When it comes to oil and gas development with all of its moving parts, an ineffective supply chain management process can lead to worker productivity issues, wasted money and ultimately, lower production levels and profits.
Challenges can creep into any part of the supply chain and create problems with ripple effects, whether it’s with delivery of in-bound drilling materials such as mud, water or sand; transporting produced oil or gas from the field to its targeted location; or getting workers to remote locations equipped with supplies not only needed to do their jobs but also needed to sustain life and protect health.
These issues were addressed by DHL in an energy supply chain white paper released this week.
“The global energy industry is undergoing a seismic shift, in part driven by development of new, unconventional sources of energy, such as shale gas, tight oils, coal seam gas and oil sands,” according to DHL. “In turn this is requiring logistics executives to rethink traditional energy supply chain models and implement a highly integrated approach to drive down logistics costs and enhance profit margins.”
Developers of both conventional and unconventional hydrocarbon resources face challenges, although the type of obstacles vary depending on factors such as location and depth of geological, technical and operational knowledge.
“Supply chains supporting the conventional energy market are still developing as companies have had to expand into ever more inaccessible and remote locations to support the growth in global demand,” said Jonathan Shortis, vice president of the energy sector for Europe, the Middle East and Africa for DHL Customer Solutions & Innovation, in a prepared statement. “In such areas, conventional energy faces the same challenge as unconventional, and that is to establish and maintain a robust infrastructure to support production in undeveloped and/or remote geographies.”
Supply chain challenges identified in the white paper included health, safety, security and environment management; complex operations with multiple stakeholders, lots of drilling and abundant materials; fragmented supply chains that invite disconnects, delays and unclear accountability; frequent plan changes that impact materials demand and service requirements; data management, including end-to-end supply chain visibility and management; materials monitoring; and optimizing purchasing.
But of these issues oil and gas executives put logistical coordination for large projects as well as visibility of materials and predictability working with multiple stakeholders at numerous drilling sites as their top concerns.
To address some of the supply chain issues, some energy companies have opted to stock up on supplies and position them near remote sites, so materials are there when needed. If something isn’t readily available, air charter services are utilized, which can become expensive, the white paper said. But DHL pointed out that this method is “not sustainable, quickly eating into profit margins,” as margins shrink and costs grow.
Building a smarter energy supply chain calls for “a data-driven approach to managing the energy supply chain on a true end-to-end basis,” DHL said, adding that some companies are turning to third-party logistics companies and utilizing a lead logistics provider (LLP) model.
“The LLP sits atop the supply chain hierarchy and orchestrates all in-bound and out-bound logistics. For the in-bound supply chain, for instance, this solution involves management of material from international and domestic suppliers, through origin consolidation hubs and customs clearance, to the in-country primary stock location, consolidation center or cross-dock,” DHL said.
“It also incorporates managing the warehouse and yard. … The solution layers on information systems that provide full visibility and traceability of materials across the supply chain to all stakeholders, including visibility in remote stock locations. It [also] integrates with the client enterprise resource planning system for accounting and asset management purposes.”
The company is focused on improving third-party logistics operations in China’s Sichuan Basin, working with an international oil company that is drilling in remote areas where there is little local unconventional drilling expertise. Here, the highest perceived risk concerns subcontractor road safety, according to the white paper. The approach includes assessing driver performance, training and equipment condition. In the future, plans are to expand to direct management of third-party logistics subcontractors, control of other major material groups such as proppants and management of parts of the supply chain.
Shortis added that “the greatest benefit can be realized by setting up the team at the design stage, to formulate the supply chain in parallel with the design stage of the facility, then building the supply chain through the capital expansion phase (construction, commissioning) before ‘flipping’ the supply chain to support the operation expansion phase thereafter.”
Contact the author, Velda Addison, at firstname.lastname@example.org.
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