Category description

Engineering is all about solving problems and using scientific knowledge and mathematics to design, build and test structures, machines and processes widely used in the petroleum industry to produce, transport and process hydrocarbons. Engineering in the oil & gas industry involves a large variety of knowledge and generally divided into discipline. This section is particular about engineering for Projects, Facilities and Construction (upstream engineering).  This field is extremely diverse and covers a significant amount of engineering disciplines.

Here how the Oil and Gas Engineering Guide 2nd edition, structures it.

  • Project Engineering
  • Design Basis
  • Process
  • Equipment/Mechanical
  • Plant Layout
  • Safety & Environment
  • Civil Engineering
  • Materials & Corrosion
  • Piping
  • Plant Model
  • Instrumentation and Control
  • Electrical
  • Off-Shore
  • BASIC, FEED and Detail Design
  • Field Engineering
  • Revamping

In addition to it, there may be some variations and enhancement of the list and include the following engineering disciplines:

  • Structural
  • Pipeline Integrity
  • Asset Integrity
  • Marine and Subsea  
  • Enhanced Oil Recovery (EOR)
  • Process Optimization
  • Facilities Engineering

Supply & Demand Dynamics

Demand

On a global basis, engineering services in Oil & Gas industry are on the top 3 list of demand sectors, which makes it a very large “consumer” of engineering expertise and man-hours. The demand for engineering services in the upstream petroleum industry is directly affected by:

  • New projects, both offshore and onshore
  • Brownfield and tie-in projects
  • Maintenance and operations ( to a lesser extent)

The total global market size of engineering services is around $1 trillion and expected to reach around $1.4trillion by 2020 (Shiva Engineering).

Supply

Over the years, the market for engineering services went through various cycles of consolidation and growth. Yet, the number of engineering houses is extremely diverse and spread geographically and per expertise and discipline. The segmentation patterns are generally around size, expertise and geography, and could be divided as follows:

  • Large, global, integrated and multi-discipline engineering companies
  • Niche companies who specialize in a particular geographic market and may have multi-discipline capabilities
  • Small engineering companies who specialize in a particular set of disciplines, e.g. marine & subsea
  • Very niche companies who are known for a unique expertise, e.g. pipeline routing or vibration management and alike.

Key Players

Below the list of large, global, integrated and multi-discipline and multi-industry engineering companies who together, constitute around 80% of the global market both revenue wise and market share size.

  1. Wood Group / Amec Foster Wheeler
  2. TechnipFMC
  3. Fluor
  4. Petrofac
  5. Saipem
  6. Jacobs
  7. McDermott
  8. Worley Parsons
  9. KBR
  10. Chiyoda
  11. Subsea 7
  12. SNC-Lavalin
  13. JGC
  14. Aibel
  15. Offshore Oil Engineering
  16. Mott MacDonald
  17. Aker Solutions
  18. Prosernat

Cost & Price Analysis

Prices

Prices for engineering services experienced a significant growth between 2011 and 2014. Following the industry downturn, prices stagnated, with some areas where prices for engineering services went down by around 5-10%.

Going forward, increased activities in 2019 and availability of qualified and experienced engineers (multiplied by retirement as well), will significantly affect the prices.


Costs

  • Costs have been going up around 2% per year
  • Supply & demand of qualified engineers is a large  cost driver
  • Demand for engineering services from other industries, such civil infrastructure, buildings, clean energy and petrochemicals, has a significant impact too.

Total Cost of Ownership

Areas to look at for total cost of ownership: 

  • Cost of rework – make sure all work is done correctly from the 1st pass, otherwise, an engineering company is incentivized to make errors, so they can charge for re-work man-hours for correcting the errors
  • A good engineering house can make a significant difference to your project by coming up with a good solution. So paying slightly more for an outcome that could be game-changing is worth to consider and evaluate
  • The calibre of engineers offered during tender submission may not be available when the actual job is executed. This means whatever assumptions have been made in anticipation of the level of engineering expertise may not work anymore, which in turn may have affected the initial assumption and cost normalization during the commercial evaluation
  • Key areas to evaluate and look at, during the selection process for upstream engineering services:
    • Professional credentials and certification
    • Experience in similar projects
    • Knowledge of local specifics where a project is performed
    • Previous records and performance levels
    • Professional integrity to ensure quality work is produced at all times  

Strategy

Category objectives:

  • Access to various levels of engineering expertise for a range of disciplines
  • Ability to ramp up and scale down in engineering headcount, as required
  • Rapid and quick access to highly specialized engineering expertise on the as-and-when-required basis

Strategy

If your organization has a full engineering expertise in-house, then there is limited scope going to the market, except occasional requirements of niche expertise or 3rd party opinions.

In the event your organization has no or little engineering expertise in-house, then approaching the market in the most effective way is vital. Options to consider:

  • Effective segregation and supplier matching based on engineering expertise or domain
  • Long-term contracting ( bidding) with major engineering companies  based on:
    • Unit rates for a variety of disciplines and seniority/experience of engineers
    • SLA agreements and response time
    • A clear distinction of grading of engineers
    • Agreed man-hour norms per activity
  • Maintaining and constantly updating a list of 2 or 3 companies who specialize in a certain expertise, e.g. pipeline integrity or vibration management etc.
  • Maintaining a long-term relationship with an engineering company who has the best knowledge of your asset and has built up the significant expertise of it. This could apply to pipeline integrity, asset integrity and alike. Reason being, a new company might have to go through a large learning curve to get up to the speed, which ultimately costs money to an oil company.
  • Look at options of lump sums per job scope, when applicable (generally smaller scopes). This would result in 1) best-value-for-money for an oil company, 2) provide required competition levels and 3) ensure that the engineering company is incentivized to give realistic estimates of timing required to complete a job.