Sunday, November 18, 2007

Dhahran Saudi Aramco, May 1996

Dear Energy Professional, Dear Colleagues,

In May 1996, a leading US boiler manufacturing company decided to send a marketing team to Dhahran Saudi Aramco facilities to make presentations of their new product “heat recovery steam generators” to upgrade the existing simple cycle gas turbine based power stations in Saudi Arabia.

Mr. Prahlad Kaushik was responsible to make the presentations in Saudi Aramco Dhahran premises, Sales Manager from Babcock & Wilcox International Inc of Barberton, Ohio USA. Since we were the B&W’s closest JV Company to the Saudi Aramco site, I was also asked to join the mission to support at site and get ready for necessary proposal preparation if/when needed in future.

Saudi Aramco, the state-owned national oil company of Saudi Arabia, was/still is the largest oil corporation in the world and the world's largest in terms of proven crude oil reserves and production. Headquartered in Dhahran, Saudi Arabia, Saudi Aramco also operates the world's largest single hydrocarbon network, the Master Gas System. It was formerly known as just Aramco, an acronym for Arabian American Oil Company.

In 1973 the Saudi Arabian government acquired a 25% share of Aramco, increased this to 60% by 1974 and finally acquired full control of Aramco by 1980. In November 1988 the company changed its name from Arabian American Oil Company to Saudi Arabian Oil Company (or Saudi Aramco).

Saudi Aramco produces and exports more crude oil than any other company. Recent production has averaged some 8 million barrels (1,300,000 m³) per day.
I took the non-stop overnight flight by Singapore Airlines from Istanbul to Dhahran. Flight was very comfortable. I recall zero-size beautiful Singaporean hostesses serving the meal.

We landed to Dhahran International airport after 4 hours of flight in their morning time. At the Dhahran customs clearance, the customs officer asked me to open my luggage and he inspected every written item, especially the written documents/ books/ magazines. Since I brought only company documentations, all business, harmless, it was relatively easy for me to pass the inspections. I remember the other passengers to leave all their magazines, books and newspapers at the gate to pass the customs.

At the arrival gate, our local rep was waiting for me. He took me to the special compound where we would be staying that week. The compound was operated by a Muslim Indian family. It was a family run enterprise. We had delicious Indian food open buffet service. It was a popular lodge for expatriates staying in Dhahran for short term.

Each one of us had a big private house with full accessories, air-conditioned, refrigerator, satellite TV etc. We had an open-air swimming pool nearby but we had no appetite to swim due to high heat during day time.

My business associate arrived on the same day from USA. We took a taxi that evening and went to a nearby rent-a-car company. It was also operated by another Muslim Indian brothers. We had a brand new car with air condition. Since my business associate had broad business experience in this environment, he immediately drove the car to a service station, and asked them to check the car/its engine/ tires etc. Although car was clean, it had low oil in engine and brakes, and tires were seriously worn-out. So the Indian mechanic completed the oil and advised us to be careful in driving especially in braking.

The next day we arrived to the head quarters of Saudi Aramco on outskirts of Dhahran. It was a huge establishment.

I recall a digital sign “110” at the main gate. In our air-conditioned car interior, it was quite hot inside. But when I realized that “110” number means Fahrenheit, that was an incredible heat outside (43 degrees Celsius). It was even unbearable to walk from car parking lot to the head office interior, almost 100 meters walk.
To my surprise, it was similar to a small Texas City, expatriate office ladies were in light summer dresses, managers were with business suits. Indoors were all air-conditioned.

From its headquarters in Dhahran on the eastern shores of the Arabian Peninsula, Saudi Aramco manages virtually all of Saudi Arabia's enormous hydrocarbon enterprise.

We were invited into a large conference room. Almost 30 or more all male Aramco engineers were invited to join our presentation. They were all fluent in English; most of them were graduates of leading US universities, very competent in their professions.

We were also very experienced in our supply, steam generators world wide applications.

In our presentation my colleague explained the virtues of combined cycle power plants. The power house in Dhahran was equipped with undisclosed number of GE frame gas turbines all operated in simple cycle mode.

We were explaining them that if they would put heat recovery steam generators at gas turbine exit, generate steam and steam turbines to couple with the existing gas turbines, they would be generating almost 50% more of existing power generation free of charge.

All they should be doing was to invest some more money to buy and install the new heat recovery steam generators and steam turbines. We call that system “combined cycle power plant.”

We were selling heat recovery steam generators. That was a new concept at that time, and a few special companies were manufacturing. We were expecting to receive a big order from our hosts.

In order to prove our marketing product we explained every detail of our equipment, showed our references. Our audience listened to our presentation and they asked many intelligent questions. In order to prove our point, we also prepared a feasibility study earlier. On the projector we showed them a Lotus 1-2-3 spreadsheet and asked our audience to give us their natural gas price in consumption.

In our market gas price is specified as USD per 1000 Nm3 or 1000 Normal ft3. That is also given as maybe 4-6 US Dollar per 1 million BTU. Due to ever increasing oil prices in the world, these prices are now almost tripled or more now.
Anyhow we were expecting that we could show them a payback period less than 3 years. In our own environment, conversion from simple cycle to combined cycle pays back within 6 months. That was so feasible.

Our audience had an internal conversation for declaring their natural gas price. Their response was very surprising for us at that time. They had no price for their gas, maybe a number but so negligible in their accounting books. Gas was almost free of charge. They were paying almost nothing, or a negligible figure for their gas production/ and its consumption. Their gas production facilities were next to giant oil fields and natural gas was a byproduct of their major oil production.
So there was no need for a combined cycle power plant. All they need to do was to run the existing gas turbines in simple cycle mode.

Later in the day, we had lunch together in their company restaurant and evaluated the current world business affairs. So in the end, our marketing was a failure.
The next day we returned to our countries with no market expectation of our heat recovery steam generation products in near future from gas producer countries. You have no chance to sell a design where you do not create a demand. Gas was free of charge and there was neither gain in money invested nor any payback in Dhahran.

Today we have more reasoning for introducing combined cycle power plants. We now know that simple cycle gas firing power plants add more heat into global warming compared to combined cycle systems since their exit gas temperature is between 400-500 Celsius or more, whereby the exist gas temperature is expected to be less than 150 degrees Celsius in combined cycle power plants. The annual CO2 emission is quite high in the oil producing countries, compared to world average.

Measures to lower global warming and more ratifications of Kyoto protocol may create new opportunities to introduce new technology products into new markets.
However HRSGs alone are not a solution to CO2 emission. It generates more power free-of-charge, with some initial cost. It is only feasible if you pay a high cost for your gas, as in the case of our local market, and if you pay a high penalty for each ton of your CO2 emissions.

Your comments are always welcome.


Anonymous Anonymous said...

Dear Haluk,

Seems like 10 years have passed since then…and believe me I have not seen much change after spending the last three and a half years in the region. I have just read it in a website that the fuel equivalent consumption per capita is about 10-11 tons in this region, US follows it with 9 tons. Simply every individual consumes a tanker truck equivalent of fuel a year in the region and they are number one consumers in the world.

Here are my thoughts on the issue:

I understand the fact of “economics” and these numbers are usually crunched for the value of oil or gas at today’s prices as well as for some future estimates. When one looks at the current prices and checks against the estimates made few years ago, they are way off! So, I believe other factors should be in the calculation even if we are not assigning any value today. Projects are usually sold on some assumptions, the economics look good and they are approved according to the return on investment in a company’s portfolio of projects. One example, when we were looking at the economics of shipping, the heavy fuel oil (HFO) was $170/ton in fall 2004, right now it hovers around $490/ton. One may easily burn HFO in ships at $170/ton but need to think twice at $490/ton. There are things beyond money; one example is the “corporate citizenship”, “”company reputation”, actually these have $ value. The company I work for build the first double hull tankers (paying more). Sometimes taking leadership creates its own markets. I often found trouble in assigning value to these intangibles, because the system does not assign value to those as well as some of the risks. The real life also seems to be a fight between the CAPEX and OPEX. Projects are signed by commercial guys and sometimes under unrealistic assumptions. I call these people “the front end heros”, they sign the deals and go away to better jobs and thousands of others try to deliver the impossible for the many following years.
There seems to be a “lack of consciousness” in the region that I live. Currently, the electricity is free of charge or very cheap for local users. There is no gas usage at homes (such as stoves at home or heating). I lived in a house which had 11 split A/C units (each about 18,000 btu); imagine the fuse panel in that house! The preferred car in the region is a Toyota Land Cruiser or Nissan Patrol, running around 4,500 to 4,800 cc V6 or V8 engines. There is almost no insulation used in the houses (not even in some commercial buildings). The towers do not turn their lights off even during the weekends (needless to say the A/C’s either!). Today’s price of gasoline (for super) is 21 cents per liter (or 25 yeni kurus). I remember seeing a commercial in the US once, Toyota says most of their cars make more than 30 miles per gallon and ask people in the street what it means to them. Bunch of young guys say “road trip!”. Instead of saying they save and spend less and it is good for the environment, they are happy that they can drive more. This is the problem. When I mean consciousness, I mean “the understanding that something being cheap should not mean we have to use at large amounts”. However, the consumerism and new found wealth took over and nobody seems to care. We create so much trash here, I have not seen paper recycling, there is no water dispenser so I use 4-5 plastic bottles of water at the office everyday and they go to trash, too.
In connection with the item #2, there should be a “leadership” on the issue. The government should put the rules and enforce them. The first thing should be the example of the leadership. I have just read that one of the princes in Saudi Arabia ordered himself an Airbus 380 at the Dubai Airshow (note that when configured tight, this plane can carry 800 passengers!). These are not good examples. We tend to look up to these kinds of lavish spending rather than look down. Due to the government structure in the region, I often think it should be easier to pass and implement a law, but seems like it is not happening that easy.
There seems to be signs of some initiatives, I believe Abu Dhabi is planning on building a very efficient city. There are beach cleanings here and government has some initiatives. There may be some move in the future. However, the belief of endless energy availability should be tackled. I deplore the feeling of people that as long as they can afford it is their right!

In short, the “lack of consciousness” is the heart of the matter. I believe this can only change by the attitude that starts in the family, growth in schools and examples of leadership.

By the way, 110 is not too bad! I have seen 120+ F.

Hope this helps,

12:26 PM  
Anonymous Anonymous said...

Dun aksam bu yazinizi okurken Aramco'nun buyuklugunu
vurgulamaniz yeni okudugum bir bilgiyi cagristirmisti.
Simdi firsat bulup gonderiyorum;

Ben yeni okudum ama, muhtemelen baska kaynaklarda
yayinlanmistir. Belki de siz Newsletter'da yer vermis
olabilirsiniz. Ben biraz tatil mood'unda kacirmis olabilirim.

Bu listeye belki de biraz tedbirli bakmak lazim.
Acilan sayfada degerlendirme kriterleri de var.
Saudi Aramco listede yok. Galiba onlarin mali tablolari kamuya acik degil. Kendi web'lerinde sadece uretim vb bilgiler var, digerleri yok. Baska kimi buyuk
sirketler de yok.

Tupras(130) ve Petrol Ofisi(207) var.

Her seye ragmen -daha evvel gormedinizse- ilginizi cekebilir.


12:27 PM  
Anonymous Anonymous said...

Bu klaisk arz-talep kanununun bir örneği.
Arz talepten fazla olunca fiyat düşer.
İyice fazlalaşınca bedava olur.
Bir malın fiyatının sıfır olması onun hayai olmasını ortayadna
kaldırmaz. Mesela "hava" veya "su"
"hava" veya "su" bedava.
Ama her ikisi de son derece hayati
Ama arzı fazla, ve fiyatı da sıfır.

örneğiniz aynen böyle...
selam ve saygı ile ...

12:28 PM  
Anonymous Anonymous said...

Haluk hocam,

Doğal gaz, petrol ve türevlerine pek benzemez. Gazın değer zincirinde, gazı
üretimden nihai tüketiciye ulaşması gerekir. Hele eskiden LNG teknolojiler
çok gelişmemişken ve pahalı iken üretimden pazara ulaşabilmesi için
ülkeleraşırı boru hatları inşaa edilmesi gerekmekteydi. Bu da siyasi ve
jeopolitik açıdan riskli bölgelerde boru hattı inşasını ve işletmesi
zorlaştırıyordu. Tabii zaman zaman doğal gaz üretiminin olduğu yerlerin
yakınına gübre ve üre fabrikaları kurup ürünü pazara ulaştırma imkanı
bulunmaya çalışılıyordu. Ancak bu da çok yeterli olmuyordu. 10larca yıl
petrol ile birlikte çıkan gaz flare edildi kuyulara tekrar basıldı. Gazın
değeri- tabii pazara ulaşmadığından dolayı- 0 oluyordu. BU İran'da evlerde
halen böyledir. Rusya'nın iç tüketimindeki gazın fiyatı dışarı ile tümüyle
çok farklıdır.

Sevgili Hocam "hava" ve "su" bedeva diyor ama artık Türkiye'de su
kullanım bedeli olarak verilen para neredeyse gaz fiyatı ile aynı seviyelere

12:29 PM  
Anonymous Anonymous said...

Now to the subject about Saudi 1996 HRSG's. I have been working in Saudi in the early seventies, renewing the commissioning department procedures , later on followed by renewing/systemizing the telemetry to allow for remote control of on/off-shore facilities. All gas comming from the wells was considered flare gas. However it was used for the necessary gas turbines and diesels, reshaped to burn gas as fuel. The gas flared-off was nearly twice as much as Europe was producing and according to a geological report the earth rotation speed was affected by nearly 1 second per year, but was considered non relevant, as all oil reserves were exhausted by mid 21 st century, with a total effect of just over 1 minute increase of earth rotation speed. Later-on they started LNG plants like YANBU and sell it to the rest of the world. I worked on YANBU as well, on the refridge compressor section and the control part, with all signals via glass fibers. As the gas has still no practical value for the Saudi's they may consider the use of HRSG's when they are forced by the environmentalists to do something about their influence on the global warming. But this will not be then after a lot of internal cultural as weel as political changes, and they see no economic profit in doing so. On top of that they distrust the whole non islamic world with all their political and wisecraccing pressure on them. Till then, forget it.
All best wishes and good health to yourself and the other team members. Hope to hear from you again. Kind regards, Han

8:05 AM  
Anonymous Anonymous said...

Very similar to why we are only now building ccgt’s in Africa as well because previous to the emission limits on the oil companies there was no driver to actually harness the gas. It was purely vented and burned.

Best Regards,

8:06 AM  

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