Life Cycle Cost analysis. In oil and gas / process industries applied to a FPSO process plant

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Life Cycle Cost analysis

In oil and gas/process industries

Applied to a FPSO process plant

T.UtDelft master thesis project: DMS 05/01

SW-Project No.: 24035-0' CI

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By

J.J. Paauw

Delft, 07/03/2005

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bluewater

Bluewater Energy Services B.V.

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This report

written for the completion of my thesis project for the section 'Marine

Engineering' at the Delft University of Technology. Bluewater Energy Services WV. engaged with this project from 1 September 2002 till 29 September 2004. From 1 October 2004 till 16

March 2005 this report was completed without supervision of Bluewater Energy 'Services

B.V.

Top Paauw Delft, 2005!

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_

114

7.1.3 Series structure 115

7.1.4 Active parallel redundancy 117

7.1.5 Standby redundancy 119

7.1.6 Application of a series/parallel structure 126

7.1.7 Non series/parallel systems 132

7.1.8 Passive maintenance time .- 135

7.2 References Y 7. 138

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Chapter 1 Introduction

1 Introduction

"Failure is the only opportunity to more intelligently begin again [Henry Ford]" This

statement is certainly valid if you know what the failures are. Failures have a significant

influence on the cumulative costs incurred by a specified function or item of equipment over its total life cycle, also known as the life cycle cost LCC. Failures are especially of influence on the operational aspect of life cycle cost LCC. A failure has to be repaired, which results in

maintenance costs. But a failure also causes loss or deferred production, which results in

downtime costs. By knowing the failures of an item the reliability of an item can be

determined and a prediction of its life cycle cost can be obtained.

The life cycle cost model discussed in this report is developed for decision making by the relation between reliability of equipment and their related costs. The principles of such a

model are illustrated in figure 1.1. First a model of the production system is constructed by a

reliability block diagram. A reliability block diagram describes the system as a number of

functional blocks which are interconnected according to the effect of each block failure on the overall system reliability. Second reliability, maintenance and cost data has to be collected as

an input for the model. This results in a prediction of the life cycle costs. Several different

models of the system can be considered. Each model of a system leads to a different result in the life cycle costs. A decision can now be taken, which model is the most cost effective.

Rest of world Generic data

Figure 1.1 The decision model

The report starts in chapter 2 with considering the life cycle phases from concept selection through disposal. Chapter 3 is engaged with an introduction of the different processes to obtain the life cycle costs. The subsequent chapters are devoted to the different processes

introduced in chapter 3. Process 5, which is cost profile development and evaluation, is due to

lack of time omitted from this report. Chapter 8 gives conclusions and recommendations.

Several appendix are given, which are refered to in the text. The last pages of this report are devoted to actual assignment given by Bluewater Energy Services B.V.

Model of system

Data Jr the analysis

5

Results input for decisions

Other inputs to decisions

Decisions

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-2 Life cycle phases

2.1 Tithing of the LCC analysis

A LCC analysis is preferably carried out over all phases of the life cycle. The life cycle May

be defined as all development stages of an item of equipment or function, from when the study commences up to and including disposal. The life cycle of an offshore. project starts with a seismic survey for oil at geologic determined coordinates. This may eventuate in

exploration drilling. If the field is successfully explored, the production procedure will

commence. As from here the production life cycle of a FPSO starts. In all the following

phases a LCC analysis has to be executed. The technical processes of each phase are depicted in figure 2.1. The output if these processes can be considered as decisions.

Operation, production & maintenance Maintenance optimization Repair spares optimization Production & process optimization Reservoir management optimization Modification options& screening Disposal strategy & review Well shutdown, facilities disposal & abandonment

Figure 2.1 technical processes [ISO 15663-3' (2001il

In the 'concept selection' phase the field owner may tender the production of thefield by an

operator, like Bluewater. Several operators will make a proposal. The

field owner will compare the proposals. The operator, who offered the best bid, will be in general awarded with the contract. The scope of work for the proposal is normally defined by the operator in

conjunction with a sub-contractor, like Fluor Daniel or ABB.

Prior to the start of the basic design BIuewater is awarded with a contract. In the "basic

design' phase identification and examination of the technical options for facilities, processes

and delivery will commence Sizing and scoping the required utilities (power generation,

accommodation, water supply, logistic support, etc.) and examining the cost trade-offs

between facilities/processes and utilities are also within the scope of this stage. Overall layout, weight and dimensions are normally fixed on completion of outline design. This phase is normally undertaken by Bluewater in conjunction with a sub-contractor who will evaluate

the technical options. The contributions of the equipment supplier, called vendor, are not

likely to add significant value with their specialist knowledge of the cost and performance of alternative options. In this phase reliability and maintainability have to merit special attention as indicated in appendix II.

-÷

Concept _{Basic design} Detailed'

design Construction, hook-up & LCOMMiSSiall big selection Facilities selection Facility

definition _[Facilitiesspecification

Completion strategy &

logistic support analysis Process

selection definitionProcess specificationProcess

Delivery

selection definitionDelivery

Delivery specification Utilities definition Utilities specification Manning definition Manning specification Inspection & maintenance strategy Vendor selection Equipment selection Sparing & repair strategy Disposal )0 &

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Chapter 2 'Timing of Life Cycle 'Cost analysis

In the 'detailed design' phase the system and equipment will be optimized within constraints defined during outline design. Tins phase is normally undertaken by Bluewater and the

sub-contractors. The vendor will need to respond to (functional) specifications provided by the

sub-contractor.

In the 'construction, hook-up, and commissioning' phase the process system will be installed and subsequently the FPSO will be towed to the field. The FPSO will be hooked up and the, production system will be tested. This phase is normally undertaken the sub-contractor under supersivion of Bluewater..

In the 'operation, production and maintenance' phase the FPSO is' in operation. Bluewater is fully responsible for the production. If production requirements by the field owner are not met Bluewater is forced to pay a penalty

In the 'disposal' phase Bluewater in conjunction with specialist sub-contractors will examine

when and how to decommission and dispose of all parts of the asset. If it is feasible the

facility will be used for the next offshore project and the whole life cycle starts over again

2.2 Decisions in the LCC analysis

Severaly decisions are taken in the life cycle. Each decision has a consequence for the total;

LCC. These consequences may be good or bad, but also in between. As depicted in figure 2.2,, the total LCC is uncertain during the overall life cycle. At the beginning of the life cycle the

costs have a large uncertainty and at the end of the project the uncertainty is zero. It

is

common that 80% of the costs are made within the first 20% of the life cycle. So, the

decisions made within

this period have direct consequences on the future operating

expenditures. Therefore the future costs have to be analysed before making decisions. An overall view on the LCC made in the past may give an indication on the future LCC. This provides a basis for the costs, which are going to be made and gives an indication how to control the LCC'.

Uncertainty in LW

Operation,

production

maintenance it

Figure 2.2 Uncertainty in LCC over the life cycle

- _ _

Li

Concept

selection

It

Outline design& FEED design 111r

Construction,H hook-up&

conrnrissioning

7

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3 Procedure of Life Cycle Cost analysis

To excecute a LCC analysis a procedure has to be followed. The procedure is depicted in

figure 3.1 and it contains seven basic processes, which have to be followed chronologically.

Each process can be broken down into sub-processes. The LCC analysis starts from the process "problem definition" and the next four processes are carried out successively. In process "cost profile development 8c evaluation" a decision will be made. As long as the system does not satisfy the criteria defined in the first process, the procedure will use the optimization loop to start the whole procedure over again. The procedure stops. when the

system satisfies the criteria defined in the first process. A report will be the result.

Figure 3.1 -procedure of LCC analysis

As mentioned before the LCC analysis can be executed in every phase of the life cycle. The proposed procedure can also be executed in every phase of the life cycle and each process can be carried out. When the life cycle progresses the knowledge of the system will also increase.

This results in a more precise result of each process. Finally in the last (decommissioning) phase the LCC analysis can be repeated and a final report will be written. Comparing this

report with the former reports may give good insight in unexpected costs and this information is recommended to use for next projects.

The procedure used is an adaptation of the procedure proposed by Kawauchi and Rausand

(1999) and the procedure proposed by ISO 15663-1 (2000). Both references give a framework for a LCC analysis in the petroleum and gas industry. The referred procedures use the same

common processes. In the next paragraphs an introduction of these processes and their

sub-processes will be discussed. In the next chapters some of these sub-processes will be evaluated in-depth. Kawauchi and Rausand (1999) also give lists of several references on codes, standards and computer programs used in life cycle costs analysis.

In this chapter several references are given to literature review publications and state-of-the-art publications. These publications give a wide amount of references where information can

be found. This is done because the amount of publications on reliability theory is immense. And therefore Uskakov (2000) reminds himself on the following: Somebody would like to

have a drink of water and instead was thrown into the middle of deep and boundless pool.

3.1 Process 1: Problem definition

3.1.1

Scope definition

The first step of any LCC analysis should be to clarify the problems and the scope of work. The term "scope- means aspects, such as the scope of program phases to be modeled, the

scope of equipment to be modeled, the scope of activities to be modeled, etc. A clear

definition of the scope is necessary to get a clear definition of the cost elements, which are the

ptimistztio

process] process 2 process 3 process. process 5

Problem

definition Cost elementsdefinition Data collection

System modeling Cost profile development & evaluation Result (Reporting)

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-3-Chapter 3 Procedure of Life Cycle Cost analysis

basis for predicting the total LCC. We have to clearly define all assumptions in the LCC

analysis as well.

3.1.2

Evaluation criteria definition

The evaluation criteria in the last process named "Evaluation" should also be defined in the

Process 1. The criteria should encompass not only the total cost, but also system performance

and effectiveness. Decisions concerning

"cost- of a

system should

not be made

independently.

The decisions should be made by considering "cost", together with

"effectiveness" of the system as well. The effectiveness may comprise system characteristics,

like capacity, product quality etc., and also system performance characteristics, like system availability, the safety integrity level of shutdown systems, etc. Regulations, codes and

standards, and project specifications specify the minimum acceptable system for many

systems.

3.1.3

Operational philosophy development

The operational philosophy is the overall intentions and direction of the organization, related

to the production system and the framework for the control of the production system related

processes and activities, that are derived and consistent with the corporate strategic plan. The

operational philosophy is for example operational requirements and maintenance strategies,

which should be developed before the calculation of LCC. The operational philosophy means, for instance, an acceptable time interval of predictive maintenance, or the maximum available

resources for maintenance, etc. It significantly depends on the plant owners' philosophy

about the plant operation. At the beginning of the engineering period the operational

requirements are known, but the maintenance strategy may be vague. During the engineering

period a maintenance strategy has to be developed. The equipment will be chosen with the

operational requirements and the maintenance strategy in mind. When each equipment unit in

the system is known, a maintenance concept will be written. This maintenance concept will

often be adapted during the operational period.

3.2 Process 2: Cost elements definition

3.2.1

Cost breakdown structure development

It is important to identify all so-called "cost elements", that influence the total LCC of the

system. The cost elements have to be defined in a systematic manner to avoid ignoring (significant) cost elements. The cost breakdown structure can be structured using a three

dimensional concept as depicted in figure 2.2. The first dimension is devoted to the life cycle

phases, such as operational phase. The second is devoted to the production/work structure, such as time-based scheduled maintenance of the equipment. And the last is devoted to cost

categories, such as man-hours costs.

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Cost categories "A

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010

MEM LO

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Figure 2.2 cost element concept [IEC 60300-3-3 (2004)]

3.2.2

Cost categories definition

Costs can be categorized in numerous ways, and some are more useful than other, at least on a

general basis. In traditional cost analysis two main categories exist on the highest level,

namely capital expenditure CAPEX and operating expenditure OPEX. ISO 15663-2 (2001)

adds two categories to the highest level, namely decommissioning cost and revenue impact. The revenue impact covers the relevant impact on the revenue stream from failures leading to production shutdowns, planned shutdowns and penalties. Thus the revenue impact covers the

change in production availability. High production availability will result in a low revenue

impact and thus in a low LCC. Emblemsvag (2003) adds two extra categories, liability costs and less tangible costs. He defines liability costs as costs that arise due to noncompliance and

potential future liabilities, and less tangible costs as image and relationship costs. All these

categories are broken down into some generic cost trees of lower categories of cost elements.

3.3 Process 3: Data collection

3.3.1

Data elements identification

The LCC prediction is dependent on the selection of the input data elements. Before modeling a system, the input data have to be identified, which influences the LCC prediction. The input

data elements can be distinguished in several cost-related categories, like for instance

inventory data, reliability (failure) data and maintenance data.

3.3.2

Estimation of data

The LCC prediction is also dependent on the accuracy of input data. Accurate input data are

crucial for LCC prediction. Four methods can be used to obtain data. One method is to

retrieve data from a public data source. For instance theOREDA (2002) handbook can be consulted. This database is specialized in reliability and maintenance data for the offshore industry. A second method is to retrieve vendor/designer knowledge of the equipment. The

designer is in the possession of reliability data only for the purpose to optimize his design. A

third method is to obtain data from the internal maintenance management system. In the maintenance management system all maintenance, operational and logistic data is ought to be

collected. A fourth method is to estimate data by expert judgment. The operational and

maintenance personnel have gained experience of similar systems for years. They are able to give a good estimation on the required data input.

Life cycle phases

Operation phase

(Second year)

Ivian-hours cost of time-based

scheduled maintenance over

the life cycles

Iffirml

namin0

imirramo

imismo

Man-hours cost

A4P gas compressor / Time-based scheduled maintenance

Example of

cycle cost element

Product/work breakdown

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'Chapter 3 Procedure of Life Cycle Cost analysis

3.4 Process 4: System modeling

Several models are discussed in this paragraph. Although all the models are of influence on,

the LCC only the production availability model will be discussed in this thesis. All other models are discussed to give an understanding of the complexity of modeling a production,

system. Also references are given to many review papers.

3.4.1

Risk modeling and safety instrumented system modelling

The "potential risk" related to a system is useful information for decision making in the

engineering period. Risk is generally quantified by multiplying the magnitude of the

"consequences" of accidents by the "frequency" of the accidents. As for the quantification of

the risk of health, safety and environmental events, the "consequence" is derived from

predicted damage in case that a potential hazard scenario would happen, and the "frequency" is derived from probability of occurrence of the potential hazard scenarios. The consequence

of health, safety and environmental events may directly be connected to cost. For example

pollution by oil is prohibited by the International Convention for the Prevention of Pollution

from Ships 1973. If oil pollution takes place, the coast state authorities will give a fine. The

LCC risk is the fine multiplied by the frequency oil pollution occurs. IEC 61508 (1998), and OLF (2001) provides a basic method for risk modeling.

To reduce the potential risk a safety instrumented system can be installed. A safety

instrumented system is a system composed of sensors, logic solvers, and final elements for

the purpose of taking the process to a safe state when predetermined conditions are violated. By installing a safety instrumented system there is still the probability that the safety system

will fail to (automatically) carry out a successful safety action on the occurrence of a

hazardous/accidental event. This probability is called the critical safety unavailability. The critical safety unavailability can be modeled using for example the PDS Method Handbook

(2003) or Bodsberg and lIokstad (1996).

14.2 Production availability modeling

Production availability modeling must be part of the design process of a system. The

production availability is defined as the ability of a system to produce a required capacity at a

given instant of time or over a given time interval, assuming that the required external

resources are provided. If for instance a production system produces 150000 barrels of oil in a

month, while 200000 barrels could be produced without losses, the production availability

will be 0.75. Contract requirements expect high production availability against low life cycle costs. Therefore the system must be designed taking the required production availability into account.

In the engineering period, the uncertainties in costs and in the expected production availability are high. To support the engineering processis a model is required, which is simple to use and which can handle uncertainties. In the operational period, the uncertainties in costs' are low. This results in a model, which can handle more details.

Several publications contain a huge amouth of references on the subject of availability, like Osalci and Nakagawa (1976), Lie et al. (1977), Kumar and Agarwal (1980), Yearout et al.

(1986) Smith et al. (1997), Wang and Pham (1997) and Csenki (2002).

3.4.3

Maintenance modeling

'The frequency of maintenance or inspection considerably influences both the production

availability and the maintenance costs. Maintenance may be categorized in corrective

maintenance and preventive maintenance. Corrective maintenance is maintenance carried out

after fault recognition and intended to put an item into a state in which it

can perform a

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required function. Preventive maintenance is the maintenance carried out at predetermined

intervals or according to prescribed criteria, and intended to reduce the probability of failure

or the degradation of the functioning of an item. The model balances both

maintenance

policies to achieve an optimal result for the whole system.

Several literature review papers are devoted to maintenance modeling, like McCall (1965),

Turban (1967), Sherif and Smith (1981), Sherif (1982), Bosch and Jensen (1983), Jardin and Buzacott (1985), Valdez-Floris and Feldman (1989), Cho and Parlar (1991), Jensen (1996),

Pham and Wang (1996), Van Der Duyn Schouten (1996), Dekker, Wildeman and Van Der

Duyn Schouten (1997), Scarf (1997), Dekker and Scarf (1998), Kaio, Dohi and Osaki (2002), Wang (2002). Dekker (1995) gives an approach for integrating optimization, priority setting, planning and combining of these maintenance models.

3.4.4

Risk-based inspection

Risk-based inspection is a decision making technique for inspection planning based on risk. The reasons for selecting a risk based approach to inspection are according to DNV-RP-G101

(2002):

To focus inspection effort on items where safety, economic or environmental risks are

identified as being high, whilst similarly reducing the effort applied to low risk systems To ensure that the overall installation risk does not exceed the risk acceptance criteria, set by the operator, at any time.

To identify the optimal inspection or monitoring method according to identified

degradation mechanisms.

The API-RP-580 (2002) standard has been developed for risk based inspection. A

recommended practice for offshore topsides static mechanical equipment can be found in DNV-RP-G101 (2002). Kallen and van Noortwijk (2003) give a model using the gamma

stochastic deteriotion process to model the corrosion damage mechanism.

3.4.5

Logistic support modeling

Logistic support is defined as the support a system needs for delivering the functionality for which it has been designed and built. Blanchard (1992) considers the following nine elements in the analysis of logistic support, which will not be discussed in this report:

Maintenance and support planning

Supply support: spare/repair parts and inventories Maintenance and support personal

Maintenance facilities (utilities)

Test, measurement, handling, and support equipment Technical data, information systems

Computer resources (hardware & software) Training and training support

Packing, handling, storage and transportation

Although the mentioned elements are not discussed in this report, they are

extremely

important. Several studies on this subject have been undertaken by the military, like MIL-STD-1388-1A or Stavenuiter (2002). An overview of publications referring to spare parts inventories is given by Mabini and Gelders (1990), Nahmias (1981) and Kennedy et al. (2002). Other issues referring to many other publications on inventory are Veinott (1966),

Chikan (1990), Porteus (1990) and Lee and Nahmias (1993). Vudinie et al. (1992) considers the maintenance organization in combination with the maintenance workload.

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Chapter 3 _{Procedure of Life Cycle Cost analysis}

3.4.6

Production regularity modeling

The regularity of the production is a major factor for logistic support. Regularity is a term used to describe how a system is capable of meeting demand for deliveries or performance.

The model is extremely useful for modeling the whole production chain from the oil field to the gas station. However this model is not appropriate for Bluewater, as a FPSO owner, alone. But it must be taken in consideration that waiting for a shuttle tanker while the storage tanks

are full is associated with the revenue impact of the LCC.

For further reading the author refers to Aven (1987), Limnios (1992) and Kawauchi and

Rausand (2002). Storage tanks can be implemented using Boxma et al. (1999).

3.4.7

Human error modeling

Human error is as a set of human actions or activities that exceeds some limit of acceptability. In the actual operation of a process plant, a human error may induce a hazardous event. The

human errors may be classified in omission errors, extraction errors, and action errors. An omission error is failing to carry out a required act. An extraction error is an unrequired act

performed instead of or in addition to the required act. An action error is: failing to carry out a required act adequately

an act performed without required precision or with too much/little force an act performed at the wrong time

acts performed in the wrong sequence

Although human error modeling is an important factor in LCC analysis, there is not much

input data available for human error models in the offshore industry. Therefore human error

modeling will not be discussed in this report. For a discussion of human error modeling the

reader is referred to Swain (1990).

3.4.8

Industrial ecology modeling

According to the growing concern of ecology, requirements and procedures to reduce impact

on the environment due to system operations have been developed. By the Kyoto Protocol

1997 tradable pollution 'permits' for greenhouse gasses are introduced. This protocol

encourages companies to reduce pollutant emissions. According to tradable permits, a

company that succeeds to reduce pollutants emission below a permitted amount can sell the

right of emission as equal to the margin between the permitted amount and actual amount of

their emission. The company has two options to observe the regulation. One option is to reduce the emission level of the company by itself. The other is to buy the right of emission from the other companies. Therefore the impact on the environment due to emissioncan be quantified as a cost factor in LCC analysis. The flare system on a FPSO produces greenhouse emission. This system is dependent on the production availability of the gas compression unit and can therefore be modeled.

3.5 Process 5: Cost profile development

evaluation

3.5.1

Cost profile development

One of the aspects in the LCC analysis is the affordability analysis. In the affordability

analysis, a cost profile over the life cycle is determined through executing cost models. It is

recommended to update the expected cost profile over the life cycles when modifying system design or planning investment.

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The affordability analysis shall take into account the effect of inflation, interest rates, and

exchange rates, taxation, etc. However, accurate prediction of inflation and exchange rate is often difficult, so the cost profile may be prepared at 'constant prices' basis.

The model can now be evaluated by the methods described from here.

3.5.2

Evaluation

Cost driver identification

One of the objectives of LCC analysis is to identify cost drivers, which have major impact on

the total LCC, and to find cost effective improvements. If a cost driver is identified, it is important to establish cause-and-effect relationships, to identify "causes" of the high cost.

For instance the causes may be a frequent failure in certain equipment, or a high utility

consumption in a sub-system. To modify system design according to improvements of cost

drivers will reduce the LCC of the system.

Uncertainty analysis

Uncertainty analysis is an attempt to consider ranges for the estimate of the LCC and their

effect on decisions. If the uncertainty in a LCC analysis is estimated by uncertainty analysis, the uncertainty distribution provides confidence intervals to decision makers. The uncertainty

analysis can only be executed if the sample distributions of the parameters in the model are

known. Random samples will be taken for each sample distribution and these samples will be

adopted in the model. This will be done several times, which will result in a sample

distribution of outcome of the model. This sample distribution may now be used as a measure for the uncertainty. The LCC of an equipment unit can be expressed by a confidence interval for example between the 1.5 million dollar and 1.8 million dollar with a certainty of 90%.

Sensitivity analysis

Sensitivity analysis examines the impact of changes in input parameters on the output

prediction. Varying the input parameters over a range to see the impact on cost can help highlight the major factors affecting costs, and show the effects of trade-offs on costs. The sensitivity analysis can be executed on each input parameter separately. By comparing the

results of change of these parameters the most sensitive equipment unit can be found.

3.6 Optimization

Optimization is the process of seeking the best. In LCC analysis, this process is applied to

each alternative in accordance with the decision evaluation. The optimization may be

preceded through the iterative LCC processes depicted in figure 2.1. In a broad sense, the optimization process generally means to find a set of parameters that minimizes the LCC of the total system, however, in a narrow sense, the optimization may be applied to specific

activities in the LCC processes such as design optimization, maintenance optimization, spare part optimization, manning optimization etc.

Several different algorithms may be applied to optimize. Because the model contains several

non-linearity's, the best algorithms to use are probably of the evolutionary type. Several

reviews on evolutionary algorithms can be found in Atmar (1994), Fogel (1994), Michalewicz (1996), Back and Schwefel (1996), Back et al. (1997) and Lozano (2002). From the author's point of view the best algorithm to apply may be found in Price and Stom (1997), which also

contains the C codes. Grefenstette (1986) gives an optimization model of the control

parameters for genetic algorithms.

A disadvantage of evolutionary algorithms is that the solution is not certain with probability one. Although if starting parameters for the model are known, the deviations to the optimum

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Chapter 3 Procedure of Life Cycle Cost analysis

will small. Starting parameters are for instance scheduled maintenance, which can be found in maintenance handbooks of the specific equipment.

Also this model will not be further developed in this thesis, but for the sake of completeness it is discussed above.

3.7 Reporting of LCC analysis

According to the international standard IEC60300-3-3 (2004), a documentation of results is

mandatory in LCC analysis. It states t hat the following six elements should be included in the

report:

Executive summary. A brief synopsis of the objectives, results, conclusions, and

recommendations of analysis. This summary is intended to provide an overview of the

analysis to the decision makers, users and other interested parties.

Purpose and scope. A statement of the analysis objective, product description, including

a definition of the intended product use environment, operating and support scenarios;

assumptions, constraints, and alternative courses of action considered in the analysis. LCC model description. A summary of the LCC model, including relevant assumptions, a depiction of the LCC breakdown structure, an explanation of the cost elements and the

way in which they were estimated, and a description of the way in which cost elements

were integrated.

LCC model analysis. A presentation of the LCC model results, including the

identification of cost drivers, the results of sensitivity analyses, and the output from any

other related analysis activities.

Discussion. A through discussion on and interpretation of the analysis results, including

any uncertainties associated with the results, and of any other issues which will assist the decision makers and/or users in understanding and using the results.

Conclusions and recommendations. A presentation of conclusions related to the

objectives of the analysis, and a list of recommendations regarding the decisions which

are to be based on the analysis results, as well as an identification of any need for further work or revision of the analysis,

References

API-RP-580, 2002

API-RP-580:"Risk-based inspection" American Petroleum Institute

Atmar, 1994

W. Atmar:"Notes on the simulation of evolution", page 130-147 in;"IEEE transactions on neural networks 5(1)"

Aven, 1987

T. Aven:"Availability evaluation of oil/gas production and transportation systems", page 35-44 in:"Reliability engineering 18"

Bosch and Jensen, [983

Bosch; U. Jensen:"Instandhaltungsmodelle Eine ebersicht" (in German), page 105-118 in:" OR Spelamm 5" Springer-Verlag

Back, Hammel and Schwefel, 1996

T. Back; U. Hammel; H. SchweferEvolutionary computation: comments on the history and current state" page 3-17 in:"IEEE transactions on evolutionary computation 1( I)"

Back and Schwefel, 1996

T. Back; H. SehweferEvolutionary computation: an overview" page 20-29 in:"Proceeding of IEEE international conference on evolutionary computation"

Bodsberg and Hokstad, 1996

Bodsberg; P. Hokstad:"Transparent reliability model for fault-tolerant safety systems", page 25-38 in:"Reliability engineering and system safety 55"

Boxma, Perry and van der Duyn Schouten, 1999

O.J. Boxma:D.Perry; FA.van der Duyn Schouten:"Fluid queues and mountain processes", page 407-427 in:" Probability in the engineering and informational science 13"

Blanchard, 1992

B.S. Blanchard:"Logistic engineering and management" Prentice Hall Blanchard and Fabrycky, 1998

B.S. Blanchard; W.J. Fabrycicy:"Systein engineering and analysis" Prentice Hall Chikan, 1990

A. Chilcan:"Inventory models" Akademiai Kiado, Budapest

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Cho and Parlar, 1991

D.I. Cho and M. Parlar"A survey of maintenance models for multi-unit systems", page 1-23 in:"European Journal of

engineering and system safety 60" Csenki, 2002

A. Csenki:'Transient analysis of semi-Markov reliability models - a tutorial review with emphasis on

discrete-parameter approaches", page 219-251 in:"Stochastic Models in Reliability and Maintenance" (ed. S. Osalci) Springer-Verlag

Dekker, 1995

It Delcker"Integrating optimization, priority setting, planning and combining of maintenance activities" page 225-240 in:"Eutopean journal of operational research 82"

Dekker and Scarf', 1998

It Dekker, PA. Scarf "On the impact of optimization models in maintenance decision making: the state of the art",

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Chapter 4

4 Process 1: Problem definition

1-Optimis4tion

The first process is devoted to the problem definition. The problem definition starts with the scope definition 4.1. In the scope definition the scope of the LCC analysis 4.1.1 and the scope

of the system 4.1.2 will be discussed. The scope definition gives respectively the objectives and the subject on which these objectives are applicable. Knowing thescope definition the

evaluation criteria has to be defined. The evaluation criteria definition 4.2 consists of

regulations and company policies 4.2.1, the life cycle cost definition 4.2.2 and the system effectiveness definition 4.2.3. All these three definitions have a direct connection with each

other. Finally a part of the operational philosophy development 4.3 will be discussed. Not the whole operational philosophy will be discussed, but only that part which has a relation to the

scope of the LCC analysis, which is thus related to maintenance. First the maintenance

categories 4.3.1 will be considered and subsequently the design ofa maintenance concept

4.3.2.

4.1 Scope definition

4.1.1

Scope of the LCC analysis

The scope definition is devoted to the scope of the! LCC analysis, which is analyzing and

optimizing. This may be preformed to execute the total LCC analysis. The LCC analysis may

be split in several applications,, each application has its own objective. The applications

discussed in this report cover design analysis and maintenance analysis.

The first application is design analysis. The goal of the design analysis is minimizing

the life

cycle cost by changing the design of the system. The phases at which the design analysis is

most effective is the concept selection and the basic design. In each phase the system is more

specified and the uncertainties in the future LCC decreases. In the design

_{analysis the}

production availability is generally one of the most important parameters of the LCC. The production availability may be influenced by the reliability of the purchased equipment and

by the arrangement of the equipment. Therefore the

scope of the design analysis is first

obtaining reliability and maintenance data of the purchased equipment, second modeling the. system, and third executing a production availability calculation of the system.

The second application is maintenance analysis. The goal of the maintenance analysis is

examining a maintenance strategy or maintenance concept. The maintenance analysis starts at

the detailed design phase and ends at the disposal phase. At the detailed

_{design phase a}

maintenance strategy is defined. This results in a maintenance concept in the construction,

hook-up & commissioning phase. During the operation, production & maintenance phase this

maintenance concept will be updated several times. Several maintenance &

_inspection

techniques will be applied during this period, like preventive maintenance (PM), reliability centred maintenance (RCM), risk based inspection (RBI), and instrument protection functions

(LPF). These techniques will not be discussed in this report. However the results of these

techniques are suited for input in the model. Also

_{spare parts affect the downtime. The}

i9

Process 1: Problem definition

5 profile development S: evaluation Result (Reporting) process 4 Problem ...a process] 2

Cost elements Data collection cyst

_definition

"r,

1 - definition .4.1 modeling 4 process Cost

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waiting time before spare parts become available is also suited for input in the model.

Therefore the scope of the maintenance is first obtaining reliability, maintenance, inspection

and spare parts data, second modeling the system, and third executing a production

availability calculation for the system.

4.1.2

Scope of the system

The second scope definition is devoted to the scope of the system. A LCC analysis of the

whole facility may be performed. However this is also a comprehensive activity. Therefore a

facility may be broken down in several systems. Each system has to have its own system

effectiveness, which will be clarified in the next paragraph. The scope of the system used as an example in this report is given in appendix I.

A system may be organized as illustrated in figure 4.1 in space, in time or in a function of

both. A structure can be viewed as the organization of the system in space, which results in a structure hierarchy. The structure hierarchy describes parts of a system in the form of tangible and/or visible parts, their interactions (e.g. their tag-numbering) and their arrangements (e.g.

their location numbering). If for instance a pressure sensor is transferred from the MP gas

compressor to the HP gascompressor its location number changes, while its tag number stays the same. Structural hierarchy - - -( -System 4, -Goal/ condition hierarchy

Hierarchies that describe a system

Functional Behavioral hierarchy hierarchy

The organization of a system in function is classified in goals/conditions, functions and behaviors. A structure is designed to fulfill a goal or a condition. To fulfill one goal or one condition one or several functions have to be performed. Thus the goal or condition is the

purpose of the function. The way this function is achieved is its behavior. That is, a function

is what is expected, and the behaviors are how this expected result is attained. Consider a centrifugal gas compressor. The goal and the condition of the compressor are to transport liquidized gas, whereby the goal is "to transport" and the condition is "liquidized". The

function of the compressor is to compress the gas. The behavior of the centrifugal compressor can be explained by Euler pump characteristics.

Like the inherent hierarchy structure, the goal/condition, the function and the behavior may

also be divided in an abstract structure. Usually these structures have the same amount of levels.

A corollary perspective of the former is the organization in time, which is based on events.

Things that happen in a system are called events. In a process system the recorded events are always related to the system effectiveness. Reliability and maintenance data are examplesof recorded events.

Due to the inherent hierarchy and levels of abstraction in functions, one can expectthat the

events can also be arranged in the form of a hierarchy.

Event hierarchy

.space In Junction littime

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Chapter 4 Process 1: Problem definition

The evaluation criteria are defined at three levels: regulations and company policies, life cycle cost and system effectiveness. The regulations and company policies are on the first level and

it may influence both the life cycle cost and system effectiveness. The life cycle cost and system effectiveness are both on the second level and the aim of the LCC analysis is to balance both the life cycle cost and system effectiveness to obtain the minimum life cycle

cost. The relation between the system effectiveness and the life cycle cost is depicted in figure

4.3. It is shown that obtaining the minimum life cycle cost always has operator opportunity

and may have vendor opportunity.

Operator opportunity Vendor opportunity

4.2 Evaluation criteria

Revenue impact Derommismoning Coots System effectiveness

Figure 4.3 Relation costs and system effectiveness

4.2.1

Regulations and company policies

Regulations

Regulations are enforced by government and classifications bureaus. The regulations consider health,

safety and environment conditions, working environment conditions, and tax

commitments. The operator always has to comply with these regulations. Regulations on asset management are rare. For instance some regulations can be found in the Offshore Installation Guidance on Design, Construction and Certification Fourth Edition 1990. But these are goal

setting regulations, which do not dictate the operator to comply with, but acts on the

responsibility of the operator. Thereby it has to be noted that it is not permitted to operate

without authorized certifications.

Company policies

Sometimes company policies may also give commitments for asset management. However

most offshore companies, like Bluewater, have only stringent demands on health, safety, and environmental.

4.2.2

Life cycle cost definition

The life cycle cost is the accumulation of the capital expenditure CAPEX, the operational expenditure OPEX, the revenue impact and the decommissioning cost. CAPEX is money

used to purchase, install and commission a capital asset. The CAPEX should cover the

relevant initial investment outlay, from discovery through appraisal, engineering, construction

and commissioning including modifications until normal operations is achieved. OPEX is

money used to operate and maintain, including associated costs such as logistics and spares. The OPEX should cover the relevant costs over the lifetime of operating and maintaining the

21 Cons,

CAPRI

Life Cycle Costs

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asset. Revenue impact should cover the relevant impact on the revenue stream from failures

leading to production shutdowns, planned shutdowns and penalties. Only effects from the specific asset or system alone should be considered. Decommissioning cost should cover

relevant costs of abandonment of the asset, if there will be a cost difference between

alternatives evaluated.

System effectiveness definition

The system effectiveness is a quantitative measure of the extent to which a system canbe

expected to meet the operational needs and requirements. Tillman et al. (1980) consider a number of different system effectiveness models presented in the literature confined to

military and space systems. Such a model may also be adopted for the production system of a FPSO as depicted in figure 4.4. A marine system on a FPSO, e.g. the HVAC installation, has

another system effectiveness model, which is more based on reliability. Such a model can easily be constructed using Tillman et al. (1980).!

1 production regularity maintainability iLrepairabilitysupportability training human reliability, human engineering habitability .: manning

Figure 4:4 System, effectiveness model of a production system

The system effectiveness of a production system is dependent on production regularity,

dependability, production availability and health, safety and environment. The production regularity is concerned with the variation of the production over time, which is an important

issue for penalties, which has to be paid if no production has occurred for a specified time. The dependability is defined as the measure of the system condition given its availability -when required for use.

The production availability is dependent on maintainability, capability, reliability and human factors. Maintainability is defined as the probability that a failed item can be repaired within a specific time period using a specified set of resources. Capability is defined as the measure of The extent to which a (sub)-system meets its specified operational requirements during use.

Reliability is defined as the probability that a system or object will perform in a satisfactory

manner for a given period of time when

used under specified operating conditions. The

'human factors are classified in training, human reliability, human engineering, habitability

and manning.

Maintainability is classified in supportability and repairability. Supportability is defined as the ability to perform the tasks, actions and activities to provide operational, logistic, and material management support. Repairability is the probabilitythat a failed system will be restored to operable condition in a given active repair time

System effectiveness

II

I

dependability production health,

safety and environment

I II

II

capability reliability human

factors 4.2.3

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4.3 Operational philosophy development

4.3.1

Maintenance categories

Maintenance is

a combination of all

technical and administrative actions,

_including

supervisory actions, intended to retain an item in, or restore it to, a state in which it can

perform a required function. Maintenance may be performed by several maintenance

operations as given in table 4.1.

Table 4.1 Maintenance operations [ISO 14224 (1999)]

Maintenance categories may be classified in several levels. The levels are connected as

depicted in figure 4.5. The first level is the most important. It classifies maintenance in

breakdown maintenance and running maintenance. Breakdown maintenance is maintenance resulting in loss or deferred production and thus has an impact on the revenues. Running

maintenance is maintenance, which can be, and sometimes must be, carried out without

interruption of the equipment unit's function.

23 Maintenance

operation

Dcsciption Example Corrective/

Preventive maintenance Replace Replacement if the item by a new, or

refurbished, of the same type and make

Replacement of a worn-out bearing C,P Repair Manual maintenance action performed to

restore an item to its original appearance or state

Repack, weld, plug, reconnect, remake, etc.

C

Modify Replace, renew, or change the item, or al part of it, with an item/part of different type, make, material or design

Install a filter with smaller mesh diameter, replace a lubrication oil pump with another type, etc.

C

Adjust Bringing any out-of-tolerance condition into tolerance

Align, set and reset, calibrate, balance C Refit Minor repair/servicing activity to bring

back an item to an acceptable appearance, internal and external

Polish, clean, grind, paint coat, lube. oil change, etc.

IC

Check The cause of the failure is investigated, but no maintenance action perfored, or action deferred. Able to regain function by simple actions, e.g. restart or resetting

Restart, resetting, etc. In particular relevant for functional failure, e.g. fire and gas detectors

Service Periodic service tasks. Normally no dismantling of the item

E.g. cleaning, replenishment of consumables, adjustments and calibrations

P

Test Periodic test of function availability Function test of fire pump, gas detector etc.

P

Inspection Periodic inspection/check. A careful scrutiny of an item carried out with or without dismantling, normally by use or senses

All types of general checks. Includes minor servicing as part of the inspection task

P

Overhaul Major overhaul Comprehensive inspection/ overhaul

with extensive disassembly and replacement of items as specified or required

P(C)

Combination Several of the above activities are included

If one activity is the dominating, this could alternatively be recorded

C,P Other Maintenance activity other than specified

above

C,P

' I I ' 'I I I

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running maintenance unplanned maintenance maintenance breakdown maintenance corrective maintenance reactive maintenance corrective maintenance passive maintenance I continuous monitorim: planned maintenance detective maintenance

Figure 4.5 maintenance categories classification

The second level divides maintenance in planned and unplanned Planned maintenance is maintenance that is expected to occur. Preparation actions can be taken if maintenance is

planned. Unplanned or unexpected maintenance is in general far more expensive, because for example there are no spare parts availability or the maintenance crew isn't able or prepared to

restore the failure. It is therefore essential to known the prospective failures and the proper

maintenance actions to be taken.

The third level classifies maintenance in corrective maintenance and preventive maintenance. Corrective maintenance is maintenance carried out after fault recognition and intended to put

an item into a state in which it can perform a required function, while preventive maintenance is maintenance carried out at predetermined intervals or according to prescribed criteria, and intended to reduce the probability of failure or the degradation of the functioning of an item.

The fourth level assigns maintenance in reactive maintenance, passive maintenance,

condition-based maintenance, routine maintenance, and scheduled maintenance. Reactive maintenance is unplanned corrective maintenance. This type of maintenance

has to be

avoided, because it is in general expensive. Passive maintenance is planned corrective

maintenance. Both passive and reactive maintenance are used in opportunistic maintenance

models. In opportunistic maintenance models, the preventive maintenance that is due and overdue, is done mainly when failures force the system to stop. Routinemaintenance is the reconditioning, serviceing, and inspection during the daily routine watch, which does not

results in discontinue of the production, like greasing, filling oil, etc.

Condition-based maintenance is maintenance carried out dependent on the condition of an item. This can be done by periodic inspection or continues monitoring.

Today a lot of

monitoring or inspection techniques exist. An extensive list of such techniques can be found in Moubray (1997) or Barron (1996). But perhaps the best-known inspection techniques are

those based on the human senses (look, listen, feel and smell). Although, this type of

inspection has disadvantages, like subjectivity and poorer accuracy, it has advantages like cost effectiveness, human versatility and the possibility of humans to learn through experience and

knowledge. Periodic inspection may be used to detect hidden failures or 'future' evident failures.

Scheduled maintenance is maintenance carried out at predetermined intervals. Scheduled

maintenance is classified in time-based, use-based and event-based. Time-based scheduled maintenance is related to the operational time or calendar time of equipment. Use-based

preventive maintenance routine maintenance periodic inspection hidden evident _ J time-hased scheduled maintenance use-hosed event-hased IC r

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scheduled maintenance is for example related to the number of rotations. Event-based

scheduled maintenance is for example related to the inspection by an inspector.

4.3.2

Design of maintenance concepts

The maintenance concept of a system is the set of rules prescribed what maintenance is required and how demand for it is activated. Gits (1986) and Waeyenbergh and Pintelon

(2002) give a literature review on a maintenance concept. An application of this maintenance

concept is given by Gits (1989) or Lambooy and Gits (1989). The following text is mainly

taken over from Gits (1992). By using his model failures are related effectively and efficiency to maintenance initations.

A framework for the design of maintenance concepts specifies the steps needed to determine a

set of maintenance rules that meets specified requirements. The requirements are related to health & safety, environmental and operational consequences of the potential failure. These

requirements can be divided into elementary requirements concerning individual maintenance rules, and composite requirements concerning the eventual set of maintenance requirements as a whole. This distinction in dividing the process into generation of maintenance rules, and evaluation of maintenance rules.

Technical ystern data

Generating maintenance rules Evithiat'ng maintenance rules Set of maintenance rules Feedback Elementary requirements Composite requirements Maintenance concept

Figure 4.6 The phases in designing maintenance concepts [Gits, 1992]

Generating maintenance rules aim at determining a set of rules which meets the elementary

requirements. Evaluating maintenance rules deals with the identification of a set of rules that satisfies the composite requirements and which form the maintenance concept of the system.

The elementary requirements defines to the relationship between failure behaviour and

maintenance initiation, to the maintenance operation to be carried out, to elementary

efficiency, to trading off the benefit accruing from simultaneous execution of individual

maintenance operations against increased frequency of demand for some these operations, and

to format and workload of demand. Generating maintenance rules will be divided into six

steps, each emphasizing one requirement as depicted in figure 4.7: qualifying maintenance initiation,

specifying maintenance operations, limiting maintenance intervals, clustering maintenance operations, harmonizing maintenance intervals, and grouping maintenance operations.

Life Cycle Cost analysis. In oil and gas / process industries applied to a FPSO process plant