Spcl Report: Tackling the supply challenge head-on

By following the example set by other industries and replacing traditional manual methodologies in the supply chain with the latest innovations, the oil and gas sector could enjoy greater efficiencies and tighter cost control. Michael Gordon explains

Supply chain innovations could be key to tackling financial challenges.
Supply chain innovations could be key to tackling financial challenges.

At a time when regional National Oil Companies (NOCs), International Oil Companies (IOCs) and other private players are scrambling for market share, rapid and effective transportation of the produce to eager consumers has become more crucial than ever.

Over the past decade, companies across the entire oil and gas value chain enjoyed the boom in drilling and the linear midstream and downstream projects as activity soared, fuelled first by high natural gas and then oil prices. However, today the global oil and gas industry is in the midst of one of the most severe downturns of the last 30 years, with industry revenues for 2015 dropping to 20% below that of 2014, and industry profits shrinking by as much as 30%. That declining trajectory continues in 2016, according to Alix Partners, a leading global business advisory firm.

Nevertheless, the latest data also suggests that the GCC’s oil supply has reached a historic high of over 31mn barrels per day (bpd), which accounts for 35% of global oil supplies.

To maintain that advantage, Alix Partners suggests that producers must take action on several fronts, including driving higher capital efficiency, improving field productivity, and reducing general and administrative (G&A) spending.

Similarly, Lux Research says that cost-cutting, diversification into other areas of production such as high-value chemicals, and advances in technology and supply chain innovation are all key to fighting off the growing challenge.

Lux Research analysts found that upstream costs in 2014 were 25 to 30% below 2012 highs, largely driven by a collapse in demand. Further, they offer continued cost savings over the next decade, thanks to advances like robotics, improved fracturing methods, lean engineering, and treatment solutions for flowback water.

Specialty ‘high-value’ chemicals could make a difference between profit and loss for oil majors, and steer them into an industry that is less vulnerable to regulatory limits, according to Lux Research analysts. However, oil companies must first position themselves to manufacture unusual, high-value chemicals rather than just the commodities that most produce today, warns Lux.

Nick Coaton, general manager – Track & Trace Solutions at Swire Oilfield Services, argues that the oil and gas industry must follow the lead of industries such as retail and defence, which are taking advantage of technologies such as the internet of things (IoT), automated asset tracking, 3D printing and predictive analysis to bring value to operations and provide business intelligence that was previously hard to obtain. By replacing traditional, manual methods in the supply chain with the latest innovations, these industries are reaping the rewards of standardisation, simplified processes and more accurate intelligence – all leading to more efficient operations and tighter cost control, benefits that the oil and gas industry could also enjoy.

The industry needs to take advantage of existing standards, which do not necessarily come from the oil and gas space. In a presentation entitled Forging a world leading supply chain, Harry Brekelmans, projects and technology director at Shell, noted a recent example where the Anglo-Dutch energy giant was able to save $50mn in shipyard expenses by using existing metrics.

At the same time, he contended that the oil and gas industry needed to set new standards, and referenced Shell’s participation in a new joint industry project that is working to standardise subsea processing systems.

More efficient execution in cyberspace is an important part of this, he noted. Improvements here could lead to better tracking of tools and equipment, and greater use of cyber systems could also help improve construction management.

Brekelmans noted that Shell is using some of these systems for its Prelude FLNG project, and added that the company believes it can save 10 to 15% through the implementation and use of such tools.

The industry also needs to make greater use of off-the-shelf technology, Brekelmans observed. He cited the use of a Veros Systems monitoring programme that Shell had recently deployed, which allows operators to better plan their maintenance programmes.

Brekelmans underscored the importance of ‘co-innovative technology’, wherein operators and vendors work together to develop the products and systems the industry needs. He noted that Shell had recently worked with vendors and suppliers to develop swellable packers and swellable dope pipe, an effort that enabled Shell to save 50% in the cost of tubing on one project.

While the advent of technology has helped companies to find and extract more oil, little has been done to embrace modern enterprise resource planning (ERP) systems for supply chain and procurement solutions. ERP systems can provide inventory management, demand forecasting, contractor management, master data management and e-procurement. In turn, this could automate workflows; improve sourcing and transaction cycle times; tighten integration with suppliers and customers; generate accurate inventory information, complete spend information and supplier performance metrics; limit manual intervention and errors; and reduce internal procurement costs.

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