Global Oil & Gas Industry: Emerging Market Supply Chains

Stephen McNeil
The oil & gas sector continues to develop and morph as new frontier locations are discovered and mature regions change ownership.

Against a backdrop of global energy demand increasing and emerging economies changing the geopolitical landscape, the frontier exploration and development are becoming ever critical. Tanzania, Falkland Islands, Indonesia and Mozambique already have some supermajors as well as national oil companies and ambitious independents circling as ongoing exciting discoveries entice them further in. It is gas that is causing the most excitement however; off the coasts of Tanzania and Mozambique alone, gas discoveries are estimated to be in the 100s of trillion cubic feet. Mozambique has proven reserves of 100 trillion cubic feet today.

The number of mega-projects with multi-billion-dollar budgets in these emerging markets has increased dramatically in recent years, but with them comes incredibly challenging environments, an unavoidable obstacle of frontier oil & gas exploration.

The number of mega-projects with multi-billion-dollar budgets in these emerging markets has increased dramatically in recent years...

The infrastructure is lacking; transport i.e. roads, ports, rail, airports as well as utilities aren't as sophisticated as their more-established counterparts. Also, due to these areas being relatively immature when it comes to oil & gas development, the supply chain is also limited and therefore the projects need to lean on the global marketplace and supply and service organisations to be able to provide resource and materials and to help develop the maturity by locating to the areas.

Infrastructure hurdles require a long-term perspective; therefore, average supply chain processes can add hundreds of millions if not billions more to the total project cost. It's important that clients embarking on these growth areas pick the right supply chain strategy to ensure costs don't spiral out of control.

It's important that clients embarking on these growth areas pick the right supply chain strategy to ensure costs don't spiral out of control.

The supply chain needed to facilitate transportation, accommodation and utilities doesn't need to have an oil & gas bias to its credentials, although it certainly helps; a traditional skill set of core services need to be employed and implemented. From project management, design, engineering, supply chain management, cost management, project controls and contract management all the way through to asset management can be delivered by a single consultancy as an integrated service without the need to charge the client an oil & gas premium, saving money over the project period. 

The most credible of liquefied natural gas pedigrees is likely to be a hindrance during these enabling activities. The transformation of a rugged coastline or swamp into a well functioning and connected town with good road and rail infrastructure which also receives and exports natural gas from offshore is the domain of creative architects, planners, civil and electrical engineers who live and breathe this every day. They know what it takes to create what is needed and what people want, and can do it with minimal environmental impact. They are also best connected with the global civil, water and infrastructure supply chain and best placed to get value.

While there are undoubtedly challenges associated with investing, a growing number of companies are recognising that the long-term rewards from these growth markets can be significant too...

In parallel, the oil & gas supply chain can be going about their core business of designing and fabricating the offshore structures and receiving + export facility, ready for installation when the enabling works are complete. The interfaces are clear and can be planned, scheduled and project managed at a program level. While there are undoubtedly challenges associated with investing, a growing number of companies are recognising that the long-term rewards from these growth markets can be significant too, which more than makes these ventures worthwhile.

Mega project schedules and budgets can spiral out of control but with the application of the right supply chain and the right contracting strategy under a regime of the right supplier for the job and the right level of independent program management, this need never happen again.