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March 9, 2015

Drones in The Energy Industry

London, 7 March 2015
Unmanned aerial systems (UAS), or drones, have revolutionized warfare, allowing airstrikes from an undetected position and removing soldiers from danger. The U.S. has rapidly deployed drones in its wars in Iraq, Afghanistan, and beyond.
But the use of drones for commercial purposes is in its early days.

On February 23, the Federal Aviation Administration (FAA) proposed new rules that would allow the use of drones in the commercial airspace. Several major businesses – Amazon, most notably – have pushed for the use of drones for commercial activity, raising eyebrows along with questions over safety. Up until now, the federal government has allowed small drones for recreational purposes, but has kept them off limits for business. But spurred on by a Congressional mandate to begin allowing drones to penetrate the commercial airspace, the FAA just cracked opened the door to a massive new opportunity for oil and gas companies.
If finalized, the FAA rules would allow commercial operators to use drones without a pilot’s license. The rules would also open up the use of drones beyond the several testing sights that they are currently limited to. The ramifications are unclear, but the FAA proposal could be a watershed moment for the nascent commercial drone industry.

A study by the Association of Unmanned Vehicle Systems International found that the commercial market for drones could reach $13.6 billion within the first three years and create as many as 70,000 jobs. The economic impact will grow six-fold over the next ten years, ballooning to an overall economic impact of $82 billion by 2025. Despite those heady figures, drones could have an outsized impact on the oil and gas industry, where there is significant interest to deploy drones for exploration, safety monitoring, surveying, and more.

Drones Take A Step Forward

BP (NYSE: BP) obtained permissions in June 2014 from the FAA to use drones in Alaska to inspect its pipelines, the first onshore commercial approval for drones. The oil major is working with AeroVironment Inc. (NASDAQ: AVAV), a leading drone manufacturer. AeroVironment builds a drone called the Puma AE, an aircraft that is small enough to be held in a person’s hands. It can fly at altitudes as low as 500 feet, all the way up to 10,000 feet. It operates using a battery that allows two hours of flight without a recharge.

BP is using it to survey its territory in the North Slope, a 250,000 acre area. The Puma can use laser pulse imaging to build three-dimensional imaging of pipelines and other infrastructure. This comes in handy for BP’s Arctic infrastructure, which is built on tundra and as a result, is subject to shifting and bending. AeroVironment’s Puma can detect such pipeline movements through multiple surveys over time, detection that could prevent a pipeline rupture before it happens.

Also in Alaska, ConocoPhillips (NYSE: COP) received a permit to use the ScanEagle drone to monitor its offshore operations. ScanEagle is a drone built by a company called Insitu, a subsidiary of the Boeing Company (NYSE: BA). Its surveillance and surveying capabilities can be used for military purposes, but is finding a home in the commercial sector as well. Unlike the Puma, the ScanEagle runs on gasoline, allowing it to operate for around 24 hours.

Aerial surveying like this is already possible, but current operations use manned aircraft, which are much bigger and significantly more expensive to use. Drones are small, cheap, and don’t require as much manpower. They are also safer – drones can fly low to the ground where planes cannot go, and no human lives are put at risk in the event of bad weather or some other unforeseen circumstance. Similarly, if a pipeline is located in harsh terrain that makes it difficult to access by ground vehicles, drones are the way to go. Even better, they do not require a landing strip, a pilot, or any other infrastructure to use. It can simply be thrown into the air by the operator and it takes off.

Hurdles For Drones

For now, there are some technological and regulatory hurdles that will limit the growth of commercial drones in oil and gas operations. In its proposed rules, the FAA is going to limit the use of drones within the “visual line-of-sight,” limiting the scope to which they can be used. The need for the operator to keep eyes on the drone at all times means that they will not be able to proliferate across all of the industry’s operations, at least for now. Once the technology advances to the point that they can operate safely in the airspace along with conventional aircraft, without the need for human eyes on the ground, drones could spread like wildfire. And of course, after the technology is proven, federal regulations will need to loosen to allow for such uses. Still, given how novel the application is, the industry has praised federal regulators in their move to open up drones for commercial purposes.

Environmental Regulation Could Open Market For Drones

Not only will the technology advance and the regulatory regime progress, but an environmental crack down could force the industry to increasingly rely on drones to clean up. For example, another major application for drones would be methane detection. In January, the Obama administration released a proposal to regulate methane from oil and gas operations for the first time. The proposed rule will require companies to reduce methane leaks from pipelines, processing stations, and drill sites. The Environmental Protection Agency predicts the rules will lead to the reduction in methane emissions on the order of 40% to 45% below 2012 levels over the next decade.

In order to find and detect the leaks, oil and gas companies will need to invest in monitoring equipment. The industry has opposed the government’s move due to the higher costs the rules will impose on drilling operations. Nevertheless, if finalized, the industry could spend a significant sum cleaning up its emissions. Rather than manned aerial flyovers or deploying an army of foot patrols to find pipeline leaks, drones offer a viable and cost-effective alternative.

The Jet Propulsion Laboratory, a NASA lab, recently outfitted one of Lockheed Martin’s (NYSE: LMT) drones with methane detection sensors. One experiment at the Rocky Mountain Oil Testing Center (RMOTC) showed promising results. The drone was able to measure methane down to parts-per-billion in real-time. These small devices – Lockheed’s Indago drone weighs just five pounds – are poised to disrupt the oil and gas industry.

Lockheed Martin and General Dynamics (NYSE: GD) are two of the biggest manufacturers of drones. These two military equipment titans will see brisk business for their drones in the war theater. But they will also find a hungry market in the oil and gas industry.

Conclusion

The use of drones in oil and gas operations is just beginning. But with the industry looking to reduce costs as well as comply with increasingly tight environmental restrictions, drones provide the industry with an answer for both cost reduction and regulatory compliance. As the federal government gets used to the idea of commercial drones and loosens its oversight, drones could revolutionize safety and monitoring for the oil and gas industry.
Ends --
Source: www.OilPrice.com via Commodites Now (EconMatters author archive here)  

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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