TO ALL: Has anyone here been worrying about the y2k problem?
An excerpt, on the future y2k travails of the oil industry, from Ed Yardeni's latest opus on millenium crisis (comments would be appreciated)
:
...One of my major Y2K concerns is the reliability of our energy systems, especially the supply of electricity. If it is seriously disrupted, responding to all the other Y2K-related failures will be that much harder. Previously, I argued that a disruption in the flow of information could be as depressing for global economic activity as was the energy crisis of 1973-74. In fact, the most troubling consequence of Y2K could actually be a new energy crisis because information is critically important to the functioning of the vitally important energy industry.
Untested The energy sector is extremely dependent on information technology systems. For all practical purposes, there really are no longer any manual alternatives. Computer systems and
embedded microprocessors operate land-based rigs, ocean drilling platforms, supertankers, ports, oil and gas pipelines, refineries, fossil-fuel and nuclear power plants, control and dispatch centers, headquarters, and other energy facilities. Identifying Y2K problems in
embedded systems generally requires significant effort. The process cannot be automated and is likely to require physical inspection of hardware distributed widely throughout an organization. Inventory, assessment, and remediation of embedded systems are especially difficult and expensive.
The industry's Achilles heel is that it is virtually impossible to test Y2K compatibility because the system must be kept online all the time. An industry spokesman, Eugene Gorzelnick, told a Congressional panel in June 1998, "You just can't say, ‘I'm sorry, folks, but no electricity for August 11, we're going to be testing our system, so everything's off.' It just doesn't work that way."
SCADA The energy industry is highly interdependent with other industries. The energy distribution industry depends on the Y2K compliance of telecommunications. The gas, oil, and utility industries use Supervisory Control and Data Acquisition Systems (SCADA) to manage their activities. SCADA is used to acquire information from substations, sections of pipeline, and to control the flow of fuel at remote locations by using computers linked to satellite and telephone communication systems.
SCADA: Gas Gas pipeline operators use the system to obtain timely information needed for purchasing distribution and transportation services, checking on billings, and arranging storage of gas that has been transported through a pipeline. Gas pipelines include compressor stations to move the gas through the lines, as well as gate stations where pressure is reduced, volumes of gas are measured, and regulators control the flow of gas into distribution lines. As stations are generally 50 to 75 miles apart, if communications fail due to Year 2000 problems, the flow of gas will be interrupted. [Congressional testimony of Kathleen Hirning, Chief
Informationa Officer, Federal Energy Regulatory Commission, May 14, 1998]
SCADA: Oil The oil industry's SCADA systems are very similar to those for gas. However, a shorter response time is required for an oil leak compared to gas leaks, which may be remediated by changing pressure. In the United States, the oil and gas industries are fragmented, and do not have regional councils like the electricity industry......
Shell's Man John Mills is the director of corporate affairs for Shell UK Limited. On April 21, 1998, he vdelivered a speech before the Sixth North Sea Conference sponsored by The Petroleum Economist. He observed A typical offshore platform or onshore gas plant uses 50-100 "embedded systems." These are sets of electronic code used to control equipment which are effectively sealed, and cannot be altered by the
users. These systems contain anything up to 10,000 individual microchips. We have found that up to half of these systems are critical in terms of production and the impact of our activities on the environment.
Many embedded chip systems are subsurface and physically difficult to access. He noted that pipeline control and terminal operations have become a particularly computer-intensive operation, relying on computer systems to control pumping and detect any leaks. He said thatvisitors to one of Shell's major shipping terminals are often astonished to discover that "we only have three full-time staff on duty at any one time." Supertankers are also operated with very small crews, thanks to computer-based technologies.
Similarly, a modern refinery relies heavily on automated control systems. The basic systems are usually supplied by large specialized companies that are actively developing Year 2000 compliant upgrades. However, most control systems have many local user applications added
as enhancements. These all have to be checked for hidden date dependency, according to Mr. Mills. "As in other areas, the devil is in the detail, but it's the detail that could catch us out," he added.
Further downstream, Mr. Mill observed that Shell has 1800 retail sites in the UK. Y2K issues include point of sale equipment and the wide range of fuel and credit cards they must handle,and the pump controllers. Upstream, we are particularly vulnerable to third parties' Year 2000 problems because so many of our operations are contracted out. Mobile drilling, subsea engineering, seismic operations and platform maintenance are all services that we, and many large oil and gas companies, no longer provide internally. As a minimum, therefore, we must satisfy ourselves that the contractors providing these services are paying enough attention to the Bug problem…. we recognize, however, that many of these small and medium sized businesses do not have the financial and technical resources to meet this challenge in isolation.
Mr. Mill candidly admitted, "We explicitly recognize that we don't have the time and the resources to solve all potential problems. And, there is therefore an overriding need to prioritize."
yardeni.com
Yardeni expects that the energy sector, as a whole, will be among those sectors most adversely affected, stock-price-wise, by the y2k problem. Hence, he advises individual investors to underweight energy stocks in their portfolios (and to keep stocks in general down to 20%).
Another point: even "non-alarmists" expect quite a few firms to "go under" as the millennium approaches. In this connection, I am a little alarmed by Mr. Mill's comment that some of the oil service companies he deals with do not have the money or resources to deal with the y2k problem on their own.
Thoughts, anyone?
jbe
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