Oil & Gas Middle East speaks to the region’s logistics experts to analyse the state of the logistical support to the upstream industry
Providing logistical support to the regional upstream oil and gas industry is a demanding business. Loads are oversized, heavy and need transporting urgently and securely. The combined sunk and opportunity costs of an inactive rig can run into the millions of dollars in a couple of days.
The cost of producing oil in the region is increasing as oilfields mature and operators turn to secondary, tertiary and enhanced oil recovery methods to keep pumping crude. On the other hand, the cost of alternative energy is decreasing and transport fuel economy is improving.
The lump-sum turnkey upstream EPC contracting environment is more competitive than ever, with larger and fewer projects and tight deadlines and budgets. One of the ways to address the challenge is to optimize oil and gas logistics.
The Middle East itself presents challenges. Many upstream projects are in remote areas, or serviced by undersized airstrips.
“Most oil fields are in rural areas where the infrastructure is incomplete or poor, alongside outside temperatures at mid-50 degrees in certain markets,” says Warren Angus, regional sales and marketing director, Middle East at CEVA Logistics.
“With the rugged terrain, this is what makes logistics in this sector interesting yet rewarding.” The oilfield logistics market in the Middle East is constantly evolving both at a rapid pace, and in new directions,” says Eliska Hill manager of Chapman Freeborn in Dubai. “Whilst you have established logistical networks, there are new requirements constantly being generated as emerging markets develop.”
“The regional market place with upstream logistics and projects has been interesting over the past 3 years,” says Angus. “No doubt there is a lot more cargo moving in many markets with an abundance of new projects both in the oil gas and energy sector and commercial sectors. Many more oil wells are being drilled across the region.”
Angus says that, although customers in the oil and gas secotr have become more cost conscious in the wake of the financial crisis, service is still more important than price alone.
“The requirements of the oil & gas industry are extremely time sensitive and demanding: we understand these needs, including the cost pressure of sensitive spare parts that are used for exploration and extraction,” says Aashish Bachani, CEO of SkyBridge Freight Solutions, a multi-platform logistics firm based in Dubai.
“We have worked with several energy industry clients in arranging long term and adhoc shipments movements using scheduled or charter flights as required.”
Angus agrees. “When a rig is down and parts need to be shipped urgently, we need to have viable solutions ready to launch,” he says. “Cost often is secondary especially knowing the cost to the drilling company when rigs are down.”
Smart moves
Independent research analyst Datamonitor believes the global logistics sector will buck the muted growth trends in other industries and grow from $3.5 trillion in 2010 to $ trillion in 2013.
The company says demand will continue to shift away from North America and Europe to the emerging markets of Latin America, BRIC and the Middle East. This trend is reflected in the fact that North America and Europe are expected to lose a 2.2% and 1.5% share of the global market by 2013, while Asia Pacific is expected to gain nearly 1.5%.
Transport Intelligence, a global logistics research company, also identifies Middle East markets as serious growth opportunities. In its 2011 Emerging Markets Logistics Report for logistics firm Agility, the company rates Saudi Arabia as the biggest growth area in the world, with the energy sector leading other sectors in powering logistics demand.
The Middle East generally scores well, with all main markets in the top half of Transport Intelligence’s predicted growth table to 2015. The UAE is also singled out as the top emerging market with a GDP of less than $300 billion.
“Of the smaller economies, the UAE remains at the top,” the report says, citing excellent transport interconnectedness and progress on border administration.
Saudi is booming in all logistics sectors, including oil and gas, as the Kingdom pushes ahead with massive civil and energy projects to provide for its burgeoning population.
The Kingdom is in the process of building six ‘economic cities’ in a bid to replicate Dubai’s expansion efforts, with the King Abdullah Economic City to include a 13.8 square kilometre port.
The Kingdom also has a string of huge upstream oil and gas projects in the pipeline, from the Manifa heavy crude program to the gas boom projects, such as the $10 billion Karan non-associated gas field, the $6 billion Shaybah natural gas liquids facility and the $6 billion Wasit production projects.
Qatar looks to have slowed for the time being as the emirate’s moratorium on new gas development of the North Field filters down the supply chain. However, ambitious infrastructure and civil engineering projects continue in Qatar, with the 2022 World Cup set to provide a massive boom in demand for logistics solutions.
“The biggest challenges we face as a business is where to invest next,” says Angus. “With so much opportunity through most major markets in the Middle East, we need to ensure that where we invest, we see solid returns and can be sure to provide solutions for our customers.”
Angus lists Saudi Arabia, Qatar, Oman, Abu Dhabi and Iraq as dominant markets for upstream logistics. “We have seen substantial double digit growth across all these countries in the last 12 months and we see this continuing,” he says, reporting 30% growth in the oil and gas sector of CEVA’s business within their major markets.
However, the region still presents challenges in terms of infrastructure and bureaucracy. “There are many challenges in the Middle East. However, we can partly circumnavigate this due to access to our own leased cargo aircraft, and the excellent support of our in-house operations team,” says Hill.
“Often it can be challenging to operate urgent charter flights within the Middle East due to different airport and air space restrictions, which perhaps are not applicable in other regions.”
Client service
Chapman Freeborn is a privately-owned British company, operating as an Air Charter Brokerage since 1973. The Group has over 30 offices, in 23 countries, based across five continents, and coordinated more than 6,000 cargo and passenger charters in 2010.
Chapman Freeborn Group achieved turnover of US$800 million in 2010, and is on target to increase that for 2011. Dubai office in particular is on target for a 25% increase in turnover for 2011.
SkyBridge is a new and expanding player in the market, having being founded in Dubai in 2007 by experienced logistics professionals. The company operates in the Middle East – including Iraq and Afghanistan – China, west Africa and the Far East across sea, and land platforms. Sparc Aviation, a wholly-owned subsidiary established in February this year, provides airborne logistics, which Bachani says in demand from oil and gas clients.
“We are experienced in flying heavy and outsized cargo for our oil and gas clients into remote regions where local infrastructure is limited,” Bachani explains. “These destinations include exploration and production facilities, construction & engineering sites.”
When it comes to oil and gas clients, coping with the oversized and the unexpected is part of the job. “There are no limitations on what our company can handle: if it can fit onto an airplane, we can do it,” says Bachani. “If we cannot load onto a plane, our ocean freight department offers an alternative.”
While young, Sparc already has a diverse fleet, including three giant Antonov an124-100 aircraft, each of which has a payload capacity of 150 tonnes. Bachani says the aircraft is in high demand from oil and gas clients.
“This is an industry where the opportunity costs of a particular drilling unit being shut down for a few hours can run into millions of dollars,” he explains. “It is vital to oil and gas companies that a replacement part reaches site in the quickest possible time.”
Iraq
Iraq, as reported in last month’s edition (see online at bit.ly/IraqNewDawn) presents further and unique difficulties, most notably security and bureaucracy issues that make meeting delivery expectations particularly challenging. However, the country’s infrastructure and upstream growth make it a lucrative market for companies who can cope with the risks.
“Over the past few years we have seen tremendous growth opportunities in Iraq,” says Bachani. “We have specialised joint arrangements in difficult areas such as Iraq and Afghanistan, with experts on the ground to receive shipments, inspect cargo and arrange transportation from port/airport to site.”
“there often is a lack of aviation infrastructure to accommodate the logistical requirements required by charter operators: permits for aircraft to operate are restricted and controlled, rules and regulations are inconsistent and the goal posts constantly move.”
“In Iraq the drilling companies have only just started last year,” says Angus. “With one of the largest oil reserves in the world, more drilling is expected to take place over the course of the next 3 – 5 years.” Angus “certainly” sees significant growth potential for the upstream logistic market in the region as a whole.
“Iraq has really only started and there is already significant amounts of cargo moving into Iraq to support the exploration.”
“Recently it has been the development within Iraq that has dominated growth in this area the region, as the various NOC’s, EPC’s and supply companies work to establish themselves in a country that is emerging from the ravages of war,” says Hill.
“Moving both equipment and personnel is challenging both into the country, and locally between sites, but Chapman Freeborn has been operating into Iraq with regular cargo and passenger flights since 2004. We feel there has been around a 20-30% increase in logistics requirements over all chartering in the last year.”
Bachani also has an optimistic outlook on the potential for growth in Iraq, and also for Iraq’s prospects generally. “Like any emerging country, we expect the coming decade to be good for Iraq and its people with lot of opportunities that will be created for them in terms of business, jobs and better living standards,” he says.
“We also expect the oil and gas industry in Iraq to be more active and become a sizeable player in the region.”
Growth
“The Middle East logistics market is seeing growth again, after the cautious behavior of the last few years, especially in new project areas,” says Hill. “As markets such as Iraq continue to develop, the logistical requirements are constantly changing, as the infrastructure slowly evolves. This is fast becoming as strong focus area as logistical support becomes more important.”
“As the global market works to recover, companies will re-visit the charter options again, and our challenge is to remain as competitive as possible against the traditional logistical formats, Hill says.
“The brokers are working harder to highlight the value and benefits of booking a charter flight. We’re seeing continued demand for our expertise, particularly for outsize and urgent cargo charter services, but also passenger movements for crews and executives.
The UAE and surrounding Arab Gulf region is one of the most exciting and dynamic hubs for the cargo and passenger broker business.”
