Energy

Energy

As oil and gas companies look for new resources in ever more remote parts of the world, they are stretching the capacity of their supply chains. The impact of risks caused by customs delays, port congestion or bad weather are amplified by the extremely high cost of operating exploration and production equipment in remote locations. For example, since any loss of operating time to a supply chain failure is very high indeed. And when problems do occur, limited infrastructure or logistics capacity in remote regions mean that companies often have few alternative supply options.

Compounding these challenges, the energy industry is at the mercy of global economic and geopolitical shifts. The dramatic fall in the oil price over the last 18 months has forced the industry to reconsider investment portfolios, putting some projects on hold and searching for deep cuts in the operating costs of existing assets. Meanwhile, local political upheavals can create significant challenges on the ground, sometimes requiring operators to extract equipment and personnel at short notice when trouble begins to flare up.

Recent events, from the Tianjin port explosion to the 2010 Gulf of Mexico oil spill, stand as clear demonstrations of the impact that safety failures can have, and the energy and chemicals industries operate under great pressure to comply with environmental and health and safety standards. They also need robust emergency response procedures in place.

And the need to transport large quantities of both personnel and equipment at extremely short notice in response to emergency situations can place limited transportation infrastructure under even greater pressure.

The energy sector – particularly the upstream part of the business, which bears the brunt of political and economic volatility – is responding to its supply chain challenges by taking an increasingly integrated approach. Operators are bundling supply chain services to improve visibility, and increasingly centralizing control of their supply chains, especially in emergency response situations. They are ramping up contingency planning, too, ordering equipment early, raising safety stock levels, and staging critical equipment in or near emerging regions in preparation for forecast demand.