oil and gas Archives

This Week in Logistics News (April 19 – 25)

Automotive Industry | By Chris Cunnane • 04/25/2014

It’s been a busy week here at Logistics Viewpoints as we get ready to head to Las Vegas next week for JDA Focus, and Hollywood, FL the week after for Manhattan Momentum. There’s a bit of everything in the news this week, so let’s get right to it.

Amazon is testing its own delivery network for the final leg of a package’s journey to a customer’s home in San Francisco, Los Angeles, and New York. The goal is to get Amazon closer to fulfilling the “same day delivery model” that shoppers are seeking. It also gives Amazon more control over the customer experience, as they can manage the time frame that orders are delivered, and even expand delivery hours if necessary. It also means that Amazon employees and contractors are the face of the delivery. This news should ruffle some feathers at UPS, FedEx, and the USPS as they lose out on Amazon shipments. For Amazon, the “last mile” is the key to their strategy.

“Last Mile is the solution to this. It is a program which is going to revolutionize how shipments are delivered to millions of customers.”

Bob Dylan, among many others, has covered the folk classic “Freight Train Blues.” Auto makers may be taking a closer listen to the song in the coming months. New cars and trucks, including some of the season’s best sellers, are currently sitting outside US factories due to delays brought on by terrible winter weather and the rise of production outside the Midwest. There have also been delays due to the expanding crude by rail business, US auto exports, and by a lack of necessary equipment to haul the freight.

“The concern some shippers have is longer-term equipment availability and new production hubs that require rail cars. When the auto industry began shrinking in 2008, the size of the auto rail car fleet did too. Investments in new auto carriers haven’t been enough to replace those taken out of service and scrapped, according to industry data.”

Formula One (F1) technology will no longer just propel single seat cars around race tracks. Projects incorporating F1 technology into buses and diggers are to benefit from a joint £1 billion government-industry fund. This fund is designed to feed cash into projects for the “next generation” of vehicles. This new technology will be used to reduce fuel consumption and carbon emissions in diggers and develop new stop-start diesel engine technology for buses. British Secretary of State and Business, Vince Cable says “The next generation of cars, buses and diggers will be powered by radically different technologies and I want them to be developed here in Britain.” These new technologies will create 30,000 jobs linked to producing engines and creating “many more” in the supply chain.

The contribution of the upstream oil and gas supply chain to the UK economy has been calculated at £35 billion in 2012. In a report EY said the sector’s turnover grew by £11.4 billion between 2008 and 2012, with an increase of 290 companies. The report said there were 1,585 UK firms involved in the upstream supply chain in 2012, employing a total of around 200,000 people, and between 2008 and 2012 the number of employees increased by more than 21,000.

And finally, companies involved in international trade in the United States, Mexico and Canada put more of their volumes in trucks in February, the Department of Transportation reported April 24. While total cross border freight among NAFTA partners rose just 1%, the truck-borne component rose 2.6%, which was the highest growth among any transportation modes. Cars and light trucks were the most carried commodity by trucks across borders. Based on the news earlier in this post, it’s a good thing they weren’t waiting for the freight trains.

That’s it for the news this week. Enjoy the weekend and the song of the week, The Grateful Dead’s Truckin’

Guest Commentary: The Advent of the 4PL Model in Upstream Oil and Gas

Logistics Service Providers | By Brian Murphy • 03/28/2013

Over the past few years, fuel production in the United States has seen a marked increase, largely due to the widespread adoption of hydraulic fracturing, or fracking, whereby pockets of natural gas and crude oil trapped deep in the shale layer far below the earth’s surface are extracted via a horizontal drilled well. During the extraction process, the lower, horizontal portion of the well is perforated and flushed with millions of gallons of fracking fluid, which is water, sand and a lubricating chemical. The sand acts as a mechanism that creates perforations in the shale allowing oil and gas to release into the well and to the surface.

Energy companies entering the fracking market bring vast experience and capability to handle the downstream process, but the more uncharted territory of upstream logistics — the sourcing and organization of assets needed for extraction — has presented challenges. If not expertly managed, this undertaking carries heavy liabilities in the form of high costs, wasted resources, and even safety compliance shortfalls. So to ensure the job gets done right, energy companies are beginning to hire fourth-party logistics providers (4PLs) to manage, oversee, and improve certain aspects of their upstream operations. Below are just a few areas where 4PLs are meeting the needs of this growing industry.

Dispatch Management: It takes hundreds of bulk tankers full of water to fill one fracking well — a demand that even the largest bulk carriers lack the capacity to meet at one time. To fill the gap, throngs of “mom and pop” carriers flock to these wellheads and are rewarded with steady employment. And by necessity, the energy producers have entered the business of dispatch — coordinating the daily movements of hundreds of individual carriers. In the area surrounding any major wellhead, hundreds of these bulk tankers can be found parked on the side of the road, all waiting for direction. They’re paid premium rates by the energy companies to remain nearby and at the company’s disposal, with the flexibility to respond to frequent changes in fresh water sources and wastewater destinations. A 4PL can drastically improve the economics of these situations by taking over the task of dispatch, systematically monitoring the resources, and planning ahead for changing capacity needs. With this guidance, energy companies can be prepared for high-demand times without paying for underutilized assets.

Centralized Systems and Resources: Beyond dispatch, 4PLs are also bringing other traditional transportation management services to these job sites — things like freight audit and payment from a regional control tower. Energy customers also stand to benefit greatly from shared services from a global control tower, and access to a fleet of assets — offerings traditionally associated more with the 3PL model. Consequently, 4PLs that can also deliver 3PL resources have an edge on market share in the upstream energy refinement space.

Inventory Management: An enormous amount of expense goes into materials for a drill site: tens of thousands of dollars for a drill head, and millions of dollars for OCTG (the piping and fitting that goes into the well), as examples. Despite the value of these resources, many companies cannot say with exact certainty what their pipe yards or warehouses contain, let alone what lies beyond the fence line. This is a sizable issue because the ability to account for these high-cost materials has a quantifiable effect on how Wall Street views an operation. 4PLs with expertise in warehousing and inventory management can be invaluable partners here by developing systemic solutions and processes to increase visibility of materials.

Compliance with Safety Standards: Standardizing safety compliance across the array of carriers working at a wellhead is one of the most intimidating tasks for energy companies to take on internally. A 4PL has the direct experience and expertise to drive uniform safety models all the way down to the carrier community. To make this happen, they are augmenting energy producers’ teams with boots on the ground, establishing the baseline compliance level, meeting regularly with carriers, and developing safety programs specific to a wellhead to be monitored, managed, and improved as conditions change.

A Continuous Improvement Approach: Energy companies will rarely use the term “Lean,” but they certainly understand and appreciate the strategic project management that a 4PL brings to the table. By successfully mitigating current problems at the wellhead, preempting emerging ones, and developing systems that add value and drive costs down, the 4PL industry has placed its foot firmly in a door long closed to outside partners.

Whether 4PLs will become permanent players in the upstream remains to be seen, but we do know that in this application, our industry offers invaluable resources that energy companies have only just begun to tap.

Brian Murphy is Director, Business Development at Menlo Worldwide Logistics. During his tenure with Menlo, Brian has helped build out the company’s Oil & Gas market offering and practice. With an extensive background in business development and marketing, Murphy has worked with customers in the logistics and supply chain industry for more than a decade.

Guest Commentary: Real-World Business Cases For Real-Time Visibility Across the Oil and Gas Supply Chain

Guest Commentary | By Terence Leung • 11/18/2010

As I highlighted in a previous posting, without accurate and timely information about the location and integrity of needed parts, equipment, tools and supplies, Oil and Gas owner/operators and their partners face a number of major risks, including environmental and safety risks, operational risks as well as economic and compliance risks.

Today, I want to turn the spotlight on some industry-leading projects that are leveraging innovative and practical solutions to address these challenges and risks. Owner/operators and their equipment and service providers are increasingly utilizing a widening array of wireless tracking and sensing technologies (e.g., sensors, RFID, GPS and SatCom) tied to software platforms. These solutions help them reduce risks while also squeezing greater efficiencies, cost savings and profits from their operations and capital projects.

Business Case Studies for Smart Asset Management

Ensco International, a global offshore oil and gas drilling contractor, wanted to replace its manual inventory processes with an automated system for its warehouses and fleet of 52 rigs, including six ultra-deepwater rigs under construction. Ensco had excessive spare parts and challenges managing inventory and preventive maintenance on spares. Its existing Enterprise Resource Planning (ERP) software contributed to these challenges because of its delayed data entry, exhaustive paper work requirements, and the complexity of workers using the software in the field.

By simplifying workflows, leveraging data from barcodes and RFID, and extending its ERP system to the “edge” of the enterprise with agile supply chain execution software, Ensco now has a fully automated system that synchronizes inventory information in near real-time among its warehouses and rigs. This integrated approach, which eliminates the white space between ERP and operational activities at the execution level, automatically collects and utilizes data end-to-end across operational areas. As a result, Ensco is now able to reduce and consolidate inventory while equipment is on the move to a new drilling location. At the same time, the company has improved its efficiency and the ability to find equipment when it’s needed. “Ongoing communications and the ability to know where everything is allows us to work more offline now where it really counts,” said Dave Pascoe, Rig Manager for Ensco International.

FMC Technologies is one of the world’s largest oil field service providers and manufacturers of parts and inspection and repair services for hydraulic fracturing jobs. The company wanted to use RFID to address pain points such as redundant inspections, job delays, and job cancellations due to non-compliant parts. By attaching RFID tags to oil field parts, such as pipes, valves, swivels and other components connected to manifold trucks and pumps, FMC had a new means of automating the identification process and dramatically decreasing the time it took to process equipment into and out of the field.

“The intent is to increase safety and efficiency while also realizing cost savings for our customers,” said Adam Berg, FMC Technology’s Engineering Service Manager. “FMC has developed a comprehensive business case behind the technology and its use within the hydraulic fracturing industry. This includes estimates of $60 million in savings per year industry-wide. RFID technology provides our customers with substantial improvements in their ability to address and improve some common industry pains around parts inspections and identification. The ability of RFID to alleviate or eliminate these issues is key to our business case”.

At the Dow Chemical Company, the company wanted to track a wide range of assets, ranging from cylinders throughout the extended supply chain – from suppliers to end-users and back – as well as to monitor hazardous rail cargo in real time. In the latter case, Dow wanted to address the high cost of “exception” events or potential critical failures and stay “ahead of the curve” with impending government regulations to improve safety for hazardous material transport. By incorporating GPS, satellite communication systems and sensors affixed to tank cars, Dow is now able to “ping” on demand or receive automated alerts of possible security breaches. Geo-fencing capabilities that leverage satellite images enable identification of the nearest first responder in the case of an emergency or security threat.

“Dow places the highest priority on safe production and transportation of hazardous materials,” said David Kepler, executive vice president, chief sustainability officer and chief information officer of the Dow Chemical Company, “and we are working aggressively to reduce risk and improve performance. The Chemical and Petrochemical industries should set the highest standards with advanced technology solutions like this to address concerns and ensure safe passage of chemicals in-transit or at rest.”

The Dow project has become a role model in its industry. Because of this project, federal funds are now available in the chemical industry to help implement similar types of solutions.

From a technology standpoint, the trend is for solution providers across the smart asset management spectrum to collaborate to address the needs of the industry. For example, our partners in this area include KBR Wireless and Shipcom.

Summarizing the Benefits

The deployment of automated asset visibility in supply chain fulfillment, from requisition to rig, can help owners/operators attain four overriding benefits:

Reduce costly expenses of “hotshotting” equipment and expedited resources: hotshottings directly to the rigs; expediting resources on the rig and throughout the supply chain.
Reduce lost production: Having real-time information on equipment and parts, reduction in search and receiving time will prevent a subset of the root cause of lost production.
Enable safety and fiscal regulatory compliance: In more and more international operations, audit trail and receipt records are required for safety reasons and fiscal and customs compliance.
Reduce errors and reduce inspection resources: Automating inbound, handling and outbound processes from requisition to rig.

Upstream production facilities in remote locations present especially challenging operational and supply chain risks. As Sid Snitkin, VP at ARC Advisory Group, said in a recent conversation, “Offshore rigs, for example, have scarce storage space. The rigs essentially have to treat the supply chain as their lay down yards.” Delayed or lost parts, such as drill bits or pipe, can cost operations and capital projects hundreds of thousands or even millions of unrealized dollars.

The breadth and depth of deploying such Req-to-Rig solutions can be for a few sites or across regions, depending on the scope of operations and the benefits of shared or aggregated visibility. Partners such as service and equipment providers and 3^rd party logistics providers, in striving to serve the owner/operators better, can also attain tremendous benefits, which I will discuss in a future posting.

Terence Leung is the Director, Industry Solution Management for Commercial Industries at Savi Technology, a Lockheed Martin company. His keen interest is to bring ground-breaking and practical solutions to asset-intensive companies. Previously, he was responsible for solutions and marketing at NRX, an SAP solution partner serving asset-intensive industries in the area of asset information management. Terence was also with the High Tech business unit of i2 Technologies and supply chain and manufacturing practice of Deloitte Consulting.

Guest Commentary: Reducing Risk with Automated Asset Visibility in the Oil and Gas Supply Chain

Guest Commentary | By Terence Leung • 09/09/2010

Global oil and gas supply chains – upstream, midstream and downstream – are large, complex, and asset-intensive and require a number of interdependent logistics partnerships. Except for perhaps the military in times of conflict, few if any other sectors must rely so heavily on their supply chains to ensure that operations are flowing smoothly.

Increasingly, those involved in the oil and gas supply chain realize the importance of having real-time visibility of critical supplies – end-to-end, on-site and most anywhere and anytime. Knowing where things are, their condition, and when they’re arriving must be known not only by the oil and gas owner/operators, but also among their entire ecosystem of service providers, suppliers and third-party logistics partners.

Without real-time visibility and management of critical assets, three major risks confront those working together to ensure the safest and most efficient exploration, production and distribution operations. These are:

Environmental and Safety Risks. Ever-growing government oversight, whether it’s from the U.S. Department of Health, Safety and Environment, or from other international agencies, require oil and gas companies to ensure that their people are safe, materials secure and operational equipment accountable and in working condition. Accidents can be costly – both in terms of expenses and reputations. The potential for disastrous consequences rises when information is not available around the integrity of assets when they are deployed, or in certifying and identifying personnel working around high-risk operations.
Operational Risk. Upstream supply chains in particular involve production facilities that are often in remote and austere locations. As a result, delayed visibility of critical supplies means facilities don’t get drill bits, pipeline, or generators when they need them, resulting in either high-cost expedited shipments or suspension of operations or projects, which can translate into many millions of wasted dollars. Buffer inventory throughout the supply chain never seems to be enough. Reactive, rather than proactive, requisition processes with outdated and incomplete service records are not uncommon. Not always knowing the condition, maintenance and usage history of assets and parts also adds significant risk to operations.
Economic and Compliance Risk. Many regions of the world are increasingly imposing regulatory compliance on asset visibility, verification and accountability; high penalties can result if companies cannot report the whereabouts and status of assets at any time throughout the supply chain. While compliance has always been essential, proving compliance – whether it’s demonstrating chain of custody or fiscal accountability – has now become a fundamental part of doing business.

The missing link in today’ oil and gas supply chains is the ability to have automated, real-time visibility of assets that extends to partners, locations, processes, conditions and the status of working parts. This challenge has become exacerbated in recent years as general oil demand has risen while assets and equipment have been constrained, causing greater reliance on existing and limited supplies.

Technology can certainly play a role in addressing this challenge. Specifically, companies in the oil and gas industries should consider the following:

Software solutions capable of providing nested visibility of assets and shipments from requisition to production facilities (for example, oil rigs) for the ecosystem of the oil and gas owner/operator, service providers, suppliers and third-party logistics partners. The solution should leverage a Service Oriented Architecture Web Service Framework that allows users to exchange data with other systems and assess the big picture. This framework enables integration with partner information systems, or alternatively, could be deployed in a hosted environment that allows all participants in the supply chain to share or view the big picture and detailed information on an as-needed basis.
The use of low-power Radio Frequency Identification (RFID) technologies and other Automatic Identification and Data Collection (AIDC) wireless technologies such as GPS, SatCom, cellular or advanced sensor devices that detect corrosion, humidity, shock, flow rates, and more. The AIDC technologies, when affixed to supplies, turn the assets into smart ones in the new era of Smart Asset Management. By knowing the location, condition and history of assets such as parts, tools, Cargo Carrying Units, rail cars and consumables, companies can optimize operational readiness, improve asset utilization and minimize unplanned events.
A solution that can connect information from multiple operations and regions for a complete perspective and sharing of resources. As a result, an oil and gas company and its ecosystem partners can further automate its supply chains to improve asset integrity and utilization, safety, inventory management and equipment tracking, as well as reduce risks, operational cost and compliance cost

It’s also important that the solution links information “at the edge” of operations to decision-makers, which can augment traditional ERP systems in providing real-time status and condition of assets across the extended supply chain.

The value of implementing these technologies can vary depending on the user. For example, owner/operators can improve operational performance by addressing safety and compliance, lost or delayed assets, delayed production or projects, and security; service providers can enhance fulfillment processes, and manufacturers can increase customer service levels and ensure asset integrity, to name just a few benefits.

In summary, in this era of the unpredictable, unexpected and unplanned, it’s mission critical to have complete, real-time visibility of critical equipment and to monitor operations across the entire supply chain – for example, from requisition to the rig. Having “ground truth” information from AIDC technologies enables users to make better and faster decisions and to take proactive rather than reactive actions.

We will address further the business case in our next Guest Commentary.

The Toughest Forecasting Problem: Demand Management in Oil & Gas Industry

Petroleum Industry | By Steve Banker • 11/30/2009

“Oil is becoming increasingly difficult and costly to recover, and the problem of managing the supply chain and profits has become more complex than ever. After weathering the economic downturn, the industry must boost capacity for future demand, and keep a close eye on the economics of oil and gas production.”

So wrote my colleague Allen Avery, in a recent ARC Insight report titled “In an Uncertain Economy, Oil & Gas Industry Spending Must Stay Strong” (available to ARC clients only). Based on some of the points Allen makes in the report (in quotes below), here is why I think the oil and gas industry has the toughest forecasting problem.

First of all, the industry has brutal boom and bust cycles. In 2007, for example, “the economics favored industry investments and project activity. Oil prices rose from roughly $60 to $100 per barrel that year, and by mid 2008, shot up to nearly $150 per barrel. By the end of the year, however, the unraveling global economy squelched demand, and the price had fallen to $45 per barrel.” However, despite the busts, oil production companies need to consider long term demand and continue to invest in developing new fields because “the timeframe of large oil and gas projects can be several years, with first oil coming as long as 15 or 20 years after work begins.”

“In the past, the industry has had difficulty adjusting capacity to meet demand. Scaling back production and refining when demand drops has never been a problem. [But oil companies have been] reluctant to invest in expansions, particularly during prolonged periods of lower prices. The recent oil boom sorely tested this strategy, and oil companies found themselves unprepared for soaring demand.”

The economics of investing in new fields, however, takes great fortitude as the costs to extract oil have increased significantly. “As oil companies venture further afield to find oil and gas, the deposits they encounter have become increasingly difficult to develop. New discoveries tend to be in inhospitable, remote environments, and require more complex extraction methods, such as steam injection and chemical treating. Subsea deposits require an investment in highly engineered equipment that can withstand harsh underwater conditions up to 30,000 feet below sea level. New deposits on land tend to hold heavier oil that is difficult to get flowing. Both types require complex extraction methods, such as injecting seawater or high pressure steam into the well to drive oil or gas to the surface.”

“To make matters worse, the output of oil wells can vary significantly over time, impacting the economic justification to continue running them. Older wells with changing conditions require more frequent testing to determine if their output is sufficient. New wells that appear promising may underperform once pumping starts.”

If you think putting together an accurate forecast for the coming month is difficult, imagine putting billions of dollars at risk on a fifteen year forecast. There are various agencies, analyst groups, and trade groups that make long term forecasts related to oil and gas. For example, the International Energy Agency (IEA) says that demand for oil will rise significantly over the long term due to population growth and reinvigorated economic expansion and modernization of developing countries such as China and India. The IEA forecasts that the world oil supply will need to grow “from its current 84 million barrels per day to 106 million per day by 2030.”

But how many billions of dollars would you be willing to bet at your company based on a third party forecast? Further, the profits a company will garner from these investments also depend on how much capacity competitors develop. This too needs to be forecasted and tracked closely.

I would be willing to put billions of dollars at risk on a fifteen year forecast…if I was retiring in five years.

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