Reducing the lifecycle cost of oil and gas facility by use of simulation - Essay Example

During operations, oil and gas industries incur lifecycle costs that affects their production capacity and cost of production. Lifecycle costs include recurring and other nonrecurring costs incurred by a company during a certain operational period. Oil and gas companies incur lifecycle cost through installation of new facilities, maintenance, and upgrading of the existing facilities. Facilities in the companies have definite life span and therefore the companies experience an additional when closing them down With these costs to consider, the companies are concerned with the possible alternatives to cut or reduce the effects of the lifespan cost.

In order to eliminate or minimize lifecycle cost, oil companies rely on planning making simulations a useful tool. Simulations are models applied by the companies to determine the viability of a facility before its inception (Gorski, 2006). This paper therefore analyzes the benefits achieved from application of simulations in the reduction of lifecycle cost in oil and gas companies. Some of the ways in which simulation is applied to reduce lifecycle cost Evaluation and comparison of different approaches for replacement Evaluation and comparison of alternative strategies for product use Evaluation and comparison of different designs Optimal allocation of available funds of activities in the process of product development During their lifespan, most companies are confronted with situations where they need to make important decisions on whether to close down a facility or to change a business strategy.

In such situations, the companies experience lifecycle costs that affect their production. Such companies can apply simulation models to determine whether they need to close down the existing facility or they need to improve its efficiency. Using simulations the managers of the affected companies can determine whether they need to adopt a new business, strategy or to modify the existing strategy to fit their operations. Secondly oil and gas companies continuously retire old facilities as they install new facilities, these processes costs the company a lot of money and therefore the companies need to make appropriate decision.

Simulations come in as the most appropriate tool that the companies need apply when making strategic management and operational decisions. Using simulation models strategic managers of a company are able to evaluate benefits from alternative decisions. With simulation models, managers can determine decisions and solutions that best fits their companies. Simulations therefore enable the companies to reduce uncertainty when making important decision that concerns their operation. Companies in the oil and gas industry always have new projects intended to improve their operations and facilities.

The new facilities rely heavily on designs and therefore the companies are always on the lookout for the most appropriate design. The companies need to evaluate the suitability of these designs before choosing the most appropriate design (Petra, 2004). Using simulation models, companies can determine the most appropriate design from the possible choices. The companies also need to choose the most efficient design from the available possibilities; this requires data analysis and projections that cannot be achieved without the real facility.

However, with simulations strategic managers of the companies are able to determine and evaluate the efficiency of such models through an analysis simulation models data (Lanner, 2008). Before launching a new product into the market or initiating a project, oil and gas companies need to evaluate their economic viability. In this process, simulation models stands out as the most appropriate tool for application. Using the models, companies are able to predict the market’s response towards a new product.

Companies such as Shell Company use ADENT simulation techniques to evaluate the viability of its new products in potential markets. The tool is