Smoothing Out the Greases23 March 2009
Refineries are changing their products because of falling oil prices, causing a shortage in industrial lubricants. Natalie Coomber speaks to Phil Hindley, manager of Total Lubricants, to find out why having control of its supply chain is winning new business.
As an offshoot of one of the largest international oil and gas companies, Total Lubricants has a strong platform from which to grow its business. Not only are there in-house rigs and refineries that need a constant supply of greases and coatings but in times of shortage, the company is able to boast its own supply chain to guarantee products to clients.
As it expands its Scottish facility in Aberdeen in order to add storage capacity, Natalie Coomber caught up with the firm's manager Phil Hindley to see how the past months' economic troubles have affected the business and where Total's priorities lie for the future.
Natalie Coomber: What made Total expand its Aberdeen operations?
Phil Hindley: Because of the nature of the business [which can work to orders or respond to unexpected problems] we recognised that logistics support is critical. We have enhanced our operations with bigger storage facilities and a faster response time. Most of our customers haul their own stock but we try to support them either by having sufficient stock or if a customer needs a usual grade tomorrow, we arrange for an overnight delivery.
NC: How is the economic downturn impacting your business?
PH: We have seen that we live in a fairly uncertain world. Oil prices have fallen and companies are leaving various industries. Total is Europe's biggest oil company so we are completely in control of our own supply chain. The crude and base oils that we use come from our own refineries. It helps control costs and also gives customers a level of security over supply.
At the moment there are some shortages worldwide and in the fourth quarter of 2008 we were proactively approached by companies which weren't customers asking if we could guarantee a supply of product. I have never been asked that before.
NC: Where are the lubricant shortages and why have they happened?
PH: There are shortages worldwide; we are industry that if something happens on the other side of the world, it impacts our business. Before the credit crunch it was because there was huge demand [for oil] from China and India. Now it is because the refineries are changing the products they are manufacturing to meet new demands.
NC: Have you noticed that your hydrocarbon clients are beginning to cancel projects?
PH: It is not particularly obvious but when you scratch the surface it is clear that there not as many resources as there once was and there is not enough capital equipment to support the number of projects that are actually out there. I think, realistically, half the capital projects are being reviewed.
NC: Total Lubricants has experienced a pick-up in business in the food sector but have sales increased in the energy space in the past year?
PH: Sales have increased through gains in market-share and I think that is because of the service we provide.
It is about having people on the ground and also the success of our lubricant management software and the oil analysis we can offer. We have windows-driven software that allows a customer to manage his lubrication – it is about optimising the amount of product you use and not lubricating for the sake of it. It is an expanding area of our business because it is linked to value for money.
NC: Is Total Lubricants developing more environmentally-friendly products? And if so where is this push coming from?
PH: There is certainly a trend in our product R&D to move towards more environmentally safe products. We are aware that in the near to medium-term we are going to have to have more environmentally safe products because of strict legislation coming out of Norway. This includes surface products but also subsea fluids as there are tight controls on what can be put under the seabed.
We have seen the tightening of a lot of controls and much higher performance products. By its very nature oil exploration is going deeper and deeper – this is putting more demand on our fluids.
I am very conscious that many operators are multinational and if they are subject to rules and regulations in one place, chances are that they will also have demand for those products elsewhere. I think we have to be ahead of the game.
NC: How much is cost a consideration for your clients?
PH: Cost is always a factor and I think particularly so at the moment when the price of oil has fallen. Every customer in every sector is looking for more value for money. That can either be in terms of the life of the product or in the services you provide along with the product.
NC: Have you noticed a skills shortage in the hydrocarbons sector?
PH: We hire sales staff with a degree in a technical capability and then we have field-based operatives who are wholly technical. I think the industry is facing a skills shortage in terms of engineering – qualified engineers in the UK aren't as abundant as they were a few years ago. If one industrial sector sheds engineers then they are very quickly absorbed into the hydrocarbon and offshore industries.