Y2K compliance costs will hit struggling oil industry hard

By Gilbert Peterson

As airports and stock markets proclaim their Y2K bugs are in remission, the oil and petrochemical industries are still scrambling to identify how the problem will affect them.

In Houston, Texas, at the heart of the US oil industry, no one seems to know if the maze of rocket like distillation towers gracing the skyline in every direction, and all laced with thousands of date-sensitive computer chips, will malfunction at the dawn of the third millennium.

Though the Y2K bug is likely to remain overall a debilitating condition rather than an apocalyptic haemorrhage, hiccups in the oil industry could sap consumer confidence and drive the robust US economy down. John Mills, Corporate Affairs

Director for Shell UK, told a petroleum economists' conference last year that the worldwide cost of fixing the Y2K problem ranges from $US300 billion to $US600 billion.

At that time Shell budgeted $US100 million for itself; BP $US150 million. The figures have been rising rapidly since. Mills pointed out that a typical offshore platform uses 50 to 100 embedded systems each containing over 10,000 microchips. He said processing plants rely heavily on automated control using interconnected systems.

Only 26 per cent of US petroleum companies in a survey of 1000 conducted by the Federal Energy Regulatory Commission said they were assessing their Y2K problems last September; a further 28 per cent said they were "remediating" them.

Subsequent surveys show the figures up sharply, but with ample space for anxiety.

One refrain heard repeatedly is that the large oil and petrochemical companies will come through the date barrier in the same way prominent services like airports and communications facilities reassure us they will.

But should a series of isolated unscheduled shutdowns occur in smaller petrochemical plants, as seems likely, the spill over of disruptions into the supply chain and onto prices may see the downstream impacts grow exponentially, along with severe safety and environmental risks.

Big companies like DuPont and OxyChem have indeed been rigorously checking, and running test dates through their systems. Last year OxyChem found 18,000 items at 34 of its plants control systems needed checking.

Not that the majors are off the hook. In its promotion for the urgency of Y2K checks, the US Environmental Protection Agency cites the Bluff aluminium smelter, which ceased working at midnight on December 31 1996 because, says the agency, programmers failed to take into account the fact that 1996 was a leap year.

Strangely, New Year celebrations in the southern hemisphere could be affected.

While New Zealand will be the first to see the light of the new millennium, and perhaps experience real-time Y2K disruption, others may steal the show. For instance, should power failures occur, thousands of warning flares shooting into the skies over cities like Houston will offer a fireworks display of such a magnitude as to erase any other memory for years to come.

That scenario is painted by Dr Angela Summers, a director of a consulting division of Triconex. "I've worked with some companies with process systems that are archaic. Some companies are spending a lot of money to fix these problems and some are not spending anything at all."

The price of oil is struggling to recover to profitable levels. The speculation is the present oil glut should keep the price of oil low indefinitely. The Y2K bug could change that outlook overnight come December 31, and with it any favourable world economic outlook.

* Gilbert Peterson is a New Zealand writer in Texas.

He can be contacted at Gilpetered@aol.com