Weather Risk: How the Oil and Gas Industry Saves Billions
Most people understand the value that weather forecasts bring to the general public. They tell us whether it will be a good beach day, how much to bundle up at the football game, and if it’s necessary to bring an umbrella to work. However, the benefits of weather information provided to businesses by the private weather industry create significant value and can truly affect their bottom line in a big way.
Starting with this blog, I am going to take a look at different industries where the value of accurate forecasts makes a genuine impact on safeguarding a company’s return on investment. Let’s start with a look at the offshore oil and gas industry.
Some of WeatherOps’ high-end offshore oil and gas customers own billion dollar assets that are floating in the ocean. Known as dynamic positioning vessels (DPVs), these ships use substantial jet engines in each corner of the vessel to ensure that it maintains its position in the deep sea. These ships may be tethered to the ground a mile or more below the ocean surface. However, because of their size and function, their position cannot be quickly changed. Therefore, they require notice about upcoming wind shifts and changes in wind speed.
Wind direction has a critical impact on these ships. When facing the wind, they can withstand 80-knot winds and remain within 35 meters of where they need to be. However, if the winds blow against the side of the ship, a speed of only 35 knots can cause them to blow off course and jeopardize their tethered connection.
When problems occur, they can be very costly. A recent incident in which a sudden wind shift was spawned by a thunderstorm that formed along a cold front created powerful gusts (estimated at over 80 knots) at the location of a DPV. The wind caused it to break its tether to the ground over a mile underneath the surface of the Gulf, resulting in significant costs to the company. According to our contact at the company, the total cost was about $15 million. This amount consisted of the daily use rate (approximately $600,000 for each day of missed operations), fines from the Environmental Protection Agency for oil leaking into the ocean, and the cost of clean up.
When compared to the potentially astronomical costs of an incident, the amount a customer pays for reliable weather information is a drop in the bucket. Accordingly, use of WeatherOps services for an offshore oil and gas refinery is a very cost-efficient way to minimize a massive risk.
WeatherOps provides these clients with a forecast several days in advance of an incoming front. We initially offer an estimate of the time of frontal passage and then provide a more precise timing on the day the front comes through. By delivering these alerts, the vessel operator has the information needed to make the necessary adjustments.
A second example of the value that weather forecasts provide to ocean vessels is when tropical storms and hurricanes threaten to create problems for companies that are historically—and understandably—risk-averse. I recall someone who managed a number of DPVs in the Gulf of Mexico for a large offshore oilfield services company telling me, “If you were in charge of a billion-dollar asset floating in the Gulf of Mexico, and there was a hurricane that had even a one percent chance of hitting your DPV, would you take the chance? Can you imagine me telling the CEO and the shareholders of our publicly traded company that we lost a billion-dollar asset at the bottom of the ocean?” To accommodate these concerns, WeatherOps has developed a complete suite of tropical services customized to meet the needs of a risk adverse decision process.
Whenever a hurricane or tropical storm threatens, our forecasters have a large number of tools at their disposal to create custom forecasts and scenarios for our offshore clients. In addition to publicly available model runs, we run proprietary models to generate possible storm tracks. But more than showing where we expect a tropical storm to go, we also provide a customized solution that addresses worst-case scenarios. For example, we advise clients on what can be expected if our best forecast is wrong and a storm heads straight toward a company’s offshore assets. We provide approximate times that strong winds might arrive and what the wind speeds might be. This information, along with T-time data a client enters into our system (T-times represent how long it would take an operator to pull up the vessel and be ready to move it to a safe location), allows us to advise a client as to when decisions are required, interfacing seamlessly with their business continuity and safety plans. For example, we can provide periodic reports that warn a client that a decision is needed in x number of hours given the combination of forecast and probabilistic information along with T-times.
A recent example of the value of weather and wave forecasts happened with Hurricane Michael, which, as most people know, made landfall near Mexico Beach in the Florida Panhandle as a strong Category 4 hurricane. However, one thing that is not widely known is that Michael produced huge waves hundreds of miles from its center. Our oil and gas clients with assets more than 200 miles from Michael’s center experienced waves over 30 feet high. WeatherOps forecasted those large waves days in advance for their site-specific locations, allowing them to prepare. In some cases, our customers evacuated their rigs during the time of the largest waves.
Given the complex nature of maneuvering a billion dollar vessel in the open ocean and the high cost of dealing with an incident that can be avoided when accurate weather information is in hand, it makes sense that offshore oil and energy concerns would utilize private weather forecast services. For our part, WeatherOps has become the majority provider for businesses with interests in the Gulf of Mexico, providing services to cover more than 200 oil and gas company assets. We also offer similar services for another approximately 100 assets worldwide.
My next blog will examine the case for why energy traders purchase private weather forecasts.