NASA & Deloitte develop Monte Carlo Simulation tools for space projects, and apply them to Oil & Gas

What do NASA, Deloitte and the oil and gas industry have in common? As of this year, a great deal. In June, the NASA Johnson Space Center and the Deloitte Center for Energy Solutions announced a strategic alliance to offer a wide array of risk management services for the oil and gas sector. Under the agreement, Deloitte will utilize NASA as a subcontractor for oil and gas risk management projects.

From the outside looking in, the alliance may seem a bit curious. Deloitte has a long history of assessing risk for enterprise, but how, exactly, does space exploration synch up with oil and gas? The clearest and most relevant commonality between the two is low-probability, high-impact risk events (also referred to as “black swan” events). An inaccurate risk forecast may result in delays and loss of capital for most industries. Not to downplay these losses, but they are material in nature. The same can’t be said for space exploration and energy, where miscalculations of risk can be, quite literally, disastrous. Given that backdrop, NASA has a lot to offer in terms of methods for assessing risk factors and the probability that they may occur.

Monte Carlo simulation (MCS) is a computerized mathematical technique utilized by both oil and gas and space exploration to not only determine potential risk factors, but project the probability that such risks may actually occur. For example, NASA utilized MCS to run a series of simulations in the development of Orion, the space vehicle that will replace the Space Shuttle, which uncovered general fight dynamics problems. The MCS capabilities of Palisade's @RISK have been invaluable in this field.

The utilization of Monte Carlo simulation has also played a prominent role in the oil and gas industry. Blade Energy in Frisco, TX. developed a statistical analysis tool using MCS from @RISK called “Under Balanced Drilling Productivity Improvement Estimator” to  estimate productivity improvements for underbalanced drilling. @RISK's MCS was also utilized by the Brazilian Oil company, Petrobras to develop risk projections related to the production of oil and natural gas, demand for derivatives, prices of various commodities, start dates for various operations and changes in company capital and operating expenditures.

The alliance between NASA and Deloitte is expected to assist oil and gas companies to address low-probability, high-impact events that may occur during field activities such as deep-water drilling, undersea production, and pipeline operations. Deloitte will also offer examinations of the “risk culture” that exists among an organization’s employers and contractors to determine the likelihood of risk in work environments and processes.

See related:

Petrobras Uses @RISK for E&P Analysis

"Application and Benefits of Risk Analysis for Decision Making in the Oil Industry" in Oil & Gas Monitor

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