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Changing expectations in oil and gas supply chain

Jan 03, 2019
4 min read
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William Hill, executive vice president for oil and gas at GAC Group, outlines three key ways that expectations of oil and gas supply chains are changing - and the trend that service providers must resist to protect the entire industry

 

The offshore industry is in transition. Operators are having to adapt to major foundational shifts: the decline of hydrocarbons and the rise of renewables; advancing digitalisation and what it means for workers and processes; and new technologies to boost the efficiency of existing wells.

Those new risk exposures are emerging in a cost-focused commercial environment triggered by the financial crisis and subsequent oil price slump of 2015, prompting operators to drastically change their expectations of the supply chain. That has given birth to three key trends that service providers and suppliers need to be aware of.

 

Outsourcing

The assumption that energy demand will rise forever has wavered in recent years. Even the most optimistic outlooks acknowledge that price gains will be limited.

Some industry majors are now taking steps to reduce their reliance on high-cost projects, reflecting the belief by some in the industry that oil prices could be unsettled for decades to come. This is the industry’s ‘new norm’: a more commercially conservative attitude adopted by all major operators across the oil and gas sector.

New best practices have emerged, with outsourcing at the forefront. Internal resources are being pared back, and tasks that were historically handled in-house are now being offered to third party service providers.

Providers who must be able to demonstrate an extensive knowledge of the industry and of their partners’ and clients’ businesses.

 

Value-add

From mid-2014 to 2016, over 350,000 jobs were slashed by oil and gas companies globally. Operators’ own resources have shrunk, with an inevitable impact on the entire supply chain. They are now demanding higher service provision for less outlay. Service providers looking to secure work should expect a more complex tendering process through which they must demonstrate the added value they offer.

Emphasis on efficiency and savings or a competitive edge in terms of coverage, experience, and supplementary solutions are playing a greater role than ever before. Regular reviews and a demonstrably planned, measured approach to the full lifespan of a project are also likely to pay dividends.

 

Adapting to transition

The new economic realities in the oil and gas industry are extending field lives – and the operating lifespans of rigs and equipment at work in those fields. More and more, they are having to operate in financially sub-optimal conditions for longer periods of time. Assets may be placed in ‘warm’ or ‘cold’ layup, at an associated cost. Service partners must be ready, willing and able to adapt to such ‘upset’ conditions for crewing, resupply, repair or any other job for which they are called upon.

Service providers are having to adapt to shorter term contracts, typically jobs of 3-6 months, a timeframe which operators now see as optimum to mitigate against the longer term risks they see in the market.

 

Air of optimism

Despite the winds of change currently buffeting oil and gas operators and their supply chains, there is an air of optimism in the market. Even with the unsettled outlook on oil prices, there are signs of recovery, particularly in terms of investment.

Moody’s 2018 outlook for the sector noted that upstream operators are starting to increase production, in turn helping midstream businesses and service providers. Overall, Moody’s foresees relative stability for the integrated oil and gas business over the next 12-18 months.

What does this mean for those working across the supply chain? As the oil and gas industry continues to recover its bottom line, it will be the service providers who can remain adaptable, knowledgeable and work with pace that enjoy the most success in years to come.

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