It is beyond speculation now that crude oil prices might never again attain the exalted above $100 a barrel level – something that has perturbed the Middle East, from national leaderships to the decision-makers at small enterprises. At this point there seems to be little alternative but to accept that the region’s oil and gas industry is operating in a new era heralded by low oil prices and must, therefore, find new ways to adjust to this reality.
Some are convinced that well-crafted and ambitious economic diversification schemes, like Saudi Vision 2030, and austerity measures, such as the removal of a system of fuel subsidies, will eventually steer the regional economies away from being oil revenue-dependent. However, it is the oil and gas industry, particularly the upstream segment, which has to search for and execute strategies to counter the death knell from sub-par crude prices. Once such crucial game-plan being the implementation of an efficient procurement and supply chain mechanism.
“So what does it take for a regional oil and gas company to achieve and maintain an effective supply chain?”, I asked the MENA regional director of the Chartered continued on page 64 >> Institute of Procurement and Supply (CIPS), one of the rare industry bodies in the world to represent the industry segment and train individuals and organisations alike. “Consolidation,” Sam Achampong replies. “That includes restructures or mergers, in addition to reductions in overheads and [improved] operational efficiency, which are now essential elements for survival,” he goes on to explain.
Industry estimates suggest that the magnitude of the GCC’s supply chain and logistics segment of the market “may be in the region of $100bn”, according to Achampong. “In the short to medium term, the market is expected to shrink as the industry adjusts to lower oil prices; however, in the long term, due to the increasing consolidation observed in the region, we may see the market expand. This will be a result of improved net revenues and the increased awareness of the importance of strategic and sustainable partnerships in the GCC region,” he tells Oil & Gas Middle East.
The procurement and supply chain aspects have a pivotal role in helping the sector’s players to maintain competitiveness in a period that is witnessing a frenzied campaign among the global oil and gas producers to win a bigger slice of the consumer market. “Procurement and supply plays a fundamental role in transitioning the oil and gas industry to a future where, current predictions suggest, the oil price is likely to stay lower for longer. To survive and thrive in a world where revenues will be reduced and margins will be under sustained pressure, it will no longer be sufficient to negotiate aggressively with organisations to further reduce prices and pass the pain down the supply chain. It will be essential to pool knowledge, thinking and effort to reinvent ways of working to develop sustainable partnerships,” Achampong explains.
“Procurement and supply must also play a stronger role in selecting suppliers based on their propensity to build proactive partnerships, where innovation can thrive and collaboration can reap benefits for both parties,” he adds.
The key role that procurement and supply play in a business’s success is manifested by the 84 years of CIPS’ existence. Established in Britain in 1932, the institute received chartered status six decades later, in 1992. The organisation – which spread to MENA in 2010 and is headquartered in Dubai, with five regional offices – today boasts 110,000 members globally; local notable members include Abdulsalam Al Hamadi, chief procurement officer of Dubai’s ENOC, and Hala Al Suwaidi, supply chain manager at the ADNOC-funded Petroleum Institute.
The non-profit organisation also advises an array of IOCs and NOCs, including BP Shell, Chevron, ADNOC, ENOC, Qatargas and Dolphin Energy. It wouldn’t be wrong to wonder how a lesser-known industry body like CIPS advises these global energy giants on the optimisation of their value chain, and helps address the real-world challenges of managing the supply lines of these oil and gas behemoths. “CIPS provides the voice of the procurement and supply profession and, therefore, has an understanding of where to set the bar for best practice on a global level,” Achampong says.
“Through our global standard and our certification programmes, we provide relevant and specific knowledge and skills that can be applicable and immediately implementable across all industries. In the oil and gas sector in particular, we have successfully run syndicated programmes with students and practitioners across all levels of seniority, from several companies, to enable them to share knowledge on a peer-to-peer basis, in addition to the rich information provided by the programme itself. This has proved to be extremely successful,” he says.
In a testing era, where oil and gas companies are cutting corners and are looking for ways to further slash operational expenditure, “do you think regional players will be willing to invest in procurement and supply chain?” I asked Achampong, who has been a member of CIPS since 2010. He responds: “Although the overriding initiatives are based around cutting operational costs – in some cases a 30-40% reduction in OPEX – the industry will focus on retaining their best talent, whose responsibilities are likely to increase amid the tight resources available. In turn, companies will continue to support their top talent by assisting them in developing the skills that are needed to deliver efficiencies in an increasingly challenging business environment.
“Effective procurement and supply strategies are being recognised as an effective way to manage operational costs in oil and gas, and have been proven to help lower expenditures. As more and more regional players become aware of these effects, the budgets allocated to procurement and supply are likely to increase.”
The human element plays a decisive role in the logistics and supply chain of the energy sector, but with IOCs and NOCs already having to reduce their workforces, and to implement plans to further cut down on jobs, the situation poses a daunting question as to how well companies will utilise the labour element in achieving supply chain effectiveness.
“The human (labour) element remains crucial to any effective supply chain as it is the key factor in win-win negotiations or developing alternative procurement strategies. The human element adds value in the form of personal interactions that have been proven to enhance partnerships and encourage more sustainable and strategic relations,” Achampong says.
“In a successful oil and gas organisation, procurement and supply will be at the heart of a major shift in the way it sets up projects and engages suppliers. Companies will need to develop robust HR strategies as they might not need – or be able to afford – as many people in procurement and supply, but they will need better talent with a broader skillset and more sharply developed commercial skills,” he concludes.
