Supply chain

There are several factors that affect the performance of a

There are several factors that affect the performance of a supply chain in the shale oil and gas industry. These factors affect the whole process of oil and gas production from the production stage to the distribution stages. Gas and oil demand have continued to go back and it is estimated to increase in the days to come. The prices have however continued to drop with many countries joining the production industry. The factors discussed in this paper include political factors, economic factors, technological factors and competition.

Figure 1: decline in oil prices from 1986-2014

Political factors

When there is regional instability because of political temperatures, it creates major problems even at the best of times. When there is political unrest in a region that means that the supply of oil and gas will go down. Production activities will most likely come to halt until the political temperatures come down. This will mean that the prices of oil will go up and the countries that depend on that region for oil might suffer higher fuel prices. In their special report in May 2011, Dun and Bradstreet note that immediately there is political instability the prices are most likely to rise. When civil war broke out in Libya in 2011oil prices rose from 95 USD to 125 USD per barrel within twelve weeks, (Dun and Bradstreet, 2011). When there is rise in the prices there can lead to fuel and oil rationing especially in countries that depend on them for these resources.

Political instability may see slow approval of new capital ventures and squeezing of talent. High political temperatures also risk the delivery times of the products and thereby leading to goods not being delivered on time. Political stability on the other hand encourages fair prices and production processes are not interrupted. That means that the supply chain will experience better conditions than when there is instability in any region whatsoever.  Political unrest can lead to other factors including inflation, displacement of people and low economic times.

Figure2. Increase in oil prices in Libya during the 2011 civil war

Economic factors

Exploration, development and production costs are rising. Almost the whole of an economy runs on energy. When the energy prices rise that means the prices of other commodities do the same. Commodity prices have risen and continue to rise in the recent years. Food prices have also been increasing rapidly over the past years. Inflation leads to higher political and social temperatures and it also prompts banks to increase bank rates. Increased bank rates will affect borrowing which in turn will affect their ability to meet orders.

The currency is still quite volatile. Reasons as to why the currency remains volatile is because of some reasons including government driven policies. High volatility levels lead to shortening of the supply chain as well as increased transport cost. In order to maintain an export advantage some companies have gone as using cheap labor and use of computers that makes the supply chain easier to monitor.

Technological factors

Technology advancements are required in the shale oil and gas industry. The technology focuses on getting more oil and gas and reducing the cost to produce the gas. This means that the industry should invent more technology that helps in the optimization of these services. Materials that can withstand high pressures and temperatures conditions allow drilling of deeper wells. This will in turn increase the oil and gas supplies around the globe.  Sometimes finding the sources of the oil and gas becomes a challenge but with advancement in technology, it will make it easier to find oil and gas wells.

The use of information technology is one of most inevitable practices today. How a company communicates with people who are involved in the supply chain affects the entire chain. There is need of exchange of large amounts of data among the key players of the oil and gas industry. In the oil supply chain, sharing of information under procurement, transportation and production is vital. Information technology enhances elasticity of the supply chain. Flexibility will mean efficient delivery, reduced costs and higher customer satisfaction.

Competition

The level of competition is increasing and that means that the supply chain continues to be complicated. There is demand of high quality commodities and this might lead to complexity in the oil and gas supply chain. Shale oil and gas production has led a situation that requires gas and oil players to become sharper and compete in new roles.  Competition along the supply chain will cause pressure to rise among the various stakeholders. The level of competition is what is causing more shale oil and gas companies to come up with methods that will drill more oil and reduce the operational costs.

Managerial factors

Majority of the people who work at oil drilling stations will be retired within the next ten years. Mcceery et al (2013) notes that there is a shortage of technical talent and this shortage will be more in some years to come because one in seven technical staff will retire. This means that there will no trained personnel who will be required to work on the same fields. The shale oil and gas industry needs managers who were very well acquitted to the technological aspect of the industry. The oil supply chain is global. That means that it incorporates many different cultures. When it comes to handling of the risks that face the supply chain it is important that this task be not left to one person. The whole organization should have a way of dealing with risks that are posed to the supply chain

.

 

 

References

Slaughter A., Bean G., and Mittal A. (2015) “Connected Barrels: Transforming Oil and Gas Strategies with the Internet of Things” Dupress retrieved from www.dupress.com/articles/internet-of-things-iot-in-oil-and-gas

Marten I. and Whittaker (2015) “Lower, and More Volatile, Oil Prices: What They Mean and How to Respond” BCG Perspective retrieved from www.bcgperspective.com/content/articles/energy_environment_lower_more_volatile_oil_prices/

Bhardwaj A. (2013) “Challenges and Solutions in an Upstream and Downstream Oil and Gas Operation” Global Energy retrieved from www.globalenergy.pr.co/65678-challenges-and-solutions-in-an-upstream-and-downstream-oil-and-gas-operation

Jacobs J., (2015) “Oil Price Decline Driving Greater Potential for Efficiency and Technology Innovations in Oil and Gas Operations” HIS Energy Blog retrieved from www.blog.ihs.com/oil-price-decline-driving-greater-potential-for-efficiency-and-technolog-innovations-in-oil-and-gas-operations

Hawk R.,  Domanko P., Wright S.,  (2015) “Increasing the Maturity of Upstream (E&P) Supply Chain Functions” Oil & Financial Journal retrieved from www.ogfj.com/index/current-issue.html

Dun & Bradstreet (2011) “Report: Mitigating Supply Chain Risk” retrieved from www.dnb.com/lc/supply-chain-risk.html

McCeery J., Phillips E., Cigala F., (2013) “Operational Excellence: The Imperative for Oil and Gas Companies” Bain Insights  retrieved from www.bain.com/publications/articles/operational-excellence-theimperative-for-oil-and-gas-companies.aspx

Holdtitch S., Chianelli R., (2008) “Factors That Will Influence Oil and Gas Supply and Demand in the 21st Century” MRS Bulletin Vol33(4): 317-323

 

in the shale oil and gas industry. These factors affect the whole process of oil and gas production from the production stage to the distribution stages. Gas and oil demand have continued to go back and it is estimated to increase in the days to come. The prices have however continued to drop with many countries joining the production industry. The factors discussed in this paper include political factors, economic factors, technological factors and competition.

Figure 1: decline in oil prices from 1986-2014

Political factors

When there is regional instability because of political temperatures, it creates major problems even at the best of times. When there is political unrest in a region that means that the supply of oil and gas will go down. Production activities will most likely come to halt until the political temperatures come down. This will mean that the prices of oil will go up and the countries that depend on that region for oil might suffer higher fuel prices. In their special report in May 2011, Dun and Bradstreet note that immediately there is political instability the prices are most likely to rise. When civil war broke out in Libya in 2011oil prices rose from 95 USD to 125 USD per barrel within twelve weeks, (Dun and Bradstreet, 2011). When there is rise in the prices there can lead to fuel and oil rationing especially in countries that depend on them for these resources.

Political instability may see slow approval of new capital ventures and squeezing of talent. High political temperatures also risk the delivery times of the products and thereby leading to goods not being delivered on time. Political stability on the other hand encourages fair prices and production processes are not interrupted. That means that the supply chain will experience better conditions than when there is instability in any region whatsoever.  Political unrest can lead to other factors including inflation, displacement of people and low economic times.

Figure2. Increase in oil prices in Libya during the 2011 civil war

Economic factors

Exploration, development and production costs are rising. Almost the whole of an economy runs on energy. When the energy prices rise that means the prices of other commodities do the same. Commodity prices have risen and continue to rise in the recent years. Food prices have also been increasing rapidly over the past years. Inflation leads to higher political and social temperatures and it also prompts banks to increase bank rates. Increased bank rates will affect borrowing which in turn will affect their ability to meet orders.

The currency is still quite volatile. Reasons as to why the currency remains volatile is because of some reasons including government driven policies. High volatility levels lead to shortening of the supply chain as well as increased transport cost. In order to maintain an export advantage some companies have gone as using cheap labor and use of computers that makes the supply chain easier to monitor.

Technological factors

Technology advancements are required in the shale oil and gas industry. The technology focuses on getting more oil and gas and reducing the cost to produce the gas. This means that the industry should invent more technology that helps in the optimization of these services. Materials that can withstand high pressures and temperatures conditions allow drilling of deeper wells. This will in turn increase the oil and gas supplies around the globe.  Sometimes finding the sources of the oil and gas becomes a challenge but with advancement in technology, it will make it easier to find oil and gas wells.

The use of information technology is one of most inevitable practices today. How a company communicates with people who are involved in the supply chain affects the entire chain. There is need of exchange of large amounts of data among the key players of the oil and gas industry. In the oil supply chain, sharing of information under procurement, transportation and production is vital. Information technology enhances elasticity of the supply chain. Flexibility will mean efficient delivery, reduced costs and higher customer satisfaction.

Competition

The level of competition is increasing and that means that the supply chain continues to be complicated. There is demand of high quality commodities and this might lead to complexity in the oil and gas supply chain. Shale oil and gas production has led a situation that requires gas and oil players to become sharper and compete in new roles.  Competition along the supply chain will cause pressure to rise among the various stakeholders. The level of competition is what is causing more shale oil and gas companies to come up with methods that will drill more oil and reduce the operational costs.

Managerial factors

Majority of the people who work at oil drilling stations will be retired within the next ten years. Mcceery et al (2013) notes that there is a shortage of technical talent and this shortage will be more in some years to come because one in seven technical staff will retire. This means that there will no trained personnel who will be required to work on the same fields. The shale oil and gas industry needs managers who were very well acquitted to the technological aspect of the industry. The oil supply chain is global. That means that it incorporates many different cultures. When it comes to handling of the risks that face the supply chain it is important that this task be not left to one person. The whole organization should have a way of dealing with risks that are posed to the supply chain

.

 

 

References

Slaughter A., Bean G., and Mittal A. (2015) “Connected Barrels: Transforming Oil and Gas Strategies with the Internet of Things” Dupress retrieved from www.dupress.com/articles/internet-of-things-iot-in-oil-and-gas

Marten I. and Whittaker (2015) “Lower, and More Volatile, Oil Prices: What They Mean and How to Respond” BCG Perspective retrieved from www.bcgperspective.com/content/articles/energy_environment_lower_more_volatile_oil_prices/

Bhardwaj A. (2013) “Challenges and Solutions in an Upstream and Downstream Oil and Gas Operation” Global Energy retrieved from www.globalenergy.pr.co/65678-challenges-and-solutions-in-an-upstream-and-downstream-oil-and-gas-operation

Jacobs J., (2015) “Oil Price Decline Driving Greater Potential for Efficiency and Technology Innovations in Oil and Gas Operations” HIS Energy Blog retrieved from www.blog.ihs.com/oil-price-decline-driving-greater-potential-for-efficiency-and-technolog-innovations-in-oil-and-gas-operations

Hawk R.,  Domanko P., Wright S.,  (2015) “Increasing the Maturity of Upstream (E&P) Supply Chain Functions” Oil & Financial Journal retrieved from www.ogfj.com/index/current-issue.html

Dun & Bradstreet (2011) “Report: Mitigating Supply Chain Risk” retrieved from www.dnb.com/lc/supply-chain-risk.html

McCeery J., Phillips E., Cigala F., (2013) “Operational Excellence: The Imperative for Oil and Gas Companies” Bain Insights  retrieved from www.bain.com/publications/articles/operational-excellence-theimperative-for-oil-and-gas-companies.aspx

Holdtitch S., Chianelli R., (2008) “Factors That Will Influence Oil and Gas Supply and Demand in the 21st Century” MRS Bulletin Vol33(4): 317-323

 

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