Year 2000 Computing Crisis: Readiness of the Oil and Gas Industries
(Letter Report, 05/19/99, GAO/AIMD-99-162).

Pursuant to a congressional request, GAO identified the oil and gas
power industries' vulnerability to year 2000 problems and the reported
status of their year 2000 readiness.

GAO noted that: (1) all phases of operations in the oil and gas
industries--from production to distribution--use computer systems and
equipment that are subject to year 2000 failures; (2) while the domestic
oil and gas industries have reported that they have made substantial
progress in making their equipment and systems ready to continue
operations into the year 2000, risks remain; (3) in February 1999,
following an industrywide survey, the nation's oil and gas industries
reported that, on average, they were 40 percent finished validating
their embedded systems; (4) however, over a quarter of the oil and gas
industries reported that they did not expect to be year 2000 ready until
the second half of 1999--leaving little time for resolving unexpected
problems; (5) because over half of the nation's oil is imported, the
nation is vulnerable to year 2000 failures of oil production and
transportation in other countries; (6) however, little is known about
the year 2000 readiness of foreign oil supplies; (7) the President's
Council on Year 2000 Conversion's Oil and Gas Working Group has
appointed a subgroup to collect year 2000 readiness information on
foreign oil suppliers; however, the group has no plans to issue a
country-by-country assessment; and (8) while individual domestic
companies reported that they are developing year 2000 contingency plans,
there are no plans to perform a national-level risk assessment and
develop contingency plans to deal with potential shortages or
disruptions in the nation's overall oil and gas supply.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-99-162
     TITLE:  Year 2000 Computing Crisis: Readiness of the Oil and Gas
	     Industries
      DATE:  05/19/99
   SUBJECT:  Y2K
	     Petroleum industry
	     Oil importing
	     Computer security
	     Embedded computer systems
	     Systems conversions
	     Computer software verification and validation
	     Information resources management
	     Strategic information systems planning
IDENTIFIER:  Y2K

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AI99162.book GAO United States General Accounting Office

Report to the Special Committee on the Year 2000 Technology
Problem, U. S. Senate

May 1999 YEAR 2000 COMPUTING CRISIS

Readiness of the Oil and Gas Industries

GAO/AIMD-99-162

  GAO/AIMD-99-162

United States General Accounting Office Washington, D. C. 20548
Lett er

Page 1 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

GAO

Accounting and Information Management Division

B-282589 Letter May 19, 1999 The Honorable Robert F. Bennett
Chairman The Honorable Christopher Dodd Vice Chairman Special
Committee on the

Year 2000 Technology Problem United States Senate

As we move into the next century, a continuous, adequate supply of
oil and gas is critical for our national economy and the safety
and well- being of the public. At your request, we identified the
oil and gas power industries' vulnerability to Year 2000 problems
and the reported status of Year 2000

readiness. On April 12, 1999, we briefed your office on the
results of our work. The briefing slides are included in appendix
I.

This report provides a high- level summary of the information
presented at that briefing, including background information, Year
2000 vulnerabilities, and the reported readiness status of the oil
and gas industries. This report also presents the suggestions we
made to the Oil and Gas Working Group of the President's Council
on Year 2000 Conversion concerning (1) performing risk assessment
scenarios for the impact of potential Year 2000 failures on the
oil and gas industries and (2) developing national- level
contingency plans.

Results in Brief All phases of operations in the oil and gas
industries-- from production to distribution-- use computer
systems and equipment that are subject to Year 2000 failures.
While the domestic oil and gas industries have reported that they
have made substantial progress in making their equipment and
systems ready to continue operations into the year 2000, risks
remain. In February 1999, following an industrywide survey, the
nation's oil and gas industries reported that, on average, they
were 40 percent finished validating their embedded systems.
However, over a quarter of the oil and gas industries reported
that they did not expect to be Year 2000 ready until the second
half of 1999 leaving little time for resolving unexpected
problems. Because over half of our oil is imported, the nation is
vulnerable to Year

2000 failures of oil production and transportation in other
countries. However, little is known about the Year 2000 readiness
of foreign oil

B-282589 Page 2 GAO/AIMD-99-162 Year 2000 Status of the Oil and
Gas Industries

suppliers. The Oil and Gas Working Group has appointed a subgroup
to collect Year 2000 readiness information on foreign oil
suppliers; however, the group has no plans to issue a country- by-
country assessment. While individual domestic companies reported
that they are developing Year 2000 contingency plans, there are no
plans to perform a national- level risk assessment and develop
contingency plans to deal with potential

shortages or disruptions in the nation's overall oil and gas
supply. Background Although there are thousands of independent oil
and gas producers in the

United States, the industries are dominated by 24 large companies.
In 1997, these 24 companies produced about half of U. S. crude oil
and natural gas liquids, including ethane, propane, and butane,
and 43 percent of the nation's natural gas. In 1997 oil, natural
gas, and natural gas plant liquids made up about 63 percent of the
nation's energy consumption.

The United States is one of the largest petroleum producers in the
world, averaging 6.4 million barrels a day in 1997. However, it
uses more than it produces, requiring net imports of 8 million
barrels of crude oil a day- about 56 percent of consumption. The
top five foreign crude oil suppliers provide about two thirds of
total U. S. imports. Imported oil is transported by pipelines and
marine tankers. Most of the marine tankers are under foreign
registry.

Oil and Gas Industries Are Vulnerable to Year 2000 Failures

The oil and gas industries are dependent on computer control
systems and embedded systems that are susceptible to Year 2000
failures. The industries' analysis has shown that Year 2000
failures can occur at many links in the chain of oil and gas
operations. The oil and gas industries rely on computer monitoring
and control systems, including supervisory

control and data acquisition systems (SCADA) and embedded devices.
SCADA systems monitor and control remote terminal units and
equipment that may also have date- sensitive embedded systems.
Virtually all of the SCADA systems and many of the devices use
embedded microprocessors and systems that may have, or are known
to have, Year 2000 problems. All phases of the petroleum
production cycle-- oil and gas extraction, refining,
transportation, and delivery-- use control systems and

equipment that are subject to Year 2000 failures.

B-282589 Page 3 GAO/AIMD-99-162 Year 2000 Status of the Oil and
Gas Industries

Resolution of Year 2000 problems of computer systems and equipment
used in the oil and gas industries is essential for a dependable
supply of petroleum for transportation, industrial operations,
home heating, and

other activities that affect our daily lives. The President's
Council on Year 2000 Conversion-- working with the Federal Energy
Regulatory Commission and oil and gas industry associations-- is
assessing the industries' progress in addressing Year 2000 issues.
This is consistent with recommendations that we made to the
President's Council in April 1998 to institute a sectorbased

approach with needed public/ private partnerships and make
assessments of industry readiness. 1 Substantial Progress Reported
But Risks Remain

The oil and gas industries report substantial progress in ensuring
that critical equipment and systems are Year 2000 ready, but risks
remain. The industries reported that they are addressing the Year
2000 problem in five sequential phases: (1) planning, (2)
inventory, (3) assessment, (4) remediation, and (5) validation. In
February 1999, the Oil and Gas Working Group reported the findings
of its second survey. The group surveyed 2,500 companies and
received responses from about 1,000, representing about 88 percent
of U. S. oil and gas consumption.

Survey respondents reported that Year 2000 readiness work on about
40 percent of embedded systems was in the validation phase as of
January 1999. A portion of the industries are not expected to
achieve Year 2000 readiness for embedded systems until the second
and third quarters of 1999, with about 72 percent of companies
expecting to have their

embedded systems Year 2000 ready in the 2nd quarter, and 94
percent in the 3rd quarter. While the domestic oil and gas
industries are addressing the Year 2000 problem, little is known
about the Year 2000 readiness of foreign oil suppliers. The Oil
and Gas Working Group has a subgroup collecting Year 2000
information on foreign oil suppliers, but the group has no plans
to issue a country- by- country assessment. If the flow of foreign
oil imports is

interrupted, oil can be supplied by the Strategic Petroleum
Reserve. The Reserve, with nearly 600 million barrels of oil, can
supply-- at a maximum

1 Year 2000 Computing Crisis: Potential for Widespread Disruption
Calls for Strong Leadership and Partnerships (GAO/AIMD-98-85,
April 30, 1998).

B-282589 Page 4 GAO/AIMD-99-162 Year 2000 Status of the Oil and
Gas Industries

sustained rate-- about 3. 9 million barrels per day for about 90
days, and at lesser rates for up to 2 years. 2 Individual
companies reported that they are developing contingency plans, and
the oil and gas industries expect to have about 55 percent of
their contingency plans ready in June and 97 percent ready in
September 1999. However, there are no plans to perform a national-
level risk assessment and develop contingency plans to deal with
potential shortages or disruptions in the nation's oil and gas
supply.

Suggested Actions As discussed in the briefing, in order to reduce
the Year 2000 risk to the nation's oil and gas supplies, we met
with the Oil and Gas Working Group of

the President's Council, and suggested that they  work with
industry associations to perform national- level risk

assessments and develop and publish credible, national- level
scenarios for the impact of potential Year 2000 failures on the
oil and gas industries, and  develop national- level contingency
plans, including provisions for using the crude oil stored in the
Strategic Petroleum Reserve, to deal with potential interruptions
in oil imports.

The group generally agreed with these suggestions. The members
noted that the scope and focus of the suggested national- level
risk assessment has not been defined.

Objectives, Scope, and Methodology

As requested, our objectives were to identify the oil and natural
gas industries' vulnerability to Year 2000 problems and the
reported status of Year 2000 readiness. To identify Year 2000
vulnerabilities in the industry, we reviewed federal agency and
industry associations' publications on the structure of the
industry and the use of date- dependent embedded systems

in the technical infrastructure. We also visited selected private
sector organizations that produce, refine, transport, and
distribute oil and natural gas to obtain information about the
extent of embedded systems' vulnerabilities.

2 The ability of the Strategic Petroleum Reserve to supply oil in
an emergency was demonstrated during two test sales in 1985 and
1990, and during the 1991 Desert Storm conflict.

B-282589 Page 5 GAO/AIMD-99-162 Year 2000 Status of the Oil and
Gas Industries

To identify the reported status of Year 2000 readiness, we
reviewed and analyzed industry survey data collected by the Oil
and Gas Working Group of the President's Council on Year 2000
Conversion. Because of the large

volume of survey respondents and our limited access to source
data, we did not validate the accuracy of reported information. We
conducted our work at the Departments of Energy, the Interior, and
Transportation; the

Federal Energy Regulatory Commission; the Alyeska Pipeline Service
Company; the Joint Pipeline Office (a consortium of federal and
state of Alaska agencies); selected oil and gas companies;
selected municipal gas

utilities; and four oil and gas industry associations that
conducted surveys for the Oil and Gas Working Group of the
President's Council. We performed our work from August 1998
through April 1999 in accordance

with generally accepted government auditing standards. We provided
a copy of our briefing materials, which were used in preparing
this report, to the Oil and Gas Working Group of the President's
Council. Selected members of the group gave us oral comments on
the briefing, which have been incorporated into this report. We
are providing copies of this report to John Koskinen, Chairman of
the

President's Council on Year 2000 Conversion; the Honorable Bruce
Babbitt, Secretary of the Interior; the Honorable Bill Richardson,
Secretary of Energy; the Honorable William S. Cohen, Secretary of
Defense; the Honorable Madeleine K. Albright, Secretary of State;
the Honorable Rodney E. Slater, Secretary of Transportation; the
Honorable James J. Hoecker, Chairman, Federal Energy Regulatory
Commission; David J. Barram, Administrator, General Services
Administration; and other interested parties. Copies will also be
made available to others upon

request. We appreciate the help and cooperation extended to our
audit team by leading industry associations-- the American
Petroleum Institute, American Gas Association, American Public Gas
Association, Gas Research Institute,

Interstate Natural Gas Association of America, Natural Gas
Council, and the National Petroleum Council. We would also like to
express our appreciation to the following

organizations: the Alyeska Pipeline Service Company, Anchorage,
Alaska; Texaco Exploration and Production, Inc., New Orleans,
Louisiana; Motiva Enterprises LLC, Convent, Louisiana;
Consolidated Edison Company of

B-282589 Page 6 GAO/AIMD-99-162 Year 2000 Status of the Oil and
Gas Industries

New York, New York; Easton Utilities, Easton, Maryland; and
Consolidated Natural Gas Company, Leesburg, Virginia.

If you have any questions on matters discussed in this letter,
please call me at (202) 512- 6253, James R. Hamilton, Assistant
Director, at (202) 512- 6271, or Mirko J. Dolak, Technical
Assistant Director, at (202) 512- 6362. We can also be reached by
e- mail at willemssenj. aimd@ gao. gov, hamiltonj. aimd@ gao. gov,
and dolakm. aimd@ gao. gov. Other major contributors to this
report are listed in appendix II.

Joel C. Willemssen Director, Civil Agencies Information Systems

Page 7 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

Page 8 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness
Appendi x I

Accounting and Information Management Division

Briefing on Year 2000 Readiness of the Oil and Natural Gas
Industries

April 12, 1999 Presented to the Senate Special Committee on the
Year 2000 Technology Problem

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 9 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

2

Purpose Purpose of briefing is to provide the results of our
review of the Year 2000 readiness of the oil and natural gas
industries.

 Objectives, scope, and methodology  Background  Year 2000
vulnerabilities  Federal and industry efforts to assess Year 2000
status  Reported Year 2000 readiness

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 10 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

3

Objectives The review objectives were to identify

 Year 2000 vulnerabilities in the oil and natural gas industries
and  the reported status of Year 2000 readiness.

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 11 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

4

Scope and Methodology In assessing the oil and gas industry's
vulnerability to Year 2000 problems, we reviewed

 federal agencies' and industry associations' literature on the
structure of the industries,

 searched and reviewed related documents identified through the
Internet, and

 visited selected private sector organizations that produce,
generate, transport, and distribute oil and natural gas.

To identify the status of Year 2000 readiness, we reviewed and
analyzed industry survey data collected by the Oil and Gas Working
Group of the President's Council on Year 2000 Conversion.

Because of the large volume of survey respondents and our limited
access to private sector source data, we did not validate these
data.

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 12 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

5

Scope and Methodology (cont'd) In the federal sector, we conducted
our work at the

 Department of Energy  Department of the Interior  Department of
Transportation  Federal Energy Regulatory Commission  Joint
Pipeline Office (a consortium of federal and state of Alaska

agencies).

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 13 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

6

Scope and Methodology (cont'd) In the private sector, we conducted
our work at the

 Alyeska Pipeline Service Company,  American Gas Association,
American Petroleum Institute,  American Public Gas Association,
Gas Research Institute,  Interstate Natural Gas Association of
America,  Natural Gas Council, and  National Petroleum Council.

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 14 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

7

Scope and Methodology (cont'd) To obtain information about the
industry's Year 2000 efforts, we also visited an offshore
production platform, an oil refinery, a natural gas pipeline, and
local natural gas distribution sites. These included

 Texaco's Tiger Shoal platform, Gulf of Mexico,  Motiva
Enterprises LLC Refinery, Convent, Louisiana,  Consolidated
Natural Gas Company's pipeline compression station,

Leesburg, Virginia,  Easton Utilities, Easton, Maryland (a
municipal natural gas

distributor), and  Consolidated Edison Company of New York, New
York (an investorowned natural gas distributor).

We performed our work between August 1998 and April 1999 in
accordance with generally accepted government auditing standards.

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 15 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

8

Background - Industry Structure Although there are thousands of
independent oil and gas producers in the United States, the
industries are dominated by 24 large companies. In 1997, these 24
companies produced 49 percent of the U. S. crude oil and natural
gas liquids and 43 percent of the U. S. natural gas.

The United States is one of the largest petroleum producers in the
world, averaging 6. 4 million barrels a day in 1997. However, it
uses more than it produces, requiring net imports of 8. 0 million
barrels of crude oil a day- about 56 percent of consumption.

The Trans- Alaska Pipeline transports about 20 percent of the
nation's domestic oil.

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 16 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

9

Background - U. S. Energy Consumption In 1997 petroleum and
natural gas made up about 63 percent of the nation's energy
consumption

Coal 23%

Petroleum 39%

Nuclear 7% Renewable

8% Natural Gas

24% U. S. Energy Consumption

by Source, 1997 Source: Energy Information Administration,
Department of Energy

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 17 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

10

Background - Petroleum Flow, 1997 (million barrels per day)

Adapted from: Petroleum 1996, Issues and Trends, September 1997,
and from the Annual Energy Review, 1997, Energy Information
Administration

Cr ude O il P roduct i on

6 .41 Cr ude O il Ne t Im p o rts

8 .0 Cr ude O il S u p p ly

1 4 .41 Re f i ned P r oduct s Ne t Im p o rts

0 .4 O t h e r N e t

I nput s 1 .61

Cr ude O il E xp o rt s

.11 Tota l R e fi n er y

O u t p u t 1 6 .76

P rocess G ain

0 .85 Natu r al G a s L iq u ids a n d

O t h e r 1 .42

Re s id u a l F u e l O il 0 .80 O t h e r

2 .72 Je t F u e l

1 .60 L iq u e fie d

P e t ro leum G ase s 2 .02 Dist il la t e F u e l

O il 3 .43 M oto r G aso li ne

8 .01 Cr ude O il and

O t h e r I nput s to R e f in e rie s

1 5 .91

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 18 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

11

Background - Foreign Crude Imported oil is transported by
pipelines and marine tankers. Most of the marine tankers are under
foreign registry.

The top five foreign crude oil suppliers provided about 67 percent
of the total U. S. imports. Top Five Foreign Crude Oil

Suppliers to U. S., 1997 Source: Energy Information
Administration, Department of Energy

1.73 1.47

1.39 1.37 0.68 0 0.2

0.4 0.6

0.8 1

1.2 1.4

1.6 1.8

2 Venezuela Canada Saudi Arabia Mexico Nigeria

Millio n barrels per day

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 19 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

12

Background - Oil Exploration and extraction In 1997, about 820
onshore drilling rigs and about 120 offshore drilling rigs were
being used.

About a third of the world's oil comes from offshore wells mainly
in the North Sea, the Persian Gulf, and the Gulf of Mexico.
Offshore Oil Platform

Source: Energy Information Administration, Department of Energy

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 20 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

13

Background - Oil Transportation About 114,000 miles of pipeline,
operated by about 160 companies, bring oil from production fields
to refineries.

An oil pipeline delivery system consists of pumping stations,
storage tanks, and transfer terminals.

Most pipelines are underground, with the notable exception of the
800- mile Trans- Alaska pipeline which has a large portion above
ground to avoid damaging the permafrost. Oil Pipeline

Source: Energy Information Administration, Department of Energy

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 21 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

14

Background - Oil Refining Oil refining involves highly automated
operations that convert crude oil into a variety of products
including gasoline, aviation fuel, and home heating oil.

Refineries are also equipped with sophisticated pollution control
systems that capture emissions of toxic chemicals, extract and
recycle hazardous wastes, and purify waste water.

There are over 150 operating refineries in the United States. Oil
Refinery

Source: Energy Information Administration, Department of Energy

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 22 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

15

Background - Oil Distribution Refineries ship directly to major
customers including power plants, chemical factories, and
airports, as well as to terminals or bulk plants for temporary
storage.

Railroads and trucks provide transportation for the final leg of
the journey, including deliveries to distributors, dealers, and
almost 190,000 service stations. Source: Energy Information
Administration, Department of Energy

Oil Tank Farm and Pipeline Complex

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 23 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

16

Background - Natural Gas Flow, 1997 Adapted from: Oil and Gas
Working Group, President's Council on Year 2000 Conversion, and
Energy Information Administration

Withdrawals From Oil and Gas Wells

Compressor Stations

Meters and Valves

Control Center

Receipt Points

Interconnection Points

Pipelines Natural Gas

Processing Natural Gas

Storage Facilities

City Gate

Industrial - 49% Commercial- 15% Electric Utility - 13%

Residential - 23% Withdrawals Additions Private

Networks Public

Networks

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 24 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

17

Background - Natural Gas Production and Gathering Natural gas is
produced by major oil and gas companies as well as by small
producers referred to as independent gas producers.

The large producers supply about one- third of the nation's
natural gas.

The independent producers number about 10, 000, and supply about
twothirds of the nation's natural gas.

From the wells, gas is pumped into gathering lines and transported
to processing plants where impurities are removed. There are about
2,000 gas processing businesses in the nation. Wellhead

Source: Energy Information Administration, Department of Energy

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 25 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

18

Background - Natural Gas Transportation and Storage Interstate
natural gas pipeline companies move the gas from production areas
to market areas under contract to gas buyers, such as local
distributors.

Some companies transport the gas directly to their own industrial
and electric generation facilities.

About eight pipeline companies handle over 65 percent of the
natural gas transported in the United States. Pipeline Gas
Compressor

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 26 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

19

Background - Natural Gas Distribution Local gas distribution
companies deliver natural gas from city gates to homes,
businesses, and industrial plants.

There are two kinds of distributors: investor- owned, which total
about 200 and account for over 90 percent of the distribution, and
publicly owned, which number nearly 1,000. City Gate

A city gate connects the local distribution system to the major
supply pipeline.

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 27 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

20

Year 2000 Vulnerability Year 2000 failures can occur at many links
in the chain of oil and gas operations.

The oil and gas industries are dependent on control and embedded
systems that are subject to Year 2000 failures. These systems
include the

 Supervisory Control and Data Acquisition (SCADA), and

 embedded devices These systems are present in all phases of the
petroleum production cycle-- oil and gas extraction, refining,
transportation, and delivery. Control Center for Offshore Oil

Platform Monitoring and Control

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 28 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

21

Year 2000 Vulnerability (continued) SCADA systems monitor and
control remote terminal units and equipment that may also have
date- sensitive embedded systems.

Remote terminal units monitor and control a range of equipment,
including motorized valves, switches, and other elements of oil
and gas production. Remote Terminal Unit

Controlling Motorized Gas Valve

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 29 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

22

Year 2000 Vulnerability (continued) Embedded systems are also
found in equipment throughout the extraction, refining,
transportation, and delivery operations.

Embedded system containing realtime clocks may malfunction or
cause equipment failures. Computer- controlled Motorized

Gas Valve

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 30 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

23

Year 2000 Vulnerability (continued) Because over half of our oil
is imported, the nation's oil industry is also vulnerable to Year
2000 risks in the production and transportation operations of
other countries.

Imported oil is transported by pipelines and marine tankers.
Modern tankers are heavily dependent on embedded systems for
navigation and cargo management, which are subject to Year 2000
failures.

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 31 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

24

Federal and Industry Efforts to Assess Year 2000 Status  The
President's Council on Year 2000 Conversion has established an

Oil and Gas Working Group, led by the Federal Energy Regulatory
Commission (FERC), to assess the readiness of the oil and natural
gas industries. Other federal members include the Department of
Energy, the Department of Defense, the Department of
Transportation, the Department of State, the Department of the
Interior, and the General Services Administration.

 FERC has obtained the assistance of 25 industry associations to
assess whether the nation's oil and gas industries are adequately
prepared to address the Year 2000 problem.

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 32 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

25

Federal and Industry Efforts to Assess Year 2000 Status (cont'd)

Industry associations are surveying industry Y2K readiness status.

API - oil & natural gas producers, oil refiners, gas processors,
oil pipelines, petroleum marketers, jobbers, and retail service
stations.

APGA - publicly owned natural gas distribution companies.

AGA - investor- owned local natural gas distribution companies.

INGAA - interstate natural gas pipelines. President's Council on

Year 2000 Conversion President's Council on

Year 2000 Conversion

Energy Group

Oil and Gas Working Group( FERC)

Energy Group

Oil and Gas Working Group( FERC)

Associations Associations  American Petroleum Institute (API)
American Public Gas Association

(APGA)  American Gas Association (AGA)  Interstate Natural Gas
Association of

America (INGAA)

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 33 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

26

Federal and Industry Efforts to Assess Year 2000 Status (cont'd)

In February 1999, the Oil & Gas Working Group issued the results
of its second survey of Year 2000 readiness of the oil & gas
industry.

On behalf of the Federal Energy Regulatory Commission and the
President's Council on Year 2000 Conversion, the Group surveyed
about 2,500 companies and received responses from about 1,000
companies representing about 88 percent of U. S. oil & gas
consumption.

The survey did not include the TransAlaska pipeline, even though
it delivers 20 percent of the nation's domestic oil.

48% 76%

79% 90%

90% 94%

0% 20% 40% 60% 80% 100%

Retail service stations Oil pipeline

deliveries Oil & natural gas

production Refining capacity

Natural gas distribution Natural gas

pipeline volume

Oil & Gas Industry Response Rate to Industry Associations'

Year 2000 Survey Response rates represent the percent of industry
volume rather than the percent of companies responding.

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 34 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

27

Year 2000 Readiness While the domestic oil and gas industries have
reported progress in making their equipment and systems ready to
continue operations into the Year 2000, significant risks remain.

Of the companies responding to the Working Group's survey, Year
2000 readiness for embedded systems was not expected to be
achieved until the last half of 1999 for

 26 percent of oil industry  31 percent of the interstate gas
pipelines  25 percent of the investor- owned gas distribution
companies  43 percent of the publicly owned gas distribution
companies

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 35 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

28

Year 2000 Readiness - Embedded Systems 14%

18% 28%

26% 3% 2%

17% 38%

40% 14%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Planning

Inventory Assessment

Remediation Validation

3rd Qtr 1998 4th Qtr 1998 The industry's Year 2000 program

consists of five sequential phases: (1) planning, (2) inventory,
(3) assessment, (4) remediation, and (5) validation.

The oil and gas industries have reported that work on about 40
percent of embedded systems was in the validation phase as of
January 1999. Year 2000 Status

of Oil & Gas Industries' Embedded Systems

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 36 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

29

Year 2000 Readiness - Business Systems The oil and gas industries
have reported that about 38 percent of business systems were in
the validation phase as of January 1999.

14% 12%

19% 36%

4% 2%

8% 48%

38% 19%

0% 1 0% 20% 30% 40% 50% 60%

Planning Inventory

Assessment Remediation

Validation

3rd Qtr 1998 4th Qtr 1998 Year 2000 Status

of Oil & Gas Industries' Business Systems

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 37 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

30

Year 2000 Readiness -Supply Chain

6% 4%

23% 33%

34% 0% 5% 10% 15% 20% 25% 30% 35% 40% Planning

Inventory Assessment

Remediation Validation

The industries report that about 34 percent of their supply chain
work is in the validation phase as of January 1999. Year 2000
Status

of Oil & Gas Industries' Supply Chain

(First surveyed in 4th quarter 1998.)

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 38 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

31

Year 2000 Readiness - Estimated Dates of Readiness Oil and gas
industry surveys show that 72 percent of reporting companies
expected to have their embedded systems Year 2000 ready in the 2nd
quarter and 94 percent in the 3rd quarter of 1999.

The reported readiness of the oil industry and the readiness of
the natural gas industry are shown separately on the next slides.
Readiness information on the TransAlaska pipeline and foreign oil
suppliers is also presented. Estimated Dates of Year 2000

Readiness by 1999 Quarters

0% 20% 40% 60% 80% 100% 1st Qtr

2nd Qtr 3rd Qtr

4th Qtr

Business Systems Embedded Systems Supply chain

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 39 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

32

Year 2000 Readiness - Oil Industry Estimated Dates of Readiness

Oil Industry Embedded Systems Estimated Dates of Year 2000

Readiness by 1999 Quarters

0% 25% 50% 75% 100% 1st Qtr

2nd Qtr 3rd Qtr

4th Qtr

The oil industry expects to have about 74 percent of its embedded
systems ready in June and 92 percent ready in September 1999.

The expected readiness dates for individual components of the
industry-- production, pipelines, refineries, and distribution--
are not available.

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 40 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

33

Year 2000 Readiness - Natural Gas Industry Estimated Dates of
Readiness

Gas Industry Embedded Systems Estimated Dates of Year 2000

Readiness by 1999 Quarters

0% 20% 40% 60% 80% 100% 2nd Qtr 3rd Qtr

4th Qtr Publicly owned distributors Investor-owned distributors
Interstate pipelines

Readiness of publicly owned distributors in the natural gas
industry is uncertain based on the industry responses in the
February 1999 status report.

The APGA survey stated that 37 percent of the publicly owned
distributors did not provide an expected readiness date for
embedded systems and only 23 percent of the respondents expected
to be ready in September 1999.

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 41 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

34

Year 2000 Readiness -Alaska Pipeline Alyeska Pipeline Service
Company, which manages the Trans- Alaska pipeline, has seven teams
working on SCADA, pipeline control systems, supply chain,
telecommunications, and other Year 2000 areas. Trans- Alaska
Pipeline

Source: U. S. Bureau of Land Management

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 42 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

35

Year 2000 Readiness -Alaska Pipeline Alyeska reported to us that
as of March 1999 it had assessed all of its systems except for the
network and telecommunications systems. It also reported
completing the remediation work on its Valdez control center and
SCADA and is in the process of replacing its network and
telecommunications systems.

Alyeska expects that Trans- Alaska pipeline mission- critical
systems will be 95 percent Year 2000 ready by the end of June and
100 percent ready by the end of September 1999. 70%

0% 0% 0% 0% 0% 10%

20% 30%

40% 50%

60% 70%

80% 90%

100% SCADA- Valdez con

trol center SCADA- pipeline

Pi peline con

trols Vald

ez control systems Ne

twork & telecommunications Assessment Remediation Testing Year
2000 Readiness Status of

Trans- Alaska Pipeline

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 43 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

36

Year 2000 Readiness - Oil Imports Little is known about the Year
2000 readiness of foreign oil suppliers.

The Oil and Gas Working Group has appointed a subgroup to collect
Year 2000 readiness information on foreign oil suppliers. The
group has no plans to issue a country- by- country assessment.

Oil can be supplied by the Strategic Petroleum Reserve if the flow
of foreign oil is interrupted. The Reserve, with nearly 600
million barrels of oil, can supply-- at a maximum sustained rate-
about 3.9 million barrels per day for about 90 days and at a
lesser rate for up to 2 years. Source: Energy Information
Administration, Department of Energy

Oil Tanker

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 44 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

37

Year 2000 Readiness - Contingency Planning Oil and Gas Industry
Contingency Plans Estimated Dates of Completion by

1999 Quarters The oil and gas industries expect to

have about 55 percent of their contingency plans ready in June and
97 percent ready in September 1999.

While individual companies are developing contingency plans, there
are no plans to perform a nationallevel risk assessment and
develop contingency plans to deal with potential shortages or
disruptions in the nation's oil and gas supply.

0% 25% 50% 75% 100% 1st Qtr

2nd Qtr 3rd Qtr

4th Qtr

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 45 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

38

Observations According to the Oil and Gas Working Group, the oil
and gas industries have made substantial progress in making
critical equipment and systems Year 2000 compliant. However, the
Group and the industry have not

 performed industrywide risk assessments and developed
nationallevel scenarios for the impact of potential Year 2000
failures and  developed national- level contingency plans for
coping with potential

oil and gas shortages.

Appendix I Briefing on Oil and Gas Industries' Year 2000 Readiness

Page 46 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

39

Suggested Actions Oil and Gas Working Group To reduce the risk to
the nation's oil and natural gas supply, we suggest that the Oil
and Gas Working Group-- comprised of officials representing the
Federal Energy Regulatory Commission, the Department of Energy,
the Department of Defense, the Department of Transportation, the
Department of State, the Department of the Interior, and the
General Services Administration-- take the following actions:

 Work with industry associations to perform national- level risk
assessments and develop and publish credible, national- level
scenarios for the impact of potential Year 2000 failures on the
oil and gas industries.  Develop national- level contingency
plans, including provisions for using

the crude oil stored in the Strategic Petroleum Reserve to deal
with potential interruption in oil imports.

Page 47 GAO/AIMD-99-162 Year 2000 Status of the Oil and Gas
Industries

Appendix II Major Contributors to This Report Appendi x I I

Accounting and Information Management Division, Washington, D. C.

William G. Barrick, Senior Information Systems Analyst Martin E.
Caulk, Senior Computer Specialist (Systems Analyst)

(511753) Let t er

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