Fit-for-purpose delivery reducing project costs
While the oil price remains low and development costs have been soaring over the last decade, Australian gas companies are focused on identifying opportunities to decrease overall spend, which is why fit-for-purpose delivery is gaining traction in many quarters. But what exactly is fit-for-purpose, and how can it help you save money?
Fit-for-purpose is often thought to refer to taking design and construction back-to-basics by removing unnecessary over-engineering. However, according to Fergal Convery, Business Development Manager at Powered, the true definition is when something is well-suited to the specific job it was designed to do.
“If a piece of equipment is not designed to be fit-for-purpose, when it’s supplied to a development it will likely either underperform or over-perform, at either an unwanted additional capital or operational cost to producers.
“Being fit-for-purpose meets two important objectives, ensuring that the requirements are met, and not spending money unnecessarily,” Mr Convery said.
Applying to Australian markets
Fit-for-purpose is a conscious management decision that is either an embedded culture within a business, or can be decided on at the start of a specific project. It is a desire to provide a scope and specification that does not extend beyond the requirements of the project.
Mr Convery said it is generally applied to Australian gas developments through controlled sensible engineering and project management decisions, which keep the development’s design within scope and budget.
“Historically it has predominantly been the cash-strapped smaller companies who aggressively adopt the fit-for-purpose approach to development projects due to limited funding availability and a strong desire to get bang for their buck and shareholder value,” Mr Convery said.
“However, since the collapse of the oil price and the slowing of the CSG development boom, many of the larger companies are now striving for a fit-for-purpose approach.”
CEO of Wasco Energy Mel Whyte said there can be an impact on projects when facilities are delivered under a regime that is not fit-for-purpose.
“When an owner’s instruction to project leaders is clearly not to deliver facilities that are fit-for-purpose but instead demands ‘best practice’, the cost and time of converting projects from concept to commissioning increases significantly. Best practice seeks to find more, while fit-for-purpose seeks to find less, by often replicating a design that worked in the past,” Mr Whyte said.
For example, less than 10 years ago in Australia, gas compressor stations were being constructed for less than $1 million per TJ of installed capacity, and a facility was typically designed and constructed in less than 12 months.
Without a fit-for-purpose approach, a factor of three has emerged where similar developments have recently been costing around $3 million per TJ installed, and taking three years to design and construct.
Finding a design balance
Mr Whyte said fit-for-purpose delivery was successfully used in many Surat and Bowen basin assets that were developed five to 10 years ago, including well hook-ups, gas and water gathering lines, compression and processing facilities, meter stations, and high pressure pipelines.
“These were all delivered by a single multidiscipline EPC contractor. These projects were delivered in a seamless Concept-FEED-EPC regime where safe, reliable and fit-for-purpose was the philosophy,” Mr Whyte said.
Wasco continues to deliver complete fit-for-purpose solutions for gas and water gathering, gas compression and export, with the model featuring in-house design, project management, procurement, fabrication and field construction.
Mr Convery said the key word that other gas companies need to consider in order to follow fit-for-purpose delivery, like Wasco, is ‘design’.
“If the design is not fit-for-purpose and is over or under designed, then the equipment supplied, and facilities built, are likely to be unsuitable for the job at hand, and result in either increased capex or opex.
“Also, if a design is done in isolation from previously satisfactory asset designs based on the same concept, this obviously results in many months of additional rework, impacting on schedule and budget, as well as possibly delivering a product that does not have the same level of fitness-for-purpose as the original assets,” Mr Convery said.
If Australian gas companies are wanting to refocus their capital budgets and decrease expenditure, Mr Convery said they should be looking into ways to integrate a fit-for-purpose approach into their operations.
“This concept is so important because it helps to reduce spend and make new developments commercially viable, and existing assets successful,” Mr Convery said.