Third Generation Modularisation

Third Generation Modularisation

By André Kok and Freek van Heerden

Introduction

The development of modularisation in the process industry, from Generation 1 (G1) to Generation 3 (G3), was discussed in an earlier Insight Article (Steyn & van Heerden, 2015). The authors described the drivers, benefits, disadvantages, and risks of process modularisation. The advantages of a modularised approach generally lead to an improved return on investment and project nett present value (NPV) because of a lower total installed cost and shorter construction schedule.

G1 modules have been constructed since the early ‘90s and were limited to main pipe racks with the main piping pre-installed.  G2 modules were built from early 2000. This involved the installation of piping and main equipment in the modules, primarily all steel equipment. This approach reduced the field work by approximately 30 to 40%. G3 modules take the concept further to describe modularised process units. These process unitscontain 95% of steel work, up to 85% of the electrical installation and up to 95% of the instrumentation. This enables loop checking to be done in the module yard. G3 modules effectively relocate 90% of the field work to the module yard.

In this article, we build on that 2015 article and discuss G3 modules in more detail.  We focus on the more salient and practical issues during the development of a modular approach and explore the benefits of G3 modules. We also look at the appropriate approach, the risks and when not to do modularisation. Finally, case studies are presented of the outcome of modularisation work in which the authors were personally involved.

History of G3 modules

Fluor played a leading role in developing G3 modularisation (Haney, 2012; Chandler, 2013; Fluor Corporation, 2015). In early 2009, the Fluor team examined barriers to increasing modularisation beyond G2 to create a real step change, like the change from G1 to G2 modules. Their work process included the following steps:

  • Brainstorming to identify opportunities;
  • Reviewing methods and techniques used in offshore modules;
  • Considering the number of interconnects between modules with the intent to develop modules that incorporate full unit operations with a minimum number of interconnections between modules;
  • Distribution of electrical and instrumentation hubs throughout the facility to give each module distributed instrumentation, control and electrical functionality; and
  • Reviewing other enabling technologies (e.g. cable connectors such that instrumentation and electrical connections can be done simply and easily).

Fluor’s Fred Haney and his team subsequently patented the concept of the modular processing facility, their G3 approach, in 2012 (Haney et al, 2012).  An example of a G3 module is shown in Figure 1.

Figure 1: Third generation module for an LNG plant

Key requisites for modularisation to work

A modularisation philosophy needs to be developed very early on for the project. At the end of the feasibility study (FEL2), the overall concept must already be well entrenched. Meyer et al (2012) highlight the need for early modularisation definition and logistics requirements. In developing the philosophy, the logistic constraints and site-specific conditions must be clearly understood and considered. Many modules will arrive at some nearby harbour. The size of modules and the weight that can be accommodated both in the harbour and en-route to the site will have a major impact on the overall philosophy.

If the site is not close to a port with good access to the site, it may be required to deliver the modules in subsections and have a staging and final assembly yard close to the final placement site. The necessary infrastructure can be made available to assemble and test a module at the assembly yard before it is moved to its final position on site. Staging facilities at site are anyway necessary, as modules will not arrive in a ‘just-in-time’ fashion, such that they can be moved into their final position upon arrival.

Fabrication facilities must be available with module manufacturing capabilities, whether in country, or overseas. The project team must do their own research on the location and capability of module yards globally to ensure that up to date information is available. The move toward modularisation is accelerating rapidly and up to date information is essential.

Figure 2 shows a module offloading berth with a crane unloading a module onto the berth and the module being moved along the road.

Figure 2:  Modules being offloaded and transportation of module to site

G3 modular execution

Benefits

The advantages gained from a G3 approach generally lead to an improved return on investment and project NPV because of a lower total installed cost and shorter construction schedule. The key benefits are cost reduction, cost and schedule certainty and improved safety and quality, as described in more detail below:

  • Installed cost reduction: Moving activities off site to a module yard results in improved productivity and lower labour rates. Because modules can be fabricated in various module yards, labour is more distributed, making it easier to source scarce resources and reduce the peak manpower load at the site significantly.  A result often not properly understood or evaluated is the reduction in overall plant footprint, especially for G3 modules. Bulk materials like piping, cabling and structural steel for pipe racks are significantly reduced because of the reduced footprint.
  • Cost and schedule certainty: Because modules are being constructed in controlled environments with the necessary facilities, cost and schedule are found to be much more certain as compared to a stick-built facility.

Improved safety and quality: Module yards are set up to handle large modules and provide safer conditions with the right infrastructure during fabrication. For example, access for working at heights can be much more safely provided when compared to the normal practice of extended scaffolding on site. As module yards are set-up with a long-term mindset, issues like quality control, both of incoming materials and fabrication, is generally more effective.

Layout/Plot plan

A key difference in the G3 work process is that modularisation drives plant layout, rather than the G2 approach where the plant layout was typically like a stick-built plant.   For G2, the modules were then determined by ‘cutting’ the layout into sections called modules. This approach led to numerous interconnections for piping, cabling, etc. In comparison, a G3 approach requires:

  • Minimal input and output connections: Combine all the equipment for a specific unit operation into a single module (e.g. a crude distillation unit). The objective is that the module receives one feed and deliver one, two or three final products. All operations to achieve this is contained within the module. Utilities need to be supplied to the module, as required;

  • Team approach to plot plan development: It is essential that the plot plan development is a team effort. All disciplines need to collaborate as an integrated team. This development is typically an iterative process. If the integrated approach is not successful, it will result in huge interdisciplinary impacts (and cost/schedule delays).  The ‘best’ layout is one with maximum modularisation and a 4- to 6-week period should be allowed to finalise the layout; and

  • Early design freeze: At this stage, it must be clear to the reader that, in order to be successful, earlier than normal ‘freezing’ of key equipment/concepts and a rigorous change management process is essential. It is also necessary that individual process block model reviews are completed before the overall plot plan review.

Design engineering requirements

In order to achieve the key objectives for a G3 module the engineering team needs to approach the design in a very different manner. This is not always easy, as one tends to revert to the familiar. The project leader(s) will need to keep challenging the team and make sure that the change management process is used (especially for a team where these concepts are new). The following list highlights key differences (Haney, 2012):

  • Interconnecting pipe racks are not used;

  • Offshore design practices are utilised, where practical;

  • Schedule interdependencies are critical to success;

  • Vendor data (particularly with packaged units) to support the design critical path is required early on. Thus, the selection and involvement of key vendors early in the design;

  • The need for future expandability needs to be agreed upfront (you cannot add on in the future);

  • Weight management of modules is critical to success and using an effective “load shedding” plan is required;

  • Process design cannot change after completion of Front-End Engineering Design (FEED). Success depends on finalising process design at the end of FEED;

  • Finalising of process datasheets is critical to support early vendor selection and involvement;

  • Process control finalisation is required much earlier than normal. This is especially critical on packaged equipment; and

  • Early constructability input into the development of the plot plan is critical because it helps ensure future access for operations and maintenance requirements; addresses module/equipment rigging and field erection issues; and facilitates development of equipment arrangement to ensure arrangement supports vendor/supplier layout requirements.

The owner’s personnel need to buy into G3 modular concepts and owner’s operations personnel are required to participate during FEED to validate the design layout. This is a particularly important point as the owner personnel need to accept the facility from the constructor and be able to operate it for the next 20 to 30 years. Owner personnel not familiar with the design, layout and operations and maintenance techniques used on this type of facility will not accept the design as workable. It may be necessary to have key personnel seconded to such a facility for an extended period (3 months, at least). They need to work in similar jobs to see, feel, taste, and learn before they become part of the owner team ‘back home’.

Material handling studies are very important during design validation and each activity (e.g. catalyst change, heat exchanger tube bundle removal) needs to be worked through step by step to ensure the activity can be performed. Because of the compactness of the modules, normal maintenance procedures like using a crane to remove a pump can generally not be done. Special davids, crawl beams, local hoists, etc., are often required to enable effective operation. If, during start-up or later in operation, it is discovered that special tools are required, if is very difficult, if not impossible, to install.

Practical Examples

The benefits of footprint reduction are often not properly understood when considering modularisation. In a complex plant (e.g. refinery) consisting of various processing units, plot space required can be subdivided into two aspects, namely the area required for a single unit (example 1) and the area required for the complete facility (example 2).

Example 1 – Process units

As G3 modules integrate complete processing units into single large modules, there is a great opportunity to reduce the area required for a processing unit. In the example shown in Figure 3 (based on an actual project), it was found that the footprint of the unit could be reduced by 35%. This was somewhat less than what was expected as the area required for the air coolers was limiting.

Figure 3:  Plot space required for processing unit

Considering the location of the site and access, it was required to split the integrated module into 7 sub-units and 26 sub-assemblies, or modules. These modules were assembled in various module assembly yards. The maximum size and weight of the modules are given in Table 1.

Table 1: Detail for modules

A detailed bottoms-up estimate showed that the end-of-job cost could be reduced by 12 to 15.5% as compared to a stick-built plant and by 7 to 8.5% as compared to G2 modularisation. Very significant is also schedule reduction of 4 to 5 months in an overall schedule of 48 months. This could be achieved by distributing the work amongst various experienced module yards.

Example 2 – Complete facility

The facility consisted of several large processing units, steam and power generation, as well as other utilities and infrastructure.

The overall plot space could be reduced by 40% and on-site labour reduced by 50 to 60%. The overall NPV of the project (as compared to stick-built) increased by between 300 and 370 million US$ and the IRR between 0,9 to 1,3%, as illustrated in Figure 4. 

Figure 4: Overview of saving achieved for total facility

Know when not to modularise

After all the discussion and preaching the benefits of modularisation, one needs to be aware that modularisation is not the golden bullet that solves all project cost and schedule issues. There are instances when this approach should not be used, as described below:

  • Unproven process technologies: The process needs to be proven commercially, otherwise design cannot be frozen early in the FEED process. An untested or new process step has the risk that process modifications may be required during commissioning or operation. The normal practice of having a ‘start-up modifications’ budget allowance is not practical. If a jump-over is needed for start-up, it needs to be designed in from the start.
  • Location limitations: If the location limits site access severely and only very small modules can be moved, it may be more effective to revert to G2 modules. Inland locations can easily halve the savings.
  • Inexperienced engineering contractor: It is essential to use an engineering contractor with modularisation experience. If this is not possible do not consider modularisation. The risk is too high and there are many horror stories and business school case studies of how not to execute a modular project.
  • Impossible to mobilise resources early in project: Successful modularisation requires more upfront detail engineering and capital expenditure. If the stakeholders cannot be convinced of the need for earlier cash flow and resource mobilisation, modularisation may not be possible. 25% of detail engineering needs to be complete by the final investment decision, vs. perhaps 2 to 3 % for a stick-built plant.
  • Impossible to pre-select key contractors: If the company’s commercial practices require strict competitive bidding for EPC contractors, or for key equipment and packages, modularisation may not be the preferred approach. Modularisation requires early selection of key contractors and vendors that need to work in a partnership mode throughout the project. Continuity of key personnel is essential.

Concluding remarks

We hope that this article has at least sparked an interest in considering G3 modularisation on your next project. It is certainly worthwhile to consider and, if executed properly, can improve the project outcome significantly.

We have also pointed out that modularisation should not be tackled half-heartedly and that it is not for the faint-hearted.  An absolute conviction as to the benefits, rigour, attention to detail and effective change management is required to make a G3 modularised project a success.

As shown, there are occasions when modularisation is not advised. Do not try to commercially prove an untested technology using a G3 modular approach.

References

Chandler, G., 2013, Smaller, better, faster – Fred Haney’s vision turns modern construction theory on its head, Oilsands Review.

Fluor       Corporation,    2015,    3rd    gen    modular    executionsm,    Available    fromhttp://www.fluor.com/about_fluor/corporate_information/technologies/Pages/technology-info.aspx?tid=9&bsl=Construction. Accessed on 24 March 2019

Haney, F.,2012, Training session to SASOL on Modular Execution, Feb. 9, 2012, Fluor Corporation.

Haney, F., Donovan, G., Roth, T., Lowrie, A., Morlidge, G., Lucchini, S. & Halvorsen, S., 2012, Patents EP2516759A1, Modular processing facility, Google Patents. Available from http://www.google.com/patents/EP2516759A1?cl=en. Accessed on 24 March 2019.

Meyer, B., Kluck, M., Kok, A., Diekmann, J., O’Connor, J., Foster, C.,2012, CII Annual Conference on Industrial Modularization.

Steyn, J.W. & van Heerden, F.J., 2015, Insight Article 019: Select topics in value engineering – Modularisation in the process industry.Pdf download available from http://www.ownerteamconsult.com/download-insight-articles/.  Accessed on 25 March 2019.

You may also be interested in

Introducing the Project Execution Plan

Introducing the Project Execution Plan

The Project Execution Plan is used to assure, firstly, that the right aspects for project implementation are considered and secondly, that the project has been described in such a way that during each stage of front-end loading it is clear and concise as to what needs to be done.

read more
The Widening Trust Gap in Projects

The Widening Trust Gap in Projects

To succeed, an extraordinary degree of trust, cooperation and communication is required between the owner organisation and the owner project management team together with the functional service providers, suppliers and contractors.

read more
The Elusive Project Sponsor

The Elusive Project Sponsor

By Jurie Steyn

Introduction

All projects are risky ventures: the larger and more complex the project, the higher the risk of an unsuccessful outcome.  It is generally accepted that a critical success factor for any megaproject (projects > $1 billion) is the presence and participation of an effective project sponsor (Barshop, 2016).  In fact, the Project Management Institute reports that the top driver of projects meeting their original business goals is an actively engaged executive sponsor (PMI, 2018).

According to the Association for Project Management (APM, 2006), the project sponsor is the primary risk taker and owner of the project’s business case.  The sponsor is tasked with ensuring that all benefits of a project are realised by the organisation’s top management.   The sponsor chairs the project steering committee, ensures that risks are properly managed, that obstacles faced by the project are dealt with, and is the person to whom the project manager is accountable. The project sponsor focuses on project effectiveness, while the project manager focuses on project efficiency (APM, 2006).

An average of 38% of projects do not have active executive sponsorship, which highlights the need and opportunity for executive leaders to be more involved in the realisation of strategy (PMI, 2018).  Barshop (2016) maintains that the main reason why companies lacked strong project sponsorship was that senior management of these companies did not understand the project sponsor’s role in project governance.

In this article, we consider several scenarios for the executive sponsorship of projects and suggest ways to deal with problematic or absent sponsors.

Four scenarios

Several books (Englund & Bucero, 2006; West, 2010), and many more articles (Christenson & Christenson, 2010; Schibi & Lee, 2016), have been published on project sponsorship which describe personality traits, required training, as well as the role and responsibilities of project sponsors.  Whilst it is true that an effective sponsor is essential for project success, it is also true that not all sponsors are equally effective.

Four scenarios regarding the effectiveness and availability of project sponsors are described, with ways to deal with potential problem. The scenarios are described in some detail in Figure 1.

Figure 1:  Four sponsor scenarios

The four sponsor scenarios are:

  • Effective sponsor: The effective sponsor knows what to do and has the executive power and resources to do it;
  • Ineffective sponsor: The ineffective sponsor can have gaps in his training and/or may be at a too low level in the organisation;
  • Missing sponsor: The missing sponsor has either left the project for other responsibilities or has not been appointed yet; and
  • Reluctant sponsor: The reluctant sponsor may meet all the requirements, but doesn’t want to accept the responsibility.

Each of these scenarios is discussed in more detail in the following sections. 

The effective sponsor

According to West (2015), the value of an effective project sponsor is the product of the value of the project to the organisation, and the role that the project sponsor plays in a successful project.  He states that above all else, it is the effectiveness of the project sponsor that is critical to a successful project.

Truly effective sponsors are hard to find and should be nurtured by their owner organisations and appreciated by the project manager and project team.  The effective sponsor will be of appropriate seniority in the organisation, work closely with and mentor the project manager, understand the basics of project management, negotiate support and resources for the project, and be able to make decisions based on facts. Depending on the size and complexity of the projects, the effective project sponsor may be able to sponsor more than one project. In most organisations the project sponsor will have other responsibilities which may lead to time constraints. The effective sponsor will be able to manage his/her time properly and obtain assistance when required.

An effective sponsor has some key requirements that must be met by the project management team.  They have a need to feel involved in the project process, require a constant stream of timely information, must be able to trust the project manager (and vice versa!), need help with managing their project commitments, and assistance with the preparation for meetings with stakeholders.

An effective sponsor will also be able to stop a project when there is no real justification to proceed, in other words when the intended business objectives are no longer achievable.  Stopping a project in the front-end loading phase, when there is no longer any justification to proceed, does not constitute a failure, but rather shows strength of character and a keen business sense on the part of the sponsor and his project management team.

The ineffective sponsor

As mentioned before, an effective sponsor is essential for successfully completing a megaproject.  The direct corollary is that an ineffective sponsor greatly increases the probability of an unsuccessful project in the form of schedule and cost overruns, and not delivering on the organisation’s strategic objectives.

Project sponsors may be ineffective for several reasons, some of which are listed below:

  • Uncertainty on the actual role of the project sponsor on a project;
  • Insufficient training in, or experience with, project sponsorship;
  • The sponsor may be unwilling/unable to make decisions;
  • The sponsor is at too low a level in the organisation to be effective;
  • Too busy with other management obligations and not available to project team;
  • Deliberately wasting time on less important matters to avoid sponsor responsibilities;
  • Preoccupation with personal matters which takes focus off the project; and
  • The sponsor may be reluctant to take on the role of sponsor (more later).

Some of these causes are relatively simple to overcome.  For instance, a sponsor who is insufficiently trained on the ‘why’ and the ‘how’ of sponsorship, and is willing to learn, can be trained.  Training can involve formal courses, or on-the-job training by other experienced sponsors.  Very experienced project managers can also lead and assist the ‘inexperienced’ sponsor, as illustrated in Figure 2.

Figure 2:  Assisting the ineffective sponsor (Adapted from van Heerden et al, 2015)

Sponsors who are unwilling to make decisions, may also be too low in the management hierarchy.  The project manager can attempt to deal with the problem by using a formal scope management procedure and taking the inexperienced sponsor through the motivation in detail.  If this does not deliver the desired results, or the sponsor is at too low a level to have an impact, the project manager will have to approach a trusted member of the organisation’s management team to discuss the concern and the potential negative consequences on the project.

Sponsors with insufficient time to deal with the project related matters can be addressed by discussions between sponsor and project manager.  If the reason is that the sponsor wants to remain in his/her comfort zone, training may be the answer.  If not, the project manager can offer to temporarily take on some of the sponsor responsibilities while the sponsor delegates some of the other responsibilities.  Sponsors who are preoccupied with personal problems can transfer some of the sponsorship responsibilities to the project manager or other subordinates. 

Lastly, sponsors who are reluctant to take on the role of sponsor will be discussed under a separate heading.

The missing sponsor

‘Missing’ sponsors are unavailable to meet project responsibilities (sometimes right from the start, or at some later point in the project) because nobody has been appointed to the position or they are otherwise occupied.  Sponsors can be ‘missing’ from the sponsorship function for any of the following reasons:

  • No sponsor has yet been appointed for the project;
  • An existing sponsor was moved or promoted to another function;
  • An ineffective or reluctant sponsor was removed from the position;
  • Top management does not consider it necessary to appoint a sponsor;
  • Medical or family emergencies, resulting in time away from the office; and
  • The sponsor may be overloaded with other projects and/or responsibilities.

There are ways to overcome the gap left by a ‘missing’ sponsor, although it places an additional burden on the owner project management team.  Several members of the project management team can act as project sponsor, as shown in Figure 3.

Figure 3:  Filling the gap of a missing sponsor (Adapted from van Heerden et al, 2015)

There are typically four key players in the project management team of any megaproject, namely the project manager, the business manager, the operations manager and the engineering manager.  Any one of these should be able to act as project sponsor.  When the sponsor post is expected to remain vacant for an extended period, the sponsor responsibilities can be divided up amongst the different managers.  Alternatively, each of the managers in the project team can rotate to the position of acting project sponsor for a specific period, say a month at a time.  Keep in mind that an acting sponsor in the place of a ‘missing’ sponsor can keep the project moving along, but can never be as effective as a dedicated and committed sponsor.

The structure for a programme is depicted in Figure 4, with similar acting arrangements as before.  Programmes are typically larger, more complex and subject to more uncertainty than projects, which implies that the need for a full-time sponsor is even greater if a successful programme is desired.

Figure 4:  The elusive sponsor of a programme (Adapted from van Heerden et al, 2015)

The reluctant sponsor

A reluctant sponsor, as the name implies, is a person who does not want to be in that position of responsibility.  Perkins (2015) refers to them as resistant sponsors, and states that resistant sponsors may be blatant or passive-aggressive in their efforts to block progress: indeed, a very dangerous situation.  In my opinion, having a reluctant project sponsor on board is far worse than having an ineffective or ‘missing’ sponsor.

Sponsors can be referred to as ‘reluctant’ for any of the following reasons:

  • They consider the project to be a career-limiting disaster;
  • They don’t wish to be tied down for the multi-year lifespan of the project;
  • They anticipate that the project will diminish their current responsibilities;
  • The project proposal was not their preferred option; and
  • They want to fulfil their prophecy that the project will be unsuccessful.

Reluctant sponsors can have very negative effects on project success and can demoralise project management teams (Perkins, 2015). This can lead to project team members leaving the project, rather than work in a toxic environment.

When dealing with a reluctant sponsor, the following approaches can be considered (Perkins, 2015):

  • Remain professional: Don’t resort to personal attacks on a reluctant sponsor. Rather blame the work processes and seek or offer solutions;
  • Keep the reluctant sponsor informed: Discuss matters requiring difficult decisions with the reluctant sponsor prior to formal meetings to avoid time being wasted during project steering committee meetings;
  • Document thoroughly: Project management practice requires the team to document agreements, motivate change requests, keep a risk register, list and follow up on action items, etc. Ensure that all documentation is timely and thorough with a reluctant sponsor;
  • Call in supporters: Ask high-level supporters of the project in the organisation to highlight the project’s value. Stubborn reluctant sponsors will find it hard to continue destructive behaviour in the face of continuous enterprise-wide support;
  • Informal engagement: Ask a senior member of the organisation’s management team, respected by the reluctant sponsor, to discuss the project with him/her. If the discussion is penetrating enough, reluctant sponsors may modify their destructive behaviour; and
  • Auto-ignition: Let reluctant sponsors destroy themselves through their actions. This is a risky, last-ditch effort, based on the hope that the rest of the organisation will recognise the reluctant sponsors’ poor decisions, and remove them from the sponsorship responsibilities.

Concluding remarks

Ashkenas (2016) states that the project sponsor should be the first appointment to be made when steps are taken to implement corporate strategy.  Before launching a new project, the sponsor and the project leader should meet to set, clarify, and align expectations. This is particularly important if the sponsor was not actively involved in the project initiation phase, and may not understand the background and risks.

Several authors have expressed the concern that due to the growing number of megaprojects in the world, good project sponsors are becoming increasingly difficult to find in the open market or inside the organisation (Merrow, 2011; Barshop, 2016).  Organisations are encouraged to train their executives for future roles as project sponsors.  If your company has a need for project sponsorship training, do not hesitate to contact us at OTC.

References

APM (Association for Project Management), 2006, APM Body of knowledge, 5th edition. Association for Project Management, High Wycombe, Buckinghamshire.

Ashkenas, R., 2016, Before starting a project, get your sponsor on board. Available from https://www.forbes.com/sites/ronashkenas/2016/05/09/before-starting-a-project-get-your-sponsor-on-board/#127c26f779c9. Accessed18 February 2019.

Barshop, P., 2016, Capital projects: what every executive needs to know to avoid costly mistakes and make major investments pay off. John Wiley & Sons, Inc., Hoboken, New Jersey.

Christenson, D. & Christenson, J. 2010, Fundamentals of project sponsorship. Paper presented at PMI® Global Congress 2010, in Washington, DC. Project Management Institute.

Englund, R.L. & Bucero, A., 2006, Project sponsorship: achieving management commitment for project success., Jossey-Bass, San Francisco, CA.

Merrow, E.W., 2011, Industrial megaprojects: concepts, strategies, and practices for success., John Wiley & Sons, Inc., Hoboken, New Jersey.

Perkins, B., 2015, 6 ways to cope with a resistant sponsor.  Available from https://www.computerworld.com/article/2883748/6-ways-to-cope-with-a-resistant-sponsor.html. Accessed on 14 February 2019.

PMI (Project Management Institute), 2018, 2018 Pulse of the profession. Project Management Institute, Philadelphia, PA.

Schibi, O. & Lee, C., 2015, Project sponsorship: senior management’s role in the successful outcome of projects. Paper presented at PMI® Global Congress 2015, EMEA, London, England. Project Management Institute.

van Heerden, F.J., Steyn, J.W. & van der Walt, D., 2015, Programme management for owner teams: a practical guide to what you need to know., OTC Publications, Vaalpark, RSA. Available from Amazon.

West, D., 2010, Project sponsorship: an essential guide for those sponsoring projects within their organizations., Gower Publishing Limited, Farnham, Surrey.

You may also be interested in

Introducing the Project Execution Plan

Introducing the Project Execution Plan

The Project Execution Plan is used to assure, firstly, that the right aspects for project implementation are considered and secondly, that the project has been described in such a way that during each stage of front-end loading it is clear and concise as to what needs to be done.

read more
The Widening Trust Gap in Projects

The Widening Trust Gap in Projects

To succeed, an extraordinary degree of trust, cooperation and communication is required between the owner organisation and the owner project management team together with the functional service providers, suppliers and contractors.

read more
Introducing the Project Execution Plan

Introducing the Project Execution Plan

By Kevin Mattheys

Introduction

Globally, skilled human capital is in short supply, thus impacting the quality, cost and schedules of projects. This applies in both operating and service companies alike as experienced personnel retire, while projects become ever more complex. In many cases, the result is the inability of projects to meet the delivery expectations as set out in the business case, which directly impacts on the financial and reputational health of the business concerned. It is therefore important to have the appropriate systems in place, with the supporting tools, processes and resources to protect against these increasing levels of risk and thereby assist in enhancing project performance.

Independent Project Analysis (IPA), a reputable project benchmarking company, state that project execution planning is the process of defining and documenting (via the Project Execution Plan) the approach to be followed in executing a capital project (Merrow, 2011). The Project Execution Plan must answer some basic questions, such as:

  • What is the business need and what are the project objectives?
  • Who will participate, when will they participate and what roles will they have?
  • How will the project be contracted, sequenced, managed and controlled?
  • When will stage transitions and specific activities take place?
  • What monitoring, control and governance criteria need to be applied?
  • Are there any extraordinary initiatives that may be required which need to be planned and budgeted for?

By answering these and other questions in a definitive manner, and committing it to paper in the project execution plan (PEP), substantial cost and schedule duration savings could be achieved, quality improved and scope changes reduced.

Merrow (2011) highlights the fact that one of the most important drivers of project success during the Implementation phase of a project lies in developing a sound and well thought through PEP during the early stages of the project. A well-defined and communicated PEP is a key driver of cost and schedule reduction, with as much as 10% to 15% saving in schedule slip and cost. Other noteworthy findings were that a well-defined PEP correlated with improved start-up duration, early operational performance, the amount of contingency required in the estimate as well as the number of design changes during execution.  These findings confirm the results of a 2006 study by the Construction Industry Institute (CII, 2006).

The Project Execution Plan is used by the project team and management to assure, firstly, that the right aspects for project implementation are considered and secondly, that the project has been described in such a way that during each stage of front-end loading (FEL) it is clear and concise as to what needs to be done.

Setting the scene

A section of the OTC Stage-Gate Model is shown in Figure 1. It depicts the Initiation phase where the business will prepare the initial idea, the Front-end Loading (FEL) phase consisting of 3 stages where the project team will develop the business idea further, the Implementation phase including Delivery and Commissioning followed by a sustainable Operation phase and eventual Closure. This is not to say that this is the only model to be followed, but it is important that the model being followed is at least similar to the model below and has a gated approach to delivering on projects.

Figure 1:  Section of the OTC Stage-Gate Model

The PEP goes through a cyclical process of updates during each of the FEL stages until the end of FEL 3 is reached. At the start of the project (FEL 1) there is only preliminary information available and what is known is written up in the PEP. As the project develops further, more clarity is gained and this is then captured in the PEP until the project is sufficiently defined to implement.

Development of a Project Execution Plan

A PEP development model

The Project Execution Plan development is initiated at the start of the FEL 1 stage. Although there are many variations of a PEP available, the development of a PEP should be based on a similar model to that developed by OTC and shown in Figure 2. We normally find that several elements are missing or incomplete, e.g. close out and next stage planning, and that is why this comprehensive model was developed.

Figure 2:  The PEP Development Model

The PEP is a document which is continually updated during each of the FEL stages until the end of FEL 3. Each of the major sections which form the construct of the PEP Development Model is described in more detail below:

Background, Overview & Scope

We start off with the yellow oval in the PEP Development Model.  A vital part of any PEP is to describe the project by looking at the business objectives, the business value chain, the project scope, potential risks that could stop or delay the project, boundary conditions for the team and other critical elements of the project to align all parties.

It is important that this section is well written as it sets the scene (and the scope) for the remainder of the project and provides the basis around which further development, and eventually implementation, of the project takes place.  The business charter (what the business expects from the project team) is also included here.

Frame the Project

This section starts with a comprehensive business chain development workshop (called a Framing & Alignment meeting) and includes an overview of the scope, some high-level milestones and a first pass cost estimate. This is shown in the pink/orange coloured oval above.

Of key importance here is, inter alia, confirming the project execution outcomes, understanding the Work Breakdown Structure and capital cost estimate, the key project milestones and schedule assumptions, key project stakeholders, the high-level implementation strategy, as well as requirements for integration management (normally required on larger projects).

Planning Project Implementation

Here one would describe the project team and systems required to prepare the project for executing the various FEL stages as well as for final project implementation. This is the green oval shown below.

The grouping of blue ovals describes the various plans required for the implementation of the project. This is when all the plans come together and specifically addresses design/engineering, contract/procurement plans, construction, commissioning and close out of the project. It is very important to plan for project close out as this activity is typically not done due to time, resource or budget constraints.

Turning to the dark blue central circle of the PEP model we find four categories of plans listed, namely monitor and control plans, supporting plans, support services and project governance plans. We discuss each in turn.

Monitor and Control Plans

It is understood that if there is no control, you are flying blind and you will end up in unexpected places with less than desired results. The various plans which are required for control and monitor activities during the project are described here. Typical plans will be the project controls plans, safety, health & environmental plans, risk management plans, change management plans, quality plans, and others.

Supporting Plans

Every project invariably needs support services which are traditionally available within the business and its structures. Typical support areas are project accounting, human resources, document management, lessons learnt and industrial relations. These should be listed and included in the PEP to support the project to achieve its objectives successfully.

An area usually neglected by project teams is ensuring excellent communication to stakeholders and shareholders via a communication and engagement plan. It is also important for budgeting purposes that these items are identified and included in the overall PEP.

Support Services

Described in this section is a list of generic services which may or not be required for the project.

It is important that the various services required during the project are described as resources and budgets will need to be sought. These could be items such as project benchmarking, team effectiveness surveys, corporate social responsibility programmes or other initiatives to assist the project.

Project governance

For any good project to be implemented successfully, certain key decisions need to be made at various junctures along the project time line. In order to support or guide these decisions, certain governance activities are either mandatory or negotiable. Gate reviews are mandatory as are certain procedures or approval limits. Negotiable items could include exceptions to the corporate approved vendor database or spending approval levels depending on the unique nature of the project. They need to be documented and agreed, however.

A governance structure consisting of reporting requirements, boards, steering committees and other steering and/or approval forums is also a prerequisite for this section.

Additional requirements

The sections above describe the PEP in broad outline.  Not shown on the model in Figure 2 are two important items that should be included in a PEP, namely:

  • Next Stage Plan: Whilst the sections above are related to the generic project, this section requires that a certain amount of preparation work be done to ensure the activities and deliverables required in the next stage are addressed. As an example, the work to be done during FEL 3 must be planned during FEL 2.
  • References: Certain documents are critical inputs to a PEP but are normally too lengthy to include in the PEP. An example is the Business Plan or Project Information Memorandum. Critical information is gleaned from these documents, but they are very comprehensive documents and do not fit well within a PEP. Rather extract the required information and refer the reader back to the source documents that can also be attached as an addendum to the PEP.

The various sections described above are then translated into a typical table of contents for the PEP. This is by no means a definitive list, but is a very good starting point for most projects.  By following this model, a generic PEP can be a useful way to ensure a consistent approach is used.  It also provides a useful framework for communicating and aligning with all role players.

The PEP Development Cycle

It is extremely important to remember that the development of a PEP is an iterative process from FEL 1 to the end of FEL 3 where the level of information for each section of the PEP becomes progressively more detailed as more knowledge and insight is gained about the project. At the end of FEL 3, the PEP becomes the definitive plan for project implementation. It also describes/prescribes the role and governance requirements of engineering and other contractors as part of their work in contributing to the success of the project. The development of a PEP starts during the FEL 1 or prefeasibility stage as shown in Figure 3.

Figure 3:  The PEP Development Cycle

The input required to start the development of the PEP is the sponsor mandate and a project kick-off meeting. The project charter and business objectives also provide inputs that need to be considered in developing the PEP. By following the model shown in Figure 3, one gets a good idea of the level of definition the PEP requires during each of the stages.  These range from philosophy statements to preliminary plans to definitive plans by the end of FEL 3.

PEP development is not the responsibility of the project manager on his own, but every team lead needs to understand the PEP and provide his or her input into the sections that they are responsible for. The items covered in the PEP however remain consistent throughout the project life-cycle, but the level of detail increases through FEL 1, 2 and 3 as demonstrated above.

At the end of FEL1 and FEL 2, the PEP contains an overall view of the total project life-cycle and implementation plan, as well as the detailed plan for the next stage. At the end of FEL 3 the PEP contains the full Implementation phase plan, covering project delivery and commissioning, and will therefore form the definitive basis for the Project Control Base against which all progress, performance payments and changes will be measured and reported.

Closing remarks

Front-end planning has long been recognised as an important process that increases the likelihood of project success (Hansen, Too & Le, 2018).  CII (2006) state that front-end planning and the development of a PEP is a process of developing enough strategic information with which owners can address project and business risk and decide to commit resources to a project. 

The PEP is a vital component of the project manager’s and project team’s armoury.  It sets out the scope, mandate, plans, etc. of what the project is going to deliver.  It acts as an extremely important communication tool and should not be treated lightly.  Many project teams seem to think that once the plan is updated that is the end.  On small projects you may get away with it, but on large projects you do so at your peril.

References

CII (Construction Industry Institute), 2006, RS213-1 – Front End Planning: Break the Rules, Pay the Price. Austin, Texas: Construction Industry Institute, The University of Texas at Austin.

Hansen, S., Too, E. & Le, T., 2018, Retrospective look on front-end planning in the construction industry: A literature review of 30 years of research. International Journal of Construction Supply Chain Management Vol. 8, No. 1.

Merrow, E.W., 2011, Industrial megaprojects: concepts, strategies, and practices for success., John Wiley & Sons, Inc., Hoboken, New Jersey.

You may also be interested in

Introducing the Project Execution Plan

Introducing the Project Execution Plan

The Project Execution Plan is used to assure, firstly, that the right aspects for project implementation are considered and secondly, that the project has been described in such a way that during each stage of front-end loading it is clear and concise as to what needs to be done.

read more
The Widening Trust Gap in Projects

The Widening Trust Gap in Projects

To succeed, an extraordinary degree of trust, cooperation and communication is required between the owner organisation and the owner project management team together with the functional service providers, suppliers and contractors.

read more
The Widening Trust Gap in Projects

The Widening Trust Gap in Projects

By Jurie Steyn

Introduction

This article was triggered by four recent events, which caused me to reflect on what the future holds for projects.  These events are:

  • A thought-provoking Insight Article on the future of project controls (Mattheys, 2018);
  • The Insight Article on the role and responsibilities of a project management office (PMO) (Taljaard, 2018);
  • Cenpower Generation’s recent termination of its contract with the construction company, Group Five, to complete the $410m Kpone power station in Tema, Ghana (Claassen, 2018); and
  • A second down-scaling in a period of four years of the engineering and project management departments at a petrochemicals company where I spent most of my working career.

Literature is freely available on future trends in project management and what would be expected from future project managers (Alexander, 2018; Evamy, 2017; Jordan, 2017; Schoper, Gemünden & Nguyen, 2016).  However, discussions on the widening of the trust gap and its impact on project success is extremely limited.

Keep in mind that I’m based in South Africa, and my observations might be unique to Africa and third world countries.

The trust gap

Independent Project Analysis (IPA) have been analysing megaprojects for over 30 years to determine the requirements for project success and to help their customers create and use capital assets more efficiently.  They’ve highlighted the crucial role that a strong, fully staffed, owner project management team, with the appropriate work and governance processes in place, plays in delivering successful projects (Merrow, 2011). It is the owner project management team that typically leads the front-end loading phase of projects.  Merrow (2011) emphasises the extraordinary degree of trust, cooperation and communication required between the owner organisation, as represented by the project sponsor, and the owner project management team.

van Heerden, Steyn and van der Walt (2015) build on these principles and propose a preferred structure for theowner project management team, as shown in Figure 1.  The owner project management team is shown as a collection of four blue triangles, representing business management, project management, engineering and operations, arranged in a larger triangle.  Below this, and shown as a red box, we have contracted in functional services, technology suppliers, and engineering and project management contractors.

 

Figure 1:  Trust gap between owner PMT and contractors(Adapted from van Heerden, et al, 2015)

I refer to the interface between the owner project management team and contractors, suppliers and service providers, i.e. the gap between the blue triangles and the red box in Figure 1, as the trust gap.  Obviously, the working relationship between these parties, responsibilities and deliverables must be described in numerous carefully worded contracts, but significant trust is essential for project success.

Before getting to the factors that contribute to a widening trust gap, let us first consider the different roles and perspectives of the owner organisation and the owner project management team on the one hand, and the contractors on the other.

Different roles and perspectives for owners and contractors

Owner organisations, and specifically the owner project team, have a different role and perspective than the contractors in projects.  This difference stems from the fact that owner organisations implement projects to achieve strategic business objectives, whereas contractors only focus on delivering projects which meet the agreed performance standards, on time and within budget.  A summary of the different objectives, roles and perspectives of owners and contractors is given in Figure 2.

 

Figure 2: Different perspectives for owners and contractors

Project scope changes can lead to cost overruns and schedule slip and should be diligently managed to that which can result in significant, demonstrated improvement to the project, or that which is essential to achieve safety and compliance objectives.  However, from the point of view of an engineering contractor, scope changes could mean thousands of extra, recoverable, engineering hours.  Scope changes can also be used as an easy excuse for schedule slip by contractors.

Current trends at owner organisations

Owner organisations can be public companies, private companies and state-owned enterprises (SOE). Owner organisations typically own and operate the production facilities and/or infrastructure delivered by projects.

Over the past number of years, we’ve seen a gradual eating away at the numbers and experience base of primarily the engineering and project management departments in owner organisations.  Reasons for this are plentiful, and range from the inability to raise capital for projects, to poor strategic vision for the company.  Restructuring of top management and personnel cuts in the operations department also result in fewer individuals in these areas being available to focus on capital projects. Business and operations management are important stakeholders in any project, and play a significant role in the commissioning of facilities and the running of a sustainable business.  This situation is reflected in Figure 3 as mice eating away at the underbelly of primarily the engineering and project management departments, and so widening the trust gap.

 

Figure 3:  Widening of the trust gap (Adapted from van Heerden, et al, 2015)

In SOE, most top positions are political appointments.  In South Africa and in the Gupta state-capture era, important project and tender decisions were often made by individuals with little or no project management or engineering background.  The primary focus seemed to be self-enrichment, and not project success. There are many instances where SOE’s ignored their own tender regulations when awarding contracts, for example, South African railways officials imported brand new locomotives from Europe worth hundreds of millions of rand, despite explicit warnings that the trains are not suited for local rail lines (Myburgh, 2015). 

In South Africa, we have the additional burden of complying with Broad-Based Black Economic Empowerment (BBBEE) requirements, with the implication that individuals with extensive experience are made redundant, or are replaced with candidates with limited experience.  Project management and engineering departments thus not only become smaller, but tend to be staffed with less experienced personnel.

Trends at engineering and PM companies

Referring to Figure 3, it is obvious that the widening of the trust gap is not only as a result of personnel cutbacks, loss of project and engineering experience, and greed from the side of the owner organisation.

The trust gap can also open from the side of contractors, suppliers and service providers, as illustrated by the erosion of the red box in Figure 3.  Some of the factors that can contribute to this erosion of trust are listed below:

  • Financial standing:Construction companies in South Africa are in a difficult situation at present and personnel cutbacks are frequent.  Companies are downsizing and/or put up for sale;
  • Bribery: Attempts at bribery of technology suppliers, service providers and contractors by personnel from state or owner organisations prior to the signing of a contract or during the execution thereof can lead to strained relationships and would impact the chance of project success;
  • Communication:Unclear project objectives and charter, from an immature or understaffed owner project management team, combined with ad hoc and incomplete communication will erode trust;
  • Interface management: Insufficient effort or resources for proper client liaison by contractors and service providers, most likely due to in-house cost cutting at the contractors and service providers;
  • Relationships: Soured relationships following a history of schedule and cost overruns on previous projects for same owner organisation.  This can also be a concern based on underperforming end-products from previous projects and outstanding claims;
  • Coordination:No experienced managing contractor to keep a project on track, despite poor decision-making from the owner project management team.  This is a certain recipe for disaster; and
  • Incompetence:Disregard of owner company tender procedures may lead to the selection of incompetent contractors and service providers, often with catastrophic results.

Impact of a widening trust gap

IPA measure five dimensions of project effectiveness in their assessments to determine whether a project is a success, or not (Merrow, 2011). If a project surpasses the threshold limit for failure on any one of these dimensions, the project is considered a failure.  The five dimensions are cost overruns (>25%), cost competitiveness (>25%), schedule slip (>25%), schedule competitiveness (>50%) and production vs. plan in year 2 of operation.  Project success is defined as a lack of failure.

As the trust gap widens, the probability of remaining below the threshold limit for failure on any of these dimensions decreases, i.e. the wider the trust gap, the larger the likelihood of an unsuccessful project. 

Closing the trust gap

Given the state of the South African economy and political uncertainties, the question is whether the trust gap can be reduced to improve the likelihood of project success.  Two options immediately spring to mind:

  • Eliminate corruption: Elimination of corruption in specifically SOE should receive attention at the highest level and proper governance should be instituted to ensure that tender procedures are always followed.  The decision of which contractor to employ should always be made by a team of professionals with the necessary experience and knowledge, and using a predetermined decision matrix; and
  • Use external resources: The southern African market is awash with highly competent engineers and project managers, many of whom were put on early retirement due to the factors described in previous sections.  Many of them are available as consultants to fill critical vacancies on owner project teams, especially during the early project stages. These are people who understand the business requirements and can translate strategic business objectives into clear project objectives.

The future of the Project Management Office (PMO)

Taljaard (2018) describes the roles and responsibilities of the PMO very clearly in his recent article.  Based on the trends described above, it is obvious that owner organisations must make a fundamental mind-shift where it involves project implementation.  Although all the PMO functions remain relevant, I forecast a downscaling of some of the functions, and a possible sharing of some of the PMO roles, like project portfolio management and optimisation by other senior business leaders.

I forecast a growth in the number and utilisation of owner project team support professionals.  Lastly, the role of the owner project sponsor will become increasingly important.  For large and complex projects, the project sponsor is seen as an executive, full-time position by competent individuals who have been trained as sponsors, understand the business objectives and can make decisions based on facts

Figure 4 is summary of my view of the future of the PMO and the project sponsor.

 

Figure 4:  The future of the PMO

Closing remarks

The widening of the trust gap is very visible in southern Africa and may be applicable in most third world countries.  The wider the trust gap, the lower the probability of project success… Fortunately, the widening can be curtailed by improved governance and the elimination of corruption, as well as the use of freelance project management and engineering professionals.

OTC, and other consulting groups like us, should see an increase in the demand for our services, once owner organisations make a mind-shift in their approach to projects.

References

Alexander, M., 2018, 5 Project management trends to watch in 2018. Available from https://www.techrepublic.com/article/5-project-management-trends-to-watch-in-2018/.  Accessed on 28 December 2018.

Claassen, L., 2018, Ghanaian power firm ends troubled contract with Group Five.  Published in BusinessDay of 2 December 2018. Available from https://www.businesslive.co.za/bd/companies/energy/2018-12-02-ghanaian-power-company-ends-troubled-contract-with-group-five/. Accessed on 28 December 2018.

Evamy, M. (ed),2017, Future of project management., Publication by the Association of Project Management, Arup and The Bartlett School of Construction and Project Management at UCL.

Jordan, A., 2017, The technology-driven future of project management: capitalizing on the potential changes and opportunities.Publication by Oracle, projectmanagement.com and Project Management Institute.

Mattheys, K., 2018, Insight Article 052: Disrupting project controls – fast forward 20 years.  Available from http://www.ownerteamconsult.com/publications/  Accessed on 14 December 2018.

Merrow, E.W.,2011, Industrial megaprojects: concepts, strategies, and practices for success., John Wiley & Sons, Inc., Hoboken, New Jersey.

Myburgh, P-L., 2015, SA’s R600 million train blunder.Available from https://www.news24.com/SouthAfrica/News/SAs-R600-million-train-blunder-20150704.  Accessed on 28 December 2018.

Schoper, Y-G., Gemünden, H-G. & Nguyen, N.M., 2016, Fifteen future trends for Project Management in 2025.Published in the Proceedings of the International Expert Seminar in Zurich in February 2016 on Future Trends in Project, Programme and Portfolio Management.

Taljaard, J.J., 2018, Insight Article 054: The project management office (PMO).  Available from http://www.ownerteamconsult.com/publications/  Accessed on 14 December 2018.

van Heerden, F.J., Steyn, J.W. & van der Walt, D.,2015, Programme management for owner teams: a practical guide to what you need to know., OTC Publications, Vaalpark, RSA. Available from Amazon.

 

You may also be interested in

Introducing the Project Execution Plan

Introducing the Project Execution Plan

The Project Execution Plan is used to assure, firstly, that the right aspects for project implementation are considered and secondly, that the project has been described in such a way that during each stage of front-end loading it is clear and concise as to what needs to be done.

read more
The Widening Trust Gap in Projects

The Widening Trust Gap in Projects

To succeed, an extraordinary degree of trust, cooperation and communication is required between the owner organisation and the owner project management team together with the functional service providers, suppliers and contractors.

read more
Natural Gas in Southern Africa, Part 2: Available gas resources and future development

Natural Gas in Southern Africa, Part 2: Available gas resources and future development

By Anton Putter

This is the second part of a 2-part series of articles covering the natural gas industry in southern Africa.   For these articles, we view southern Africa as comprising South Africa, Namibia, Botswana, Lesotho, Swaziland, Zimbabwe and Mozambique.  The two parts focus on different aspects of the natural gas market, as follows:

In this Part 2, the focus is on current and potential sources of natural gas in southern Africa and we describe a possible future scenario for natural gas.

Introduction

In the first article of this series, an overview was given of the history of the gas industry in southern Africa, a global perspective was given on gas prices and the growth in global gas demand, and the status of the current gas market and infrastructure in southern Africa was reviewed.  Currently, less than 4% of South Africa’s primary energy needs are sourced from natural gas or equivalent. This compares with 14.2% for South Korea, 28.4% for the USA, and 23.1% for Germany (BP Energy Review, 2018).

It was clearly illustrated that southern Africa is lagging the rest of the world in the use of natural gas, primarily due to limited gas supply and not as a result of high gas pricing. The lack of pipeline infrastructure is also a major inhibitor to further development of the gas industry in southern Africa, together with the slow development of local gas resources.

In this article, we discuss current and potential sources of natural gas and describe a possible future scenario for natural gas in southern Africa.  We believe that natural gas can easily exceed 14% of southern Africa’s primary energy needs.

Sources of natural gas in southern Africa

The current and imminent producers of natural gas in southern Africa were discussed in Part 1 of this series of articles (Putter, 2018).  Two current producers are PetroSA offshore gas and the Pande / Temane gas fields in Mozambique.  The Rovuma Venture is progressing their LNG project from the Mamba field offshore Mozambique with first production expected in 2024.

The lack of local gas resources is inhibiting the growth of the gas industry in South Africa.  Following are a few notes on some of the southern African gas resources that could change this:

  • Rovuma gas: This major gas resource in the north of Mozambique (and south of Tanzania) is one of the biggest gas fields in the world.  Unfortunately, the development of floating LNG plants (such as the Rovuma venture) will do nothing for natural gas consumption in southern Africa since all the LNG will be exported.  The only way for this massive natural gas resource to make a meaningful contribution to natural gas consumption in the region, would be for the gas to be brought ashore and transported to the major energy markets in the region, either via electricity generation and transmission, a major natural gas pipeline or possibly conversion to derivatives such as liquid fuels or fertilisers;
  • Offshore gas: Several exploration efforts are underway to find oil and gas off the southern African coast such as Sasol offshore Mozambique, Total and ENI offshore South Africa and Eco Atlantic offshore Namibia.  If the gas would be brought ashore from any of these potential developments, it could make a meaningful contribution to the gas economy in southern Africa;
  • Karoo shale gas: Since this gas would be well located for distribution of energy within the region, it could certainly play an important role in the growth of the gas economy in southern Africa.  Exploration, however, has now been held up for 10 years due to regulatory and environmental considerations, and it is still not clear when this will go ahead; and
  • Coal bed methane (CBM): Several CBM resources are in the region and some with substantial volumes of gas in place.  Amongst others, there are known CBM resources in Botswana, Waterberg and Mpumalanga in South Africa, the western side of Zimbabwe, and Tete in Mozambique.  At this stage it would seem like these CBM resources are the first of the larger resources mentioned here, that will be exploited on large scale within southern Africa.

The distribution of these gas resources is shown in Figure 1.

Figure 1:  Distribution of gas resources in southern Africa

There are also numerous smaller resources that have the potential to contribute to the southern African gas economy.  These include the biogenic gas of the northern Free State province in South Africa, biogas from waste dumps or digester gas from sewerage works or animal farms: 

  • Biogenic gas: Biogenic gas is unconventional gas produced at great depth by microorganisms during respiratory and fermentation processes. Biogenic gas is not generally contained in traps, but is continually being generated at depth and migrates to surface along natural fracture systems, faults and dykes;
  • Biogas: Biogas is a biofuel that is naturally produced from the decomposition of organic waste. When organic matter, such as food scraps and animal waste, break down in an anaerobic environment (an oxygen free environment) they release a blend of gases, primarily methane and carbon dioxide. Methane content is typically between 50 and 55%; and
  • Digester gas: Digester gas is a category of biogas, produced from organic wastes such as livestock manure, and food processing waste in a controlled environment such as a biogas plant. Organic waste such as livestock manure and various types of bacteria are put in an airtight container called a digester, so the process could occur. Depending on the waste feedstock and the system design, biogas is typically 55 to 75 % pure methane.

It is not anticipated that any of these smaller resources in isolation has the potential to contribute more than 2 million GJ/a.

Apart from the above-mentioned ‘normal’ sources of natural gas, there is the possibility to produce synthetic natural gas (SNG).  This used to be the basis of the gas industry in South Africa and even today, the gas going down the Lilly pipeline to KwaZulu-Natal is SNG, called methane rich gas (MRG) by the producer, Sasol.  Various sources of SNG could be considered such as from gasification of coal, biomass, petroleum coke or solid waste, and the conversion of this gasified gas to SNG.  Another possibility for SNG is a mixture of liquefied petroleum gas (LPG) and air, as is practiced on small scale in Port Elizabeth, South Africa.

Possible future scenario for natural gas in southern Africa

It is obvious that there is substantial scope for the growth of the gas industry in southern Africa.  This is also supported by the latest Integrated Resource Plan (IRP) proposed by the South African government which foresees a much larger role for gas in electricity generation than is currently the case (additional 8100 MW from gas by 2030).

OTC runs a gas forecasting model, predicting the gas demand over the longer term.  This model uses a wide range of assumptions and anticipates contributions from most of the potential sources of gas mentioned above.  Under a set of optimistic macro-economic and project-specific assumptions, this model predicts growth in gas consumption in southern Africa as shown in Figure 2, when gas prices remain at the current levels.

Figure 2:  Predicted growth in southern Africa gas consumption (from OTC model)

The following conclusions can be drawn from Figure 2:

  • Growth in gas demand over the next 20 years will be driven by power generation;
  • Gas consumption for derivative manufacture will become a much smaller proportion of the overall gas demand and more in line with global ratios;
  • Industrial offtake of gas will only grow at modest rates and is inhibited by the lack of gas pipeline infrastructure;
  • By 2035, gas-generated power production in the region will be roughly 13000 MW, which seems to be in line with the 11930 MW of installed gas-fired capacity in South Africa by 2030 as foreseen by the latest IRP (RSA DoE, 2018); and.
  • By 2035, gas will then contribute 14% to the total primary energy supply of southern Africa, a similar level to the current contributions of gas in South East Asia where expensive LNG is used, but still short of the 20% level in northern Europe with similar natural gas prices.

Gas competes with other primary sources of energy and as such growth in gas consumption will be very dependent on the price of the gas to the consumer.  Figure 3 shows what the model predicts for gas growth at three different gas prices.

Figure 3: Impact of gas price on southern Africa gas consumption (from OTC model)

These three gas prices were selected to represent extremes of USA type pricing at the one extreme and imported LNG pricing at the other extreme.  At least the following conclusions can be drawn from this analysis:

  • LNG type pricing (the $12/GJ line in Figure 3) will not lead to significant growth in the southern African gas industry unless some other significant event(s) happens such as environmental regulations drastically impacting the generation of power from coal, steep increases in the price of electricity for other reasons or regulatory intervention that promotes the use of LNG imports.
  • Low gas pricing (as represented by the $4/GJ line in Figure 3) can be a game-changer for the southern African economy. In the macro-economic assumptions underlying the model it is assumed that gas available in large quantities at such a low price would boost the GDP growth of the southern African economy by at least 1% per annum over this whole period.

Closing remarks

Gas is underutilised as an energy source in southern Africa.  There is significant potential to grow the gas consumption in this region.  Furthermore, if the gas price at which this growth occurs, is lower than the current gas prices, this development has the potential to have a noticeable positive impact on the economy of the region.

Over the past 10 to 15 years, several gas prospects have emerged in the region.  Each of the four potential sources mentioned earlier has the potential to more than double the current gas consumption in southern Africa.  If several of these sources are exploited in combination, it would change the energy landscape in southern Africa.

Infrastructure development, specifically pipeline networks, will remain a challenge in the region and could inhibit the growth of the gas industry.  Governments in the region and state-owned entities (SOE’s) can play a significant role in facilitating the development of infrastructure. 

References

BP Energy Review., 2018, BP Statistical Review of World Energy. Available from https://www.bp.com/content/dam/bp/en/corporate/pdf/energy-economics/statistical-review/bp-stats-review-2018-full-report.pdf  Accessed on 27 August 2018.

RSA DoE (Department of Energy), 2018, Integrated resource plan 2018, final draft for public input.  Available from http://www.energy.gov.za/IRP/irp-update-draft-report-2018.html.  Accessed on 2 December 2018.

Putter, A.H., 2018, Insight article 055: Natural Gas in Southern Africa, Part 1: current natural gas supply and demand.  Available from http://www.ownerteamconsult.com/natural-gas-in-southern-africa-part-1/ . Accessed on 10 November 2018.

You may also be interested in

Introducing the Project Execution Plan

Introducing the Project Execution Plan

The Project Execution Plan is used to assure, firstly, that the right aspects for project implementation are considered and secondly, that the project has been described in such a way that during each stage of front-end loading it is clear and concise as to what needs to be done.

read more
The Widening Trust Gap in Projects

The Widening Trust Gap in Projects

To succeed, an extraordinary degree of trust, cooperation and communication is required between the owner organisation and the owner project management team together with the functional service providers, suppliers and contractors.

read more
Natural Gas in Southern Africa, Part 1: Current supply and demand

Natural Gas in Southern Africa, Part 1: Current supply and demand

By Anton Putter

This is the first part of a 2-part series of articles covering the natural gas industry in southern Africa.   For these articles, we view southern Africa as comprising South Africa, Namibia, Botswana, Lesotho, Swaziland, Zimbabwe and Mozambique.  The two parts focus on different aspects of the natural gas industry, as follows:

·      Part 1:  Current natural gas supply and demand; and 

·      Part 2:  Available gas resources and future development.

Introduction

The gas industry in South Africa has a long history.  The first gas was produced by the Johannesburg Lighting Company in 1892.  Following the expansion of the gas network in Johannesburg by the Johannesburg Gas Works (the city utility that took over the Johannesburg Lighting Company), further development of the gas industry in South Africa was closely aligned to the development of the synthetic fuel industry in South Africa (Lauferts & Mavunganidze, 2009).  Sasol pioneered the synthetic fuel industry in Sasolburg in the 1950’s and in Secunda in 1980, while PetroSA (initially called Mossgas) introduced the first natural gas into South Africa in 1992. 

The most significant event in the gas industry in southern Africa up to now, was the development of the Pande and Temane natural gas fields in Mozambique and the construction of a pipeline, the ROMPCO pipeline, to transport that gas from Pande / Temane to Secunda where it linked into the existing gas pipeline network.  The gas flow through the ROMPCO pipeline commenced in 2004, and more than doubled the use of gas in southern Africa.

In this article we take a global perspective on natural gas, consider the current gas market and infrastructure in southern Africa, and discuss the natural gas sources currently exploited in southern Africa.

Global perspective on gas

Globally, gas consumption has grown strongly over the past 10 years and is predicted to surpass coal to become the second biggest source of primary energy within the next 5 to 10 years.  This growth is illustrated clearly in Figure 1, showing the primary energy development over the past 25 years.

Figure 1: Growth in Global Primary Energy Consumption (BP Energy Review, 2018)

The growth in natural gas has been specifically fast in the LNG segment, with growth rates approaching 5 to 10% per year over the past 2 years and LNG consumption now approximately 300 million tpa.  Even so, the LNG consumption still represents only slightly more than 10% of the global natural gas consumption.  Also noticeable from the LNG statistics over the past 27 years in Figure 2, is the fast growth in regasification capacity and the growth in the number of LNG importing countries.

Figure 2: Growth in LNG Trade (IGU, 2018)

Unlike most other commodities, there are significant differences in gas pricing around the world.  These differences are driven by the extremely high logistics cost of moving natural gas around, whether in the form of LNG, by pipeline or any other means, and these differences are expected to persist into the future.  Figure 3 shows a forecast of global natural gas prices from Cambridge Energy Research Associates (CERA, 2014), showing an expectation for these current price variances to persist into the future.

Figure 3: Forecast of natural gas pricing (IHS CERA, 2014)

Current gas market in southern Africa

There has been significant growth in the gas industry in southern Africa with the introduction of natural gas from Pande and Temane, but the consumption of gas in southern Africa still lags far behind the rest of the world as illustrated in Table 1.

Table 1: Natural gas contribution to total primary energy consumption in 2017 (BP Energy Review, 2018)

Region

Total primary energy in MTOE*

Natural gas in billion m³

Natural gas as % of primary energy

World

13511

3670

23.4%

USA

2235

739

28.4%

Germany

335

90

23.1%

South Korea

296

49

14.2%

Australia

139.4

42

25.9%

South Africa

120.6

4.5

3.2%

* MTOE:  Million tons oil equivalent

Even though the above numbers for South Africa does not reflect the methane-rich gas sent from Secunda to KwaZulu-Natal or the PetroSA internal consumption, less than 4% of South Africa’s primary energy needs are sourced from natural gas or equivalent.  This compares with 14.2% for South Korea, a country totally reliant on very expensive imported liquefied natural gas (LNG), 28.4% for the USA where the gas is of the cheapest in the world, and 23.1% for Germany which is mostly reliant on long-distance pipelines for its natural gas supply and with prices similar to South African prices.

In 2017, the gas consumption in southern Africa was approximately 220 million GJ.  The breakdown of this consumption is shown in Figure 4.

Figure 4: Gas demand in southern Africa (from OTC Gas Roadmap model)

The fraction of gas converted in southern Africa to derivatives (such as liquid fuels, wax, ammonia and methanol) is very high when compared to global ratios.  Conversely the use of gas in electricity generation and industrial uses is very low compared to the rest of the world.  This situation is a result of South Africa’s political history where the strategic need to produce synthetic liquid fuels (GTL) was very high.

The high consumption of natural gas into liquid fuels is demonstrated by Figure 5 showing the breakdown of the gas conversion uses in southern Africa in 2017.

Figure 5: Derivative gas demand in southern Africa (from OTC Gas Roadmap model)

Gas infrastructure in southern Africa

The lack of infrastructure is a major inhibitor to further development of the gas industry in southern Africa (together with the slow development of local gas sources).  The few major pipelines in the region is shown in Figure 6 and are concentrated in the east of the region with some branching off these pipelines.

The major pipelines are as follows:

  • ROMPCO pipeline: This 865 km pipeline from Temane in Mozambique to Secunda in South Africa is jointly owned by Sasol, the Mozambique government and the South African government.
  • Lilly pipeline: Transnet owns this 600 km pipeline from Secunda to Durban;
  • Sasol pipelines: Sasol owns several gas pipelines originating in Secunda and reaching destinations such as Johannesburg, Ekurhuleni, Pretoria, Sasolburg and Emalahleni.

Even though South Africa is amongst the top 30 economies in the world, it is not one of those 36 countries (see Figure 2) with LNG import facilities.  Over the past couple of years there has been efforts by the Department of Energy in South Africa to facilitate such a facility.  At this stage, it does not appear that anything will be in place within the next couple of years.

Figure 6: Main gas pipelines within southern Africa

Sources of natural gas in southern Africa

There are currently two producers of natural gas in southern Africa with another project in development, namely:

  • PetroSA gas production: The offshore shallow gas fields supplying the gas-to liquids facility of PetroSA has been producing since 1991 and the gas production has been in strong decline over the past number of years;
  • Pande and Temane gas fields: These onshore Sasol gas fields has been producing since 2004.  Gas production has been steadily increasing, but the latest drilling results reported by Sasol does not sound promising; and
  • Mamba gas field, Mozambique: The Mozambique Rovuma Venture (joint development by ENI, Exxon and CNPC) is progressing their Rovuma LNG project from the Mamba field offshore Mozambique.  The plans entail two floating LNG production trains of 7.6 million tpa each, with first production expected in 2024.

As already alluded to, the lack of local gas resources is inhibiting the growth of the gas industry in South Africa. 

Concluding remarks

It is clearly illustrated in this article that southern Africa is lagging the rest of the world in the use of natural gas.  This is primarily due to limited supply and not because of high gas pricing.  Growth in the natural gas industry in southern Africa will most probably be driven by the exploitation of additional gas resources and substantial development of the local infrastructure.

In Part 2 of this series of articles, we will explore other potential sources of natural gas in southern Africa and possible future growth scenarios.

References

BP Energy Review., 2018, BP Statistical Review of World Energy. Available from https://www.bp.com/content/dam/bp/en/corporate/pdf/energy-economics/statistical-review/bp-stats-review-2018-full-report.pdf  Accessed on 27 August 2018.

IGU (International Gas Union), 2018, World LNG Report.  Available from https://www.lngglobal.com/international-gas-union-2018-world-lng-report  Accessed 28 August 2018.

IHS CERA, 2014, Fueling the Future with Natural Gas.   Available from https://www.fuelingthefuture.org/assets/content/AGF-Fueling-the-Future-Study.pdf  Accessed on 28 August 2018.

Lauferts, M. & Mavunganidze, J., 2009, Ruins of the Past: Industrial Heritage in Johannesburg. Available from https://www.witpress.com/Secure/elibrary/papers/STR09/STR09047FU1.pdf  Accessed on 20 August 2018.

You may also be interested in

Introducing the Project Execution Plan

Introducing the Project Execution Plan

The Project Execution Plan is used to assure, firstly, that the right aspects for project implementation are considered and secondly, that the project has been described in such a way that during each stage of front-end loading it is clear and concise as to what needs to be done.

read more
The Widening Trust Gap in Projects

The Widening Trust Gap in Projects

To succeed, an extraordinary degree of trust, cooperation and communication is required between the owner organisation and the owner project management team together with the functional service providers, suppliers and contractors.

read more