The Oil industry will play a significant role in kick-starting the global economic recovery, but Operators must rapidly address some key operational barriers. In this article, we highlight some of the basic interventions that will help generate immediate and meaningful returns on investment for operators.
Economists and industry experts alike are predicting an upbeat year ahead for the Oil & Gas industry.
That does not, however, suggest that the sector will be immune from any number of challenges on the immediate horizon. Even though the industry is looking for signs of support and stability in the oil price, it is difficult to predict the outlook for oil in 2023 with any degree of certainty.
Several factors, including geopolitical events, global economic conditions, supply chain constraints, and changes in supply and demand, will influence oil price stability. However, experts are anticipating a bullish outlook for oil in 2023. It is anticipated that oil demand will continue to grow, driven by expectations of a more rapid economic recovery and increasing energy consumption, especially in China and developing countries.
We see a significant shift towards renewable energy sources and electric vehicles; although a meaningful impact of this shift is still likely decades away. The most immediate risks continue to be rising inflation, the Russia/Ukraine conflict and the severity of supply chain constraints. Inflation may have reached its peak, but the uncertainty around the Russia/Ukraine conflict still looms large, even though Russian oil exports remain strong. Continuing Western sanctions on Russia will inevitably have an impact as drilling activity is likely to be affected severely. It is anticipated that a strong economic recovery in the EU will create a more robust demand than previously expected. Ultimately, the outlook for oil will depend on the interplay of many of the aforementioned factors.
Bullish market outlook aside, North American oil companies will need to address several pressing near-term challenges:
Meeting the Growing Demand for Energy while Reducing Emissions
Oil companies will need to find ways to meet the ever-increasing global demand for energy while reducing emissions. This could include investing in renewable energy sources, developing more efficient extraction and refining processes, and investing in carbon capture and storage technologies.
Adapting to Changing Regulations
Given the approach to the energy sector of the current administration, there will be a greater and more urgent need to stay up to date with upcoming changes in the regulatory environment and policies related to the environment, safety, and other areas.
This could include complying with new emissions standards, investing in new technologies to reduce their environmental impact, and developing new strategies to manage risk.
Managing Geopolitical Risks
The need to manage geopolitical risks, such as political instability, sanctions, and trade wars. This could include diversifying operations to reduce exposure to certain regions, investing in alternative energy sources, and developing strategies to mitigate the impact of geopolitical events.
Optimizing Internal Value-Chains
Now more than ever, companies must continuously adopt new technologies and processes to repetitively and seamlessly define operational and cost improvement opportunities.
Operators have little choice but to aggressively adopt strategies to continue to optimize every part of the hydrocarbon value chain, especially operations, supply chain and cost management.
Improve Supply Chain Management
Oil companies must optimize their supply chain to reduce costs and improve efficiency. This could include using technology to track and manage inventory, negotiating better terms with suppliers, and streamlining the end-to-end supply chain.
Building solid relationships with suppliers and implementing effective supply chain management practices will significantly improve the availability of materials, reduce lead times, and increase productivity.
Implementing digital technologies such as artificial intelligence, machine learning, and the Internet of Things can improve operational efficiency, reduce costs, and increase production.
Leveraging available data will continuously help identify cost savings opportunities, improve decision-making and drive collaboration.
Automating manual tasks like data entry and analysis will increase efficiency and reduce errors. Minimizing manual tasks and processes will also reduce labor costs and improve overall labor productivity, efficiency and effectiveness.
Using predictive maintenance and real-time monitoring to optimize the utilization of assets, increasing overall lifespan, reducing downtime and cost, and significantly improving throughput.
Implementing lean manufacturing principles and continuous improvement methodologies, such as Six Sigma, to streamline processes, eliminate waste, and increase efficiency.
Collaboration and Knowledge-sharing
Encouraging collaboration and knowledge-sharing between different teams, locations and across the organization as a whole to drive the generation and adoption of new ideas, improved processes, and increased productivity.
Investing in the development and training of employees will increase knowledge and skills, leading to improved performance, increased productivity, higher levels of job satisfaction and lower employee turnover.
The list is by no means exhaustive but certainly highlights some of the more basic interventions that will generate immediate and meaningful returns on investment.
We genuinely believe the oil industry will play a significant role in the global economic recovery. Still, for that to happen, operators will need to address many of those opportunities identified rapidly.
We have worked with many operators across various shale plays in North America who are making considerable progress in implementing these same strategies, some with great success.