Preparing oil and gas supply chains for an uncertain energy future
A 2020 EY survey revealed that oil and gas companies must invest in data and digital transformation to prepare supply chains as an uncertain energy future seems to be just around the corner.
The COVID-19 pandemic has forced companies all over the world to reimagine supply chain resilience. According to a recent Forbes article, the pandemic has more than stressed the need for organisations to start implementing a networked ecosystem that is visible to all and each change is felt by all.
The article zones in on the new EY Oil and Gas Digital Transformation and the Workforce Survey, where majority of interviewed oil and gas executives believe that their companies must change how it operates to overcome the downturn.
In short, these executives do not believe that the market will recover to the way it was pre-COVID.
With the way the pandemic has affected our everyday lives and choices, it can be expected that oil demand may not be able to recover to its previous levels before COVID. This means that a post-pandemic future filled with EVs and electricity from renewable energy sources is likely to happen.
The disconnect between supply and demand is also expected to last for a while, meaning ROI will be reduced, but also making transformation inevitable.
To survive current market conditions, oil and gas companies will need to invest in digital technology. Three main themes must be considered in their transformation:
- Capital allocations to reflect their strategic ambitions to decarbonize and achieve net zero
- Use technology platforms to perform data-driven decision–making capabilities; and
- Enter collaborative ecosystems and understand how organisations (internal and external) disrupt and enable each other .
Currently, the disparity between supply and demand markets in the oil and gas industry emphasizes the importance of reducing costs and increasing efficiencies.
Companies must then prioritise digitalisation and the need to foster better coordination between suppliers and customers.
According to the EY survey, 90% of oil and gas executives said that digital technology was crucial in keeping afloat amidst the present situation of the market.
The survey also revealed that executives recognized the value of investing in digital technologies, ranking increasing availability of data analytics and insights as the top trend to potentially have the greatest positive impact in their business growth.
It must also be noted that true digital transformation and access to new markets can only be achieved first through data transformation.
The article highlighted another important facet of transforming oil and gas supply chains, which is through managing the ecosystem between upstream operators and the network of material providers, service providers and equipment manufacturers. Although quite complex, the service sector might deal with some of the complexity since it doesn’t have much to give in cost concessions, thereby resulting in vertical integration and higher deal activities.
The article also mentioned that due to the disconnect between producers and service providers, there is a substantial value leakage in the upstream supply chain.
In the EY survey, it was revealed that oil and gas companies could potentially unlock an annual value of more than USD145 million by integrating its key processes across the upstream oil and gas value chain with a common data model.
Clearly, the key to resilient and efficient supply chains is through digitalisation and increased collaboration. The challenge for oil and gas companies now is to have balance in terms of current performance while transforming for the post-COVID future. Then, comes the part of creating a skilled workforce that is ready to support this transformation.