). The center also helps companies synch their SEMS with new regulations from the U.S. Bureau of Safety and Environmental Enforcement (BSEE)(Green, 2013).

Charlie Williams the Director for the Center for Offshore safety states that, “Quality comes from companies building safety programs and processes – and the monitoring systems so that those programs keep improving. That’s not diminishing the role of enforcement; it’s saying that the best safety programs and monitoring mechanisms will come from industry”.  This implies that companies need to always work on developing their own safety programs which will in turn improve their overall quality (Green, 2013).

Harvard Law School’s Emmett Environmental Law and Policy Center believes that a management system must be put into place that aim to improve the financial, safety, and/or environmental performance on a company-by-company basis by means of corporate self-assessment and goal-setting.  Common features of management systems include systemic assessment of business risks or impacts, plans for how these can be reduced or mitigated, and processes for evaluation and continual improvement (Hastings, Romney, Sophie, & Jacobs, 2012).

Harvard Law School’s Emmett Environmental Law and Policy Center also states that, “Management systems attempt to foster a culture of safety in industry by requiring operators to take responsibility for identifying and mitigating specific risks of their operations. Placing this responsibility on industry should mean that the regulatory framework keeps pace with technological developments, since operators must re-assess their risks as they amend their practices or equipment. Management systems can also create incentives to go beyond the minimum level of safety set by the regulator andfind the best possible way of reducing risks. Drawbacks of management systems include their cost and the potential for superficial implementation which does not change practices or improve safety (Hastings, Romney, Sophie, & Jacobs, 2012).

By implementing a combination of management systems such as ISO 14000, ISO 14001, the United Kingdom’s Safety Case, and DOI’s SEMS it is believed that companies can improve their overall safety and quality within their offshore drilling projects (Hastings, Romney, Sophie, & Jacobs, 2012).

An all-electric industrial robot has been developed whose aim is to improve quality, efficiency, and safety in offshore drilling operations. One objective of automation is to improve drilling efficiency and safety through the elimination of repetitive tasks performed by rig workers.  According to the article:

“The main benefit of rig automation is consistency. Connections made by an iron roughneck, for example, should have exactly the same make-up torque applied over and over, to ensure that connections made near the end of a 12-hour tower are exactly the same as those made at the start. Machines do not suffer mental letdowns that can affect tired floor hands. Where humans are involved, long periods performing repetitive tasks can have a stultifying effect that can result in inattention, or in the worst case, short cuts that can cause a serious accident. Machines are unaffected by weather extremes, darkness, or slippery decks. They never get tired. Most of all, machines can be programmed to avoid other machines so they work in concert to perform multiple, complex tasks. But in spite of all these wonderful attributes, machines cannot think.”(Ghiselin, 2013).

The technology is able to lift heavy equipment, lift heavy equipment, and put out fires instantly.  They need monitoring by humans in order to ensure that they are working properly. They are still under development but represent the next generation of quality improvement in offshore drilling (Ghiselin, 2013).

4. Analysis

Yes, Saudi Aramco can improve its quality practices with Karan Offshore Gas Program.  A consistent theme in improving offshore drilling is to implement a TQS with an emphasis on changing the company culture.  By doing so overall revenues and market shares can be increased.  Some of the standards which can be implemented is ISO 9000, 9001, 14000,  and 14001. It is important to consistently focus on improving qualified and to never be satisfied with the current quality no matter how good the quality perception is.

The new automation technology being developed has a high ceiling to improve overall quality, and is a technology that every company should utilize. Not only does it improve quality but increases safety and can perform tasks that humans are unable to perform.

5. Recommendation

Saudi Aramco should develop a questionnaire and perform interviews with their clients in order to gage client’s perceptions of the Karan Gas Program.  ISO 9000, 9001, 14000,  and 14001 standards should be utilized and they should consistently focus on improving quality.

Saudi Aramco should study the quality practices of companies such as Diamond and implement them. Saudi Aramco should also use the new automation technology whenever it becomes available.

6. Reflection

In doing this paper I learned the importance of constantly improving quality.  Not only does it increase revenues and market share, but it improves safety and helps to prevent disasters which can have a dangerous impact on the environment which happens whenever there is an oil spill.

This is a topic which interests me because I work in environmental consulting and would like to help companies such as Chevron to improve their practices in order to prevent environmental disasters.

Bibliography

Duncan, E., Le Moign, Y., McMorran, P., & Nordquist, E. (1996). Quality in Oilfield Operations. Oilfield Review, 20-35.

Ghiselin, D. (2013, April 11). All-electric industrial robot aims to improve quality, efficiency, safety. Retrieved from Offshore: http://www.offshore-mag.com/articles/print/volume-73/issue-4/drilling-and-completion/all-electric-industrial-robot-aims-to-improve-quality-efficiency.html

Green, M. (2013, May 4). Managing Continuous Improvement in Offshore Drilling Safety [INFOGRAPHIC]. Retrieved from The Energy Collective: The world’s best thinkers on energy & climate: http://theenergycollective.com/mark-green/220551/managing-continuous-improvement-offshore-safety

Gupta, V. K., & Graham, D. J. (1997). A Customer-Driven Quality Improvement and Management Project at Diamond Offshore Drilling. Project Management Journal, 22-28.