Energy Square

| OCTOBER 2020

Promoting sustainable energy and achieving triple bottom line

Industry Focus: Energy & Natural Resources

The energy industry is clearly moving towards renewables and low-carbon alternatives. With increasing consumer awareness of environmental and climate impacts, societal expectations are driving companies to embrace sustainability as a core part of their business strategy. Major oil and gas companies are making increasingly sizable investments in new and alternative energy companies and technologies to bring renewable, lower-carbon energy to consumers, and simultaneously reducing their environmental and carbon footprints.

Whether you’re an upstream producer or a fully integrated company, the industry must embrace dramatic business

transformation driven by the adoption of technical, cultural, and organizational change to deliver safe, reliable, and sustainable energy products and services.

Global decarbonization efforts as well as stringent Government regulations that are aiming to reduce dependency on fossil fuels, CO2 emissions and footprint, are urging individuals and companies to take immediate actions and focus on the reduction of energy consumption. In addition, the recent pandemic that influenced the energy demand and the ongoing price war and market share, indicates that the energy and resources industry is currently going through a challenging business environment.

There is a need for leading companies to run in a sustainable way serving as an enabler of efficient business processes and simultaneously to help their customers to achieve the same.

The IT industry plays a key role in improving the sustainability performance of businesses and consumers. Integration and standardization of operations, energy efficiency, real time information, enabling connected and intelligent operational processes (leveraging AI/Machine learning), are areas that can be addressed by technology.

This is the aim of this paper: a way to integrate sustainability consistent with driving long-term financial performance for energy companies.

Benjamin Beberness,

Global VP, Oil, Gas and Energy Industry Business Unit

Foreword

SAP enables your transformation to Sustainable Energy. Read on for details.

Achieve Triple Bottom Line

Bhavesh Chavda, CoE Platform & Technologies. Stratis Pelekidis, DGTAL ME & Africa

Manas Sahoo, Industry Value Advisor

Our customers

Oil processing organizations, are asset intensive, energy intensive and, given the commodity nature of their output, heavily influenced by the market prices of their products. They are therefore highly interested in anything that can improve their operating margins, so naturally efficiency comes into play, in terms of energy, asset uptime, processing times, and conversion efficiency.

The situation

Oil & Gas industry is currently going through a challenging business environment – some factors are industry-specific and others pertain to the economy at large. The global decarbonization effort, aiming to reduce dependency on fossil fuels and CO2 emissions, is at this specific juncture, compounded by additional circumstances, on a political level with an ongoing price war and market share play, and on a humanitarian level, with the evolving COVID-19 pandemic heavily influencing energy demand. The combined effect of these factors led to oil prices shrink to their lowest this side of the millennium. Decarbonization and

possible recession are putting even greater pressure on margins of Oil & Gas refining/midstream companies due to fluctuating crude oil (input) prices as well as fuels (read output) prices not being in their control. They thus need to focus on operational costs in order to preserve margins, while more stringent government regulations are driving them to reduce their carbon emissions and footprint. Companies are exploring 4th

Industrial revolution (4IR) technologies for "Standardizing and integrating operations at manufacturing plant level” and realizing scenarios such as “Reducing energy consumption”, as it addresses both priorities (evidenced by increased demand observed last year). Integration enables people to work coherently on “single version of truth” without need for exchanging offline notes and syncing on results. This promotes remote working, social distancing and business continuity in the current context.

The drive

Naturally refineries and other processing facilities turn to productivity increases, as a means

to optimize operating costs and improve their bottom lines. They want to look ever more closely to topics such as asset utilisation and uptime, conversion rates and production/quality losses, or energy and human capital efficiency. These are all areas where a company, provided with the right tools and processes, can have serious impact on its bottom line, without incurring huge capital expenditure, and thereby improving cash flows. All these areas however necessitate a closed loop monitoring from operational plant level systems to business and enterprise resource-related systems and back, something many organizations struggle with. Industry associations and standards organizations (ISA, MESA,..) recommend such closed-loop operations, which advancements in technologies (read Industry 4.0) make highly feasible today.

This is the precise topic of this document, and the reason a lot of companies are exploring this opportunity area. But there’s obstacles aplenty along the way.

The SituationThe Drive

For realizing a true “one company” view, organizations need to focus on integration and standardization.

• Integration: Most organizations today have a disintegrated mode of operations between corporate processes and plant-level operations, with applications running in silos. Usually the engineering organization within the company tends to take decisions on systems for production, while corporate, including IT, oversees deployment of transactional systems. The two worlds integrate and collaborate, but the exchange of information is achieved through custom integration projects, and is usually limited to information mandated by governments, regulators and other authorities, such as customs. This also limits the available real-time visibility into operational data, and therefore hinders decision-making on the corporate level - the disconnect between operational and commercial information limits the possibility of the company to adjust to market conditions and

various resources availability. It is fair to summarize that usability of plant and operational data for business decisions is limited without integration. Delayed reactions, and partly justified decisions, based on anecdotal incidents are to be expected. This leads to disconnected planning and execution resulting in sub-optimal performance and higher operational costs.

• Standardization: Many organizations have achieved a higher degree of standardization and integration at corporate level (business, strategy, planning) with ERP (Enterprise Resource Planning) systems (defined by ISA as levels 4, and 5 of automation). However standardizing manufacturing operations at plant (especially at level 3 automation) is a challenge due to heterogeneity of systems used, typically acquired from various vendors in an attempt to obtain the coveted best-of-breed landscape. These heterogeneous systems are difficult to integrate and keep up to the changes

required by business, leading to break down of process flows and introducing manual interventions, inefficiencies and errors. Users therefore tend to adopt these systems less, laying the blame on broken processes and need to do manual steps.

The disconnected Oil&Gas Enterprise

SAP’s strategy is to enable the “Intelligent Enterprise” for the Oil and Gas industry, linking:• Intelligent Suite: Intelligent

applications for all lines of business, including a next generation ERP (S/4HANA), MII (Manufacturing Integration and Intelligence), digital manufacturing cloud, and Intelligent asset management suite of solutions

• Intelligent Technologies: A toolbox of intelligent technologies (IoT, AI, ML, and analytics) also embedded in core SAP applications and industry accelerators

• Business Technology Platform:Unified data management and digital platform for new application development

SAP can help address both these areas of “integration and

standardization” at level 3 as well as level 4, providing a unique “Manufacturing Operations Management” solution with a best-of-suite approach. The solution is based on “Manufacturing Operations Management” as per international standards such as ISA 95. The domains for Manufacturing Operations Management (MoM) namely production, inventory, quality, maintenance and regulatory compliance are addressed with this solution offering, along with the relevant use-cases and scenarios. The following few paragraphs elaborate on these topics.

Cross-MoM Domain Use-cases

Energy Monitoring & AnalyticsEnergy efficiency is one of the topics, where improvement is easy to demonstrate and quantify.

The reason behind the drive for Energy optimization is straightforward, as less energy signifies less cost, less emissions, less carbon dioxide. It drives the bottom line, sustainability and public image with a single move. This is the reason SAP is witnessing a growing demand for the topic, over the past years. SAP has a unique industry standard compliant (ex. ISA 95) solution offering for energy monitoring and analysis with out-of-the box content for various KPIs related to this. A major refiner in the United States, achieved unification of KPIs and benchmarking of their refining operations across the country. In doing so, and implementing improvements highlighted by near real-time monitoring of energy consumption patterns, they were able to realize yearly cost savings

A Solution

of more than US$50 million. The architecture used was relatively straightforward, as the link of refining systems with enterprise systems achieved by SAP Manufacturing Integration & Intelligence (MII), unification of reporting based on provided content and evolving on that basis, and a real-time link of facility data to their costing consequences, as registered in the transactional SAP ERP.

SAP utilizes its connectivity platform, leveraging integration content for a multitude of system providers, to bring information closer to business systems. SAP Oil & Gas has the capabilities to schedule, monitor and analyze

these activities, Digital Manufacturing Cloud provides the overall management layer, and SAP HANA and SAP Analytics Cloud can help in the optimization and visualization of the various scenarios and actual performance. Via the same set of solutions SAP addresses other MoM use-cases and scenarios such as mass balance for crude and products, requirements for transportation scheduling and carrier selection, tank management or commodity position, risk profile, and risk measures.

Overall Equipment Effectiveness (OEE) ManagementSAP provides rich standard content on top of MII for simple order

execution along with calculating of key OEE (Availability, Performance, Quality) KPIs. It enables bi-directional top-floor to shop floor integration and ability to download production/process order, collect production, rework, waste, standard value key, raw material etc. and post it back to ERP system; captures the root causes for downtime, efficiency loss and poor quality and facilitates analysis and corrective action at the plant level and across plants; provides analysis of real time information on OEE, Availability, Performance and Quality on various hierarchy levels along with business context; has operator-friendly, responsive and device-friendly UI, using state-of-the-art technologies.

Promoting Sustainable Energy for Energy Industry

Production and Inventory Operations ManagementProduction Operations Management covers planning, scheduling and execution of refining operations. Production Operations Management helps produce profitable products, in line with customer demand. The following value use-cases can be achieved with the proposed architecture.

• Refinery Unit Based Product Costing and Margin Analysis: Most refineries today are not able to track volume and value flow through the refining process at various refinery units along the crude to intermediates to final products. This use-case enables this visibility and its use for margin analysis. True actual cost of each product is available anytime and anywhere, and therefore actual profitability view for each product can be analyzed. Visibility of all between-unit movements, enabling tracking of input and output for each unit becomes possible and improved inventory visibility with IFRS compliance to measurement of

inventories (IAS2 Inventories) is feasible.

• Refinery demand planning and supply response planning: Demand for fuels depends on many parameters. Thus, a robust demand planning and forecasting system would enable better streamlining of operations. Both demand planning and supply response planning can be achieved with SAP Integrated Business Planning solution, integrated with the core components mentioned earlier.

Maintenance Operations ManagementMaintenance Operations Management includes SAP-enabled processes to manage static and rotating equipment in a refinery guided by accepted practices from API, IEC and ISO. Using SAP’s Intelligent Asset Management suite, SAP’s MoM offering is a comprehensive platform for asset strategy development, risk mitigation, for maintenance & outage planning, work scheduling and real time control of resources (labor, tools, parts). The plant is

able to monitor in real time the operating conditions of installed equipment, automate and optimize maintenance, draw conclusions on and prescribe actions for future performance.

Quality Operations ManagementQuality Operations Management addresses the important topic of managing product quality and minimizing product quality giveaways. SAP enabled quality management processes across the hydrocarbon processing chain with integration to laboratory systems such as LIMS fulfils this objective. While quality is centered on production input and output, within the company premises, but also before and after, it extends to cover quality of the assets used and the link between production and asset performance, intrinsically and inevitably tied to overall equipment effectiveness. Management of corrosion and traceability of batches downstream, are perhaps the other sought-after topics in the area, with companies hoping to prolong the life of their operations, in order to increase actual uptime, and customer satisfaction.

Promoting Sustainable Energy for Energy Industry

Regulatory Compliance ManagementMore stringent government regulations are also driving them to reduce their carbon emissions and footprint. Penalties and resources associated to emissions are significant, leading companies to improve their sustainability and safety, and improve margins at the same time. SAP provides a complete suite of integrated solutions for ensuring regulatory compliance and enforcing a safety culture within the organization.

Emissions management specifically is a use case, very closely linked to the initial energy optimization scenario, even though it falls under a different MoM

category. Emissions calculations and predictions are obtained on the basis of plant data, and are used to reduce both the environmental footprint and associated cost impact.

The solutions help manage incidents, secure employee health and safety, fulfil environment compliance, manage change and ensure maintenance safety. Through the integration of the plant world, it is possible to gain insights on pieces of equipment, types of tasks that are associated with risk, measures and their effectiveness, predict incidents and emissions, in a closed loop with all other aspects. While regulatory

compliance appears to be an introvert function in a company, it considerably affects shareholder value, and drives significant changes in an organization.

Conclusion

A multitude of benefits, in all domains of an Oil & Gas processing facility, can be obtained by seamless integration and transparency, between the industrial and enterprise levels. While a best-of-breed approach can provide individual benefits, the SAP “Intelligent Enterprise” approach compounds the individual effects into a holistic, scalable, and future-proof solution.

Conclusion

Afterword

Reach out to our Experts!

Marc Nolla

Head of DGTAL, SAP EMEA South

According to the United Nations, we have now entered the “Decade of Action”, ten years to transform our World if we want to avoid the worst effects of Climate Change, to become more sustainable and to get on the right path to meet the UN Global Sustainable Development Goals. Taking no action or delaying action is not an option, once this window of opportunity is closed we will have passed too many of our planet’s boundaries to have any chance of return.

Companies across all industries must take a step back and consider the actions and changes they can start implementing today to make a

difference. We all need a degree of “Stubborn Optimism” to make this change happen, to set individual examples that lead the way for others to take similar steps during this decade.

At SAP we believe that digital transformation and the Intelligent Enterprise strategy will help you grow exponentially the effect of the actions you take. Make no mistake, becoming more sustainable is the most intelligent, resilient and profitable strategy you can adopt.

In this paper our Industry, Solution and Sustainability experts have come together to deep dive in a

focus area that can help you drive meaningful change in your industry. As part of the SAP Cares initiative, this paper is a call to action to you as a leader to reach out to us so we can together with our experts analyze this case or explore other areas of change that can drive the exponential impact we all need. Let us start today, building the best possible future.

“Make no mistake, becoming more sustainable is the most intelligent, resilient and profitable strategy you can adopt.”

Contact Details

Ashley Boag, SAP

ENR Industry Head, SAP EMEA South

Stratis Pelekidis, SAP

Head of DGTAL, Middle East & Africa

Manas Sahoo, SAP

ENR Industry Value Advisor, SAP EMEA South

Bhavesh Chavda, SAP

Center of Excellence, Platform & Technologies, SAP EMEA South

Email: ashley.boag@sap.com

Email: stratis.pelekidis@sap.com

Email: manas.sahoo@sap.com

Email: bhavesh.chavda@sap.com

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