THE OIL INDUSTRY IN 1998 WAS scrambling to prevent computer gridlock widely feared to accompany the arrival of the Year 2000.
Many computer programs were written to read the first two digits of a year only as "19." If software were not revised, computers would be unable to distinguish between the years 2000 and 1900 on the morning of Jan. 1, 2000, and would malfunction or freeze.
The problem came early for some companies. Year 2000 (Y2K) failures were occurring in 1999, especially for firms using software that projected business operations to 2000 or beyond.
And the "millennium bug" was not likely to die on Jan. 1, 2000. Many companies were working to solve only their major Y2K problems before then, and planned to address the minor ones in 2000.
Computers and oil
The Y2K problem presented many challenges for the oil industry.
Complexity arising from the industry`s high degrees of integration and automation made it difficult to find all the potential date problems. Compounding that was a lack of time and resources available to solve any problems discovered.
Royal Dutch/Shell observed, "Major facilities like refineries and chemical plants are operated using highly sophisticated control technology. There may be thousands of embedded (computer) chips in the plant run with several layers of networks.
"In an extreme case, if safety-critical criteria at a plant cannot be met, then the plant can be shut down. But what happens, for example, to the continuous gas supply from North Sea fields into Britain-a stream heavily controlled by IT (information technology) systems? Will it just be switched off if the safety-critical issues are not resolved?"
Thomas McAndrew, a senior partner at Computer Sciences Corp., Boston, said, "Year 2000 is a gigantic program management, project management, and risk-mitigation issue."
He noted the press of deadlines, the needs for manpower and capital to fix the problem, and the potential for failure and subsequent problems. He called it the "Year 2000 triple constraint"-resources, time, and business risk.
Royal Dutch/Shell agreed. "The challenge is not so much a technical one-although, the more work done on the problem, the more complexity seems to arise-but one of resources and fixed deadlines," it said.
"Quite simply, it is the biggest project in the history of the world. It is probably the most expensive project in history, too."
Potential impact
The millennium bug holds extensive potential to disrupt world commerce.
Doomsdayers predicted that the computer glitch, even if resolved by large corporations and governments, still could cause a global recession.
They feared that many small firms-the suppliers and contractors for large firms and governments-wouldn`t realize in time that they were vulnerable.
Edward Kelly Jr., a Federal Reserve board governor, said even if Y2K didn`t cause an economic recession, "I do not think we will escape unaffected."
He said the U.S. economy could suffer a short-term shock, such as it did from the blizzard of 1996.
"I anticipate there will be isolated production problems and disruptions to commerce, and perhaps some public services, that will reduce the rate of gross domestic product growth early in 2000."
Ed Yardeni, chief economist at Deutsche Bank Securities in New York, in 1998 said, "The Year 2000 problem is a very serious threat to the U.S. economy. Indeed, it is bound to disrupt the entire global economy.
"If the disruptions are significant and widespread, then a global recession is possible. Currently, I believe there is a 60% chance of such a worldwide recession, which could last at least 12 months starting in January 2000 and could be at least as severe as the 1973-74 global recession."
The Gartner Group, a consulting firm, told a congressional hearing in 1998 that perhaps 15% of all U.S. firms would experience a mission-critical system failure as a result of the Y2K bug, and that 10% of these failures would last 3 days or longer.
It estimated the cost to recover from each failure could range from $20,000 to $3.5 million, depending on the complexity.
Gartner said while many smaller firms had reduced their Y2K exposure, the U.S. and other nations still faced serious risks.
Potential costs
The Y2K fix carried an enormous price tag for the industry.
Mobil Corp., the second-largest U.S. oil company, expected to spend up to $490 million to revise computer systems to recognize the Y2K and beyond.
Mobil planned to spend $200 million to directly attack the Y2K problem and $290 million on related system upgrades, according to a statement it filed with the U.S. Securities and Exchange Commission.
Even if all of Mobil`s computers were compliant on Jan. 1, 2000, the company said it still might have problems.
If, for example, "a utility company were to be unable to supply electricity to a Mobil refinery for an extended period, the refinery would have to be shut down," Mobil said in the SEC filing.
Chevron Corp., the fourth-largest U.S. oil company, expected to spend $200-300 million to fix its Y2K problems. It said those problems wouldn`t end on Jan. 1, 2000.
"It is impractical to seek to eliminate all potential Y2K problems before they arise," it said in a SEC filing.
British Petroleum Co. plc was planning to spend $150 million on the Y2K problem, and ARCO Corp. said it would spend about $20 million.
The estimated cost to business and industry of fixing the problem was constantly changing. It ranged from $300 billion to $600 billion worldwide (not including litigation costs, tool costs, machine resources, end-user acceptance, and other items). Litigation costs alone were estimated at more than $1 trillion worldwide.
Industry effort
In reports to the Federal Energy Regulatory Commission, U.S. companies reported progress on the Y2K computer problem.
The American Petroleum Institute said a survey of more than 800 oil and gas companies found that nearly a third of respondents expected to be "Y2K-ready" by early 1999, 73% would be ready by June 1999, and all respondents would be ready by December 1999.
The oil and gas industry urged FERC to work on the Y2K dilemma with the electric power generation, transmission, and distribution industries and with the telecommunications industry because of their interdependence with the oil and gas industries.
API was coordinating oil industry Y2K mitigation efforts, and the Natural Gas Council was coordinating for the gas sector.
Activities included sharing information on technical issues, testing, and contingency planning; identifying and resolving legal issues, including legislation; and communicating within the industries and with the public.
Cooperation
Oil companies saw Y2K as a common problem, not a competitive issue.
Chris Fay, chairman of Shell U.K. Ltd., said, "No company is an island, and we all rely heavily on each other as customers, suppliers, and coventurers. Given that this is one project that cannot cross its deadline, it is crucial that all concerned work together with real urgency to minimize the Y2K impact on all of us."
Colin Bull, a Mobil executive working on the millennium computer problem, said the uncertain nature of the Y2K bug generated uncertain explanations.
"There`s an awful lot of spurious information out there about what will and won`t go wrong, and collaboration, I think, is essential to divining one`s way through that," Bull said.
"Certainly, the process of trying to collaborate and share information across such bodies as the API (American Petroleum Institute) and Ukooa (U.K. Offshore Operators Association) did falter for a little while lawyers got concerned about what the industry could meaningfully share. But I think, generally, there has been a way found through that.
"The industry is characterized by so many cross-ownerships and percentages that it would be very hard to start withholding information. What we`re all very careful to do is not to represent anything without very clear information."
Legislation
In 1998, Congress approved $3.35 billion in emergency funding to fix the government`s computers. Most federal agencies were behind schedule.
Also, Congress unanimously passed, and President Clinton signed in late 1998, legislation that limited companies` liabilities when they share information on efforts to eliminate Y2K risks.
Businesses had told Congress that they were willing to share information with competitors regarding Y2K solutions but were reluctant to do so in case that data proved to be wrong and could be the basis for lawsuits.
For instance, the President`s Council on Y2K Convergence reported that a third of U.S. oil companies did not respond to a survey about their preparedness. Many said privately that their attorneys advised them not to.
The legislation banned, with a few exceptions, the use in court of a company`s Y2K "readiness disclosure statement" to prove the accuracy or truth of the company`s claims of how it was dealing with the problem. An exception would be made in cases of fraud.
The law also protected companies from liability for Y2K statements alleged to be false, misleading, or inaccurate, unless it was proven that the company knowingly made false statements.
And the legislation established a government Y2K web site on which to post information about Y2K solutions available for consumers, small businesses, and local governments.
Integration
The solution to the Y2K problem might have appeared simple: Change data from a two-digit year format to a four-digit format. But the complexity of doing this-in terms of technology, cost, and personnel-made it a large problem.
McAndrew said the reason for this was that computer systems had become very complex and highly integrated.
"Data are no longer self-contained within a company," he said. "(Today), we all survive on shared data.
"In 1960, if somebody pulled the plug, it affected your company. In the Year 2000, if somebody pulls the plug on your machine, it affects not only your company (but also your suppliers and customers).
"So the supply chain, in the data sense of the word, is a big issue. It is necessary to understand your supply chain, both from a goods perspective and a data perspective."
These interdependency issues had to be addressed through a complex analysis of interactions with other businesses, in terms of data, products, and services.
Leland G. Freeman, vice-president of Source Recovery Co., Framingham, Mass., said Y2K program managers needed to include a technique called "dependency modeling" in their plans: "The model should identify, as accurately as possible, all interrelationships between your organization and other organizations. Modeling software can help you articulate these relationships and determine how your organization will be affected."
Such modeling was crucial to Y2K preparedness. McAndrew warned that, even if a company was fully Y2K-compliant and had done its job 100%, a company with which it did business could cause it to experience a failure.
Software
The process of fixing Y2K problems involved three key steps: identifying components with a date sensitivity, testing those components to determine whether they were Y2K-capable, and fixing those that were not.
Any software or hardware that was fixed had to be checked to determine whether the solution was effective.
A number of commercially available tools were on the market for testing and fixing Y2K problems in software, although they were not infallible.
But, because most firms also used software developed in-house, it would also be necessary for them to examine certain software code, line by line, and correct any problems found.
BP believed companies would find it necessary to evaluate 80% or more of all software code in their libraries.
It said programmers typically made three mistakes for every 100 changes to program code, so a typical 250,000-line software application might require 7,500 changes-and 250 potential errors had to be found and corrected in testing.
The definition of "compliance" was another issue complicating the Y2K problem. There was a difference between being "Y2K-compliant" (meaning all dates are in four-digit year format) and being "Y2K-capable."
Some software vendors said their products would be Y2K-capable, which meant that some of its applications would use a two-digit year in conjunction with what was called a "pivot year"-commonly 1950.
If a two-digit year was entered and its value was between 50 and 99, it was assumed to be in the 20th century. If, on the other hand, a two-digit year was entered and its value was between 00 and 49, it was assumed to be in the 21st century. This meant that Year 2000-capable systems would not recognize dates before 1950 or after 2050.
Hardware
Repairing control systems was a more complex challenge.
Oil companies operated thousands of pieces of equipment that might contain date sensitivity. The main source of this sensitivity was what was called "embedded technology"-computer chips "embedded" in equipment that communicate with a main control unit.
Such devices included flow meters, transmitters, and "smart" valves, among myriad others. They were found in all sectors of the industry-on drilling and production platforms, along the lengths of pipelines, and throughout process plants.
A typical offshore platform or onshore gas plant used 50-100 embedded systems, said Shell U.K. Ltd. Corporate Affairs Director John Mills. And these systems could contain as many as 10,000 microchips.
In a process plant, devices containing embedded chips were interconnected like an electronic spider web, making the problem even more complex and the possibility of a failure even more likely.
"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," said Mills.
Steve Rowlands, Y2K project manager for CMG U.K. Ltd., London, said the potential was great for major problems in control equipment.
For instance, he said, valves that control pipelines were designed to "fail safe." Because they had a maintenance cycle built in, they would fail safe if they hadn`t been examined within a certain period of time. Rowlands said that in January 2000 they might suddenly decide that they hadn`t been checked in 99 years.
Testing
Y2K-ready software and systems required testing on a massive scale.
BP said fixing the date problems in software programs before the deadline was less than half the job.
"Very little of this testing can be automated," said BP in an internal memo on the Y2K problem. "Tools can reduce the effort by perhaps 2%, but much of the testing involves business units."
McAndrew said, "There is no single tool that identifies all of your date sensitivity, let alone fixes it, so you need people and processes as part of your renovation program." He estimated that 40-45% of a company`s effort would be taken up by testing.
BP believed testing would consume 60% of the time and money spent on Y2K programs. Other estimates ranged as high as 70%.
Rowlands said, "The real challenge is in the embedded stuff. It`s not a problem in terms of diagnosing and fixing them. It`s fixing them in time and testing them."
He said companies knew what equipment they possessed and where the chips were, so they should have procured a statement from the manufacturer of each device stating whether that device had a date problem. He said they could not simply take the manufacturer`s word that a device was Y2K-compliant. Proof was necessary.
On a case by case basis, Rowlands said, companies needed to decide which equipment or systems to test themselves and which to send to the manufacturer for testing.
"The manufacturer is going to have to supply you with some kind of fix or new system," he said, "and the nature of this will depend on the system involved. On some systems, faulty parts can simply be replaced. Others will have to be shipped off for repair or replacement."
Oil imports
John Warner Jr., corporate executive vice-president of Science Applications International Corp., McLean, Va., said the Y2K computer problem was a direct threat to U.S. oil imports.
Warner said most countries were many months and some even years behind the U.S. in identifying and correcting Y2K problems.
"It is in the national economic and security interest of the U.S. that inadequate worldwide attention to this problem does not result in significant economic and political disruption," he said.
Warner noted that the U.S. imported about 50% of the oil it consumed, and the Strategic Petroleum Reserve held about 60 days worth of imports.
"The continued health of the U.S. economy rests on a continuous supply of imported oil. The Y2K computer problem could put this supply in jeopardy."
Warner said surveys by Gartner Corp., an authority on the status of Y2K work, indicated that at least 45% of imported crude and products came from countries where there was an 80% probability that at least one mission-critical failure would occur in 50% or more of all of the country`s commercial and government enterprises.
"This information indicates a potentially high degree of possible Y2K disruption in these countries and, therefore, in the supply of U.S. imported oil."
He recommended the U.S. act to help other nations with the problem.
Warner urged the U.S. to stress the urgency of the threat to other countries and offer the services of key U.S. agencies to promote awareness.
He said the U.S. should establish an International Y2K Knowledge Sharing Program.
And Warner said the U.S. should establish a National Security Y2K Loan Fund of $3-5 billion to help nations whose solutions to Y2K problems were in the U.S. national interest.
"The World Bank has established small grants for countries to address broad Y2K problems. However, the grants are very small, and selection of which countries receive these funds is not based on U.S. national security interests. Furthermore, oil rich countries would not be expected to qualify."
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A plant such as Texaco`s Ltd.`s 180,000 b/d Pembroke refinery in Wales, shown here, presents a massive Year 2000 puzzle. A refinery`s control system involves hundreds of devices-such as valves, transmitters, and flowmeters-that contain embedded systems, each of which has the potential to cause a failure when it first encounters a date in the next millenium. Photo courtesy Texaco Ltd.
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This Year 2000-compliant Fieldvue "smart" valve, manufactured by Fisher Controls, contains embedded technology that controls flow rates and communicates with the overall plant control system. Each such embedded system must be checked for Year 2000 readiness and repaired, if necessary. This installation is at Monsanto Co.`s Chocolate Bayou petrochemical plant at Alvin, Tex. Photo courtesy Fisher Controls.
