August 2017 Special Report: Editor's letter

An intense battle to gain more share of the consumer market has meant that those oil and gas producers that have better storage and logistics capabilities will be the winners

Indrajit Sen is the deputy editor of Oil & Gas Middle East and the co-editor of arabianoilandgas.com
Indrajit Sen is the deputy editor of Oil & Gas Middle East and the co-editor of arabianoilandgas.com

Crude oil and gas producing states in the Middle East have realised that if they want to remain competitive in the contest for market share, they will need to have better storage capacities and the infrastructure to reach their customers swiftly.

This realisation has manifested itself in the form of considerable investments that have been made in the region for several projects in recent times, in a bid to bolster midstream activity.

Fujairah’s journey from being an ‘alternate’ port to becoming a key midstream hub today, is a case in point. The emirate’s strategic location along the Indian Ocean makes it a prized destination from where to reach customers in the lucrative Asian market. A number of logistics players today dot Fujairah’s coastline and the busy terminals they operate is proof enough of the strength of the local midstream sector.

The upstream infrastructure-based (pipeline network) logistics domain in the Middle East is presently the largest in the world and is estimated to remain so until 2021. In fact, while the quest for market control has spurred movement in the logistics segment, the decline in oil prices has caused a juxtaposition, in that it has had somewhat of a positive impact on the storage segment.

A senior industry leader working in the local midstream sector, once explained this ‘contango scenario’, saying: “As a matter of fact, low oil price is good for liquid bulk storage companies. When the future oil price outlook is predicted to be higher than the current price, traders look for tanks to store their cargoes until the market recovers to achieve the desired margins. On the other hand, if today’s price is higher than the forecasted future physical price (‘backwardation scenario’), traders get more active in selling their current stocks which creates a higher throughput  for the terminals, as it is a crucial part of the supply chain to complete the physical purchase of allocated cargoes.”

You may or may not choose to be convinced by the theory. But the truth is that as a result of this impetus to the midstream segment of the regional oil and gas industry, demand for technology, that includes digital systems to integrate operations, have also spiked, as AspenTech our Knowledge Partner for this Report, describes. Players adopting efficient mechanisms to optimise their supply chain have much to gain.

The increase in the oil and gas logistics market’s breadth has also stroked the region’s desire to develop its own oil trading platforms, and establish independent benchmarks. Till now, local traders have had to rely on foreign standards for the trading of oil as a commodity – something that might change soon.

In terms of logistics in the natural gas segment, the advent of the floating LNG (FLNG) concept has in some ways revolutionised the production and transport of gas. Although the FLNG mechanism is is only operating at pilot stages in a few locations worldwide, the regional oil and gas industry also has to explore the potential of inducting the concept. At the end of the day, the endeavour should be to invest in innovation today to reap the benefits of lower logistical costs tomorrow in an uncertain era of low oil prices.

Next up: The logistics market is set to witness the highest growth in the 2015-21 period...

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